KONGZHONG.COM FORM F-1

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, please check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

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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 shares initially offered and sold outside the United States that may be resold from time to time in the United States, including shares that may be purchased by the underwriters pursuant to over-allotment options. The shares are not being registered for the purpose of sales outside the United States.
(3)	American Depositary Shares issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6. Each American depositary share represents ordinary 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 Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

This is our initial public offering of American Depositary Shares, or ADSs. Each ADS represents of our ordinary shares. We are selling ADSs, representing ordinary shares, and our selling shareholders are selling ADSs, representing ordinary shares. No public market currently exists for our ADSs or ordinary shares. The initial offering price of our ADSs is expected to be between $ and $ per ADS.

We have applied to list our ADSs on the Nasdaq National Market under the symbol “KONG.”

Before buying any ADSs, you should read the discussion of material risks of investing in our ADSs in “Risk factors” beginning on page 13.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters may also purchase up to ADSs from us and the selling shareholders on a pro-rata basis at the public offering price, less underwriting discounts and commissions, within 30 days from the date of this prospectus. The underwriters may exercise this option only to cover over-allotments, if any. We will not receive any proceeds from the sale of ADSs by the selling shareholders.

At our request, the underwriters have reserved at the initial public offering price up to 5% of the ADSs for sale to certain of our business associates, friends and family of employees and directors of our company, and other persons associated with us who have expressed an interest in purchasing our ADSs in this offering.

The underwriters are offering the ADSs as set forth under “Underwriting.” Delivery of the ADSs will be made on or about , 2004.

You should only rely 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, 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 ADSs.

This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully. Unless the context otherwise requires, information contained in this prospectus assumes that the underwriters will not exercise their option to purchase additional ADSs in this offering. All references to “KongZhong,” “we,” “us,” or “our” include KongZhong Corporation and its subsidiary and operating companies as a combined entity. All references to and statements regarding China, the People’s Republic of China, or the PRC, in this prospectus do not apply to Hong Kong, Macau and Taiwan. All references to “RMB” or “Renminbi” are to the legal currency of China and all references to “US dollars” and “$” are to the legal currency of the United States.

We are the leading provider of advanced second generation, or 2.5G, wireless interactive entertainment, media and community services, in terms of revenue, to customers of China Mobile Communications Corporation, or China Mobile, which has the largest mobile subscriber base in the world. China Mobile ranked KongZhong as the number one wireless value-added service provider on its network in terms of revenue for 2.5G wireless value-added services in 2003 and the first quarter of 2004. In addition, we have recently begun to provide wireless value-added services on the networks of China United Telecommunications Corporation, or China Unicom and China Netcom Group Corporation, or China Netcom. Each of China Mobile, China Unicom and China Netcom is a state-owned enterprise, the majority of the equity interest of which is owned by the People’s Republic of China. We are headquartered in Beijing and provide our services throughout China.

We primarily deliver our services through the 2.5G wireless standard. The higher transmission capacity of 2.5G allows users to access higher quality graphics and richer content and interactivity, in comparison with the second generation, or 2G, wireless standard, which has slightly lower service fees and may be accessed through less expensive mobile handsets. We deliver our 2.5G services through wireless access protocol, or WAP, multimedia messaging services, or MMS, and Java^TM technology platforms. We also offer a range of data and voice services based on the 2G wireless standard through short messaging services, or SMS, interactive voice response, or IVR, and color ring back tones, or CRBT, technology platforms.

We deliver a broad range of services, through multiple technology platforms, which users can access directly from their mobile phones by choosing an icon embedded in select models of handsets, or from a mobile operator’s portal or web site. Our services are organized in three major categories, consisting of:


†	Interactive entertainment. Our interactive entertainment services include mobile games, pictures, karaoke, electronic books and mobile phone personalization features, such as ringtones, wallpaper, clocks and calendars.

†	Media. Our media services provide content such as domestic and international news, entertainment, sports, fashion, lifestyle and other special interest areas.

†	Community. Our community services include interactive chat, message boards, photo albums, dating and networking.

Our focus on establishing a leadership position in the rapidly growing advanced wireless value-added services market in China and our ability to cultivate cooperation arrangements with the mobile operators, mobile handset manufacturers and distributors, content providers and other business partners to produce, promote and market our services in the Chinese market have resulted in rapid growth of our financial and operating performance. Through these cooperation arrangements, we provide or promote our services and obtain content, and pay service fees to these mobile operators, mobile handset manufacturers, mobile handset distributors, content providers and other partners, where relevant.


†	Grown our revenues and net income to $7.8 million and $2.4 million, respectively, in 2003;

†	Grown our revenues and net income to $7.1 million and $3.1 million, respectively, in the first quarter of 2004;

†	Grown our gross revenues and net income by 86% and 101%, respectively, in the first quarter of 2004 over the previous quarter;

†	Maintained our focus on 2.5G services, with 2.5G services contributing approximately 73% of our gross revenues in the first quarter of 2004; and

†	Increased our number of registered users to 9.4 million, of which 5.8 million users were classified as active users during the first quarter of 2004.

The wireless value-added services market, which provides services that allow mobile phone users to receive and transmit text, images and other forms of digital data or voice content via their mobile handsets, represents a new and fast-growing sector within China’s rapidly evolving telecommunications industry. Analysys Consulting Ltd., or Analysys, estimates that total wireless value-added services revenue in China rose from $211.5 million in 2002 to $452.5 million in 2003 and is expected to grow to $800.4 million in 2004. Chinese consumers have been quick to adopt and use new wireless value-added services as a means of communication, as well as a source of information and entertainment, partly due to the proliferation of mobile phones as a more accessible alternative to both fixed-line phone services and personal computer-based Internet services in China.

The evolution of the market for mobile services in China has thus far closely followed the industry development experienced in Japan and Korea, where mobile operators have provided platforms for third party service providers to offer services to customers of the mobile operator.

China Mobile launched its Monternet^TM platform for wireless value-added services in November 2000 and China Unicom launched its Uni-Info^TM platform in May 2001, using a business model similar to the model used in Japan and Korea. Key characteristics of China’s wireless value-added services market include the rapid expansion of China’s mobile telecommunications industry, increasing user receptivity, the availability of more advanced handsets in the Chinese market and support from mobile operators.

The wireless value-added services market in China is evolving as mobile telecommunications technology becomes more advanced. China Mobile began operating its 2.5G network in May 2002 and China Unicom began operating its 2.5G network in November 2002. Gartner Dataquest estimates that 48% and 60% of the mobile handsets sold in China in 2004 and 2005, respectively, will be General Packet Radio Services, or GPRS, handsets with 2.5G capability. Analysys estimates that the market for WAP services will increase to $97.9 million in 2004 from $25.7 million in 2003, representing an increase of 280%, and MMS services will increase to $82.8 million in 2004 from $27.8 million in 2003, representing an increase of 198%.

We are an early entrant in China’s 2.5G wireless value-added services market. Since our establishment, we have moved quickly to identify market trends, develop technologically advanced services and capture market share, with particular focus on the rapidly growing market for 2.5G services. As a result, we believe that we are well-positioned to capture the growth opportunities in China’s wireless value-added services market. We have developed the following principal strengths:


†	Established market position with a well-recognized brand name in wireless interactive entertainment, media and community services;


†	Strategic relationships with China’s largest mobile operator and key content and distribution partners, including handset manufacturers;

†	Leadership in understanding and addressing customer needs by offering a diversified portfolio of innovative services;

†	Product development team devoted to enhancing current and developing new services; and

†	Experienced management team.

Our ability to realize our business objectives and execute our strategies is subject to risks and uncertainties, including the following:


†	Our dependence on China Mobile for substantially all of our revenue and our dependence on its billing system;

†	Our limited operating history and dependence on our key personnel;

†	The possibility that the PRC government could determine that the agreements that establish our operating structure do not comply with PRC government restrictions on foreign investment in the value-added telecommunications industry;

†	The intense competition that we face in the wireless value-added services market due to low barriers to entry;

†	The rapidly evolving wireless value-added industry, which makes predicting future consumer acceptance and demand difficult;

†	Investors may not be able to exercise their right to vote the ordinary shares underlying our ADSs;

†	Cayman Islands law may provide shareholders with fewer rights than they would be afforded under the United States law; and

†	The uncertain legal and regulatory environment in China, which could limit the legal protections available to foreign investors.

Users can purchase our value-added services on a per-use basis and, in most cases, on a subscription basis. We provide our services mainly pursuant to our cooperation arrangements with the mobile operators, the terms of which are generally for one year or less. We do not directly bill our users, and depend on the billing systems and records of the mobile operators to bill and collect all fees. We generally do not have the ability to independently verify the accuracy of the billing systems of the mobile operators. As mobile operators do not provide us detailed revenue breakdown on a service-by-service basis, we depend on our internal database system to monitor revenue derived from each of our services. We make our business decisions based on our internal data, taking into account other factors including strategic considerations.

We initially ascertain the value of our services provided based on delivery confirmations sent to us by the networks of the mobile operators within 72 hours of delivery, but record revenues based solely on the monthly statements provided to us by the mobile operators. There has historically been a discrepancy, of approximately 10% in both 2003 and the first quarter of 2004, between the value we calculate based on delivery confirmations and the value that we are entitled to receive based on the monthly statements provided by the mobile operators. From time to time, for purposes of reporting our quarterly results to the market, we may need to estimate a portion of our reported revenue for the services provided in the event that we have not received monthly statements from the mobile operators by the time we report our earnings for a particular period.

Our strategic objective is to build the leading brand and be the leading provider of wireless interactive entertainment, media and community services to mobile phone users among all mobile operators in


†	Further promote and develop the KongZhong brand;

†	Capture market opportunities to strengthen and diversify our business and revenue streams;

†	Continue to develop and expand the scope of strategic relationships with key industry players;

†	Continue to develop and diversify our portfolio of service offerings to attract new customers and to increase usage among our existing customers;

†	Enhance our profitability by optimizing our product mix and focusing on the development and marketing of advanced wireless value-added services; and

†	Selectively acquire businesses that enhance our service portfolio, proprietary content, distribution channels and technology.

We were incorporated in May 2002 under the laws of the Cayman Islands. We conduct our business in China solely through our wholly-owned subsidiary, KongZhong Beijing. In order to meet domestic ownership requirements under PRC law, which restrict us and KongZhong Beijing, as foreign or foreign-invested companies, from operating in certain value-added telecommunications and Internet services, we have established Beijing AirInbox in China, which is wholly-owned by PRC citizens. In addition, we have recently established Beijing Boya Wuji in China, which is also wholly-owned by PRC citizens. We do not have any equity interest in Beijing AirInbox or Beijing Boya Wuji, but instead enjoy the economic benefits of these companies through a series of contractual arrangements which we and KongZhong Beijing have entered into with these companies and their respective shareholders. These contractual arrangements include agreements on provision of loans, provision of services, license of intellectual property, and certain corporate governance and shareholder rights matters.

The chart below sets forth our corporate and share ownership structure as of the date of this prospectus, after giving effect to this offering, and assuming that (i) all of our preferred shares are converted into ordinary shares and (ii) the underwriters do not exercise their over-allotment options.

Our principal executive office is currently located at 8/F, Tower A, Yuetan Building, No. 2 Yuetan North Street, Beijing, China 100045, and will be moved to 33/F, Tengda Building, No. 168, Xiwai Avenue, Haidian District, Beijing, China, 100044 in August 2004. Our telephone number is (8610) 6808-1818. Our web site address is http://www.kongzhong.com. Information contained on our web site does not constitute a part of this prospectus. Our agent for service of process is CT Corporation System at 111 Eighth Avenue, New York, New York 10011.

Unless otherwise indicated, information in this prospectus assumes that the underwriters will not exercise the over-allotment option to purchase additional American Depositary Shares, or ADSs. See “Underwriting.”

The information in this prospectus gives effect to the automatic conversion of all of our outstanding Series A convertible preferred shares, or Series A preferred shares, and Series B redeemable convertible preferred shares, or Series B preferred shares, into an aggregate of 581,000,000 ordinary shares, which conversion will occur concurrently with the consummation of this offering. In addition, unless specifically indicated otherwise or unless the context otherwise requires, the information in this prospectus gives effect to the 20-for-1 share split of our ordinary shares as effected on March 18, 2004.

The number of ordinary shares outstanding after this offering is based on the number of shares outstanding as of March 31, 2004 and does not include: (i) 86,120,000 ordinary shares subject to options outstanding, of which 18,045,000 were exercisable, as of March 31, 2004 and (ii) 18,880,000 additional ordinary shares that are reserved for issuance under our 2002 Equity Incentive Plan, or the 2002 Plan. See “Management— Stock options.”

Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB were made at the noon buying rate in the City of New York for cable transfers in RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2004, which was RMB8.2770 = $1.00.

We make no representation that the RMB or U.S. dollar amounts referred to herein could have been or could be converted to U.S. dollars or RMB, as the case may be, at any particular rate.

The following summary consolidated financial data should be read in conjunction with our audited consolidated financial statements, the notes thereto and “Management’s discussion and analysis of financial condition and results of operations” included elsewhere in this prospectus. We commenced operations in May 2002. The summary consolidated statements of operations data for the period from May 6, 2002 to December 31, 2002, for the year ended December 31, 2003 and the three months ended March 31, 2004, and the summary consolidated balance sheet data as of December 31, 2002 and 2003 and March 31, 2004 set forth below are derived from our audited consolidated financial statements included elsewhere in this prospectus. Our audited consolidated financial statements have been prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, and audited by Deloitte Touche Tohmatsu. Due to the relatively new and rapidly evolving nature of the wireless value-added services industry in China, the short history of our company and other factors affecting our business as described under “Risk factors,” our results of operations in any period are not necessarily indicative of the results that may be expected for any future period.

The following summary unaudited consolidated quarterly financial data should be read in conjunction with our audited consolidated financial statements, the notes thereto and “Management’s discussion and analysis of financial condition and results of operations” included elsewhere in this prospectus. The summary unaudited consolidated quarterly financial data for each of the periods presented below were derived from our management financial information, which was prepared on substantially the same basis as our audited consolidated financial statements and includes all adjustments that we consider necessary for a fair presentation of our financial position and operating results for the periods presented. Due to the relatively new and rapidly evolving nature of the wireless value-added services industry in China, the short history of our company and other factors affecting our business as described under “Risk factors,” our results of operations in any period are not necessarily indicative of the results that may be expected for any future periods.



		For the three months ended


		March 31, 2003				June 30, 2003

				Percentage				Percentage
				of				of
Other consolidated financial data		Amount		revenues		Amount		revenues



2.5G Revenue		$	346.0		100%	$	914.9		100%
	Subscriptions	$	346.0		100%	$	848.8		93%
	Downloads	$	0		0%	$	66.1		7%
2G Revenue		$	357.0		100%	$	311.5		100%
	Subscriptions	$	171.3		48%	$	253.0		81%
	Downloads	$	185.7		52%	$	58.5		19%
Total Revenue		$	703.0		100%	$	1,226.4		100%
	Subscriptions	$	517.3		74%	$	1,101.8		90%
	Downloads	$	185.7		26%	$	124.6		10%

[Continued from above table, first column(s) repeated]



		For the three months ended


		September 30, 2003				December 31, 2003				March 31, 2004

				Percentage				Percentage				Percentage
				of				of				of
Other consolidated financial data		Amount		revenues		Amount		revenues		Amount		revenues



2.5G Revenue		$	1,604.6		100%	$	3,090.5		100%	$	5,244.4		100%
	Subscriptions	$	1,484.8		93%	$	2,651.2		86%	$	4,806.6		92%
	Downloads	$	119.8		7%	$	439.3		14%	$	437.8		8%
2G Revenue		$	426.2		100%	$	756.0		100%	$	1,903.2		100%
	Subscriptions	$	349.9		82%	$	675.0		89%	$	1,824.8		96%
	Downloads	$	76.3		18%	$	81.0		11%	$	78.4		4%
Total Revenue		$	2,030.8		100%	$	3,846.5		100%	$	7,147.6		100%
	Subscriptions	$	1,834.7		90%	$	3,326.2		86%	$	6,631.4		93%
	Downloads	$	196.1		10%	$	520.3		14%	$	516.2		7%

You should carefully consider each of the risks described below and all of the other information in this prospectus before deciding to invest in our ADSs. If any of the following risks actually occur, our business, financial condition or results of operations could be harmed. In such an event, the trading price of our ADSs could decline and you might lose all or part of your investment.

We depend on China Mobile for substantially all of our revenue, and any loss or deterioration of our relationship with China Mobile may result in severe disruptions to our business operations and the loss of substantially all of our revenues.

We derive substantially all of our revenues from the provision of wireless value-added services. We rely on the networks and gateways of China Mobile Communications Corporation, or China Mobile, which has the largest mobile subscriber base in the world, to deliver our services. For each of the two years ended December 31, 2002 and 2003, we derived substantially all of our revenues from our cooperation arrangements with China Mobile.

Through Beijing AirInbox Information Technologies Co., Ltd., or Beijing AirInbox, we have entered into a series of cooperation agreements with China Mobile and a number of its provincial subsidiaries to provide wireless value-added services through China Mobile’s networks. Pursuant to our agreements with China Mobile and its provincial subsidiaries, these mobile operators bill and collect fees from mobile phone users for the wireless value-added services we provide.

Our agreements with China Mobile or its subsidiaries are generally for terms of one year or less and approximately 40% of them do not have automatic renewal provisions. We usually renew these agreements or enter into new ones when the prior agreements expire, but on occasion the renewal or new contract can be delayed by periods of one month or more.

If China Mobile ceases to continue to cooperate with us, it will be difficult to find replacement operators with the requisite licenses and permits and comparable infrastructure and customer base to offer our existing wireless value-added services business. In addition, our existing customer base consists almost entirely of subscribers to China Mobile’s mobile telephone services. It is unlikely that such customers would continue to use our services if they are not available through China Mobile.

Due to our reliance on China Mobile for our wireless value-added services, any loss or deterioration of our relationship with China Mobile may result in severe disruptions to our business operations, the loss of substantially all of our revenue and a material adverse effect on our financial condition and results of operations.

The termination or alteration of our cooperation agreements with China Mobile and its subsidiaries would materially and adversely impact our business operations and financial conditions.

Our negotiating leverage with China Mobile is limited given its leading market position. Our revenue and profitability could be materially adversely affected if China Mobile decides to change its transmission fees or its service fees. In addition, China Mobile or its subsidiaries could impose monetary penalties upon us or even terminate cooperation with us under the cooperation agreements with us, for a variety of reasons, such as the following:


†	if we fail to achieve the performance standards established by the applicable operator from time to time,


†	if we breach certain provisions under the agreements, which include, in many cases, the obligation not to deliver content that violates the operator’s policies and applicable law, or

†	if the operator receives a high level of customer complaints about our services.

Due to our dependence on our relationship with China Mobile and its subsidiaries, any termination or material alteration of our cooperation agreements with China Mobile and its subsidiaries would materially and adversely impact our business operations and financial conditions.

Significant changes in policies or guidelines of China Mobile with respect to services provided by us may result in lower revenue or additional costs for us and materially adversely affect our financial condition or results of operations.

China Mobile may from time to time issue policies or guidelines, requesting or stating its preference for certain actions to be taken by all wireless value-added service providers using its networks. Due to our reliance on China Mobile, a significant change in its policies or guidelines may have a material effect on us. For example, in an effort to improve customer satisfaction, China Mobile recently revised its billing policies to request all wireless value-added service providers to confirm the subscription status of those users who have not been active in the past three months. Such change in policies or guidelines may result in lower revenues or additional operating costs for us, and we cannot assure you that our financial condition and results of operation will not be materially adversely affected by any policy or guideline change by China Mobile in the future.

Our dependence on the substance and timing of the billing systems of China Mobile and its subsidiaries may require us to estimate portions of our reported revenue for wireless value-added services. As a result, subsequent adjustments may have to be made to our wireless value-added services revenue in our financial statements.

As we do not bill our wireless value-added services users directly, we depend on the billing systems and records of the mobile operators, including China Mobile and its subsidiaries, to record the volume of our wireless value-added services provided, charge our users, collect payments and remit to us our portion of the fees. We generally do not have the ability to independently verify or challenge the accuracy of the billing systems of the mobile operators.

We internally tabulate the value of a wireless value-added service provided based on delivery confirmations sent to us by the networks of the mobile operators with respect to each delivery of our services to a user within 72 hours of delivery and record revenues based solely on the monthly statements provided to us by the mobile operators. Generally, within 30 days after the end of each month, statements from the mobile operators confirming the value of our services they billed to users in the month will be delivered to us, and within 30 days after that the mobile operators will pay us for the services, net of their service and transmission fees. However, on occasion such statements for particular operators may be delayed by up to 90 days or more. There has historically been a discrepancy, of approximately 10% in both 2003 and the first quarter of 2004, between the value that we internally tabulate based upon delivery confirmations and the value that we are entitled to receive based on the monthly statements provided by the mobile operators, due to various factors in connection with the transmission and billing systems. In future periods, we may release our unaudited quarterly financial statements to the market. Due to our past experience with the timing of receipt of the monthly statements from the operators, we expect that we may need to rely on our own internal estimates for the portion of our reported revenues for which we will not have received monthly statements. Our internal estimates will be based on our own internal tabulation of expected revenues from services provided. As the internal tabulation may not be entirely consistent with the actual revenues confirmed by the monthly statements that we eventually receive, we would multiply our

internal tabulation of expected revenue from mobile operators from whom we have not received monthly statements by a realization factor applicable to the relevant mobile operator and service and determined according to the average discrepancy over the previous 12 months between our internal tabulations of expected revenues and the actual revenues based on the monthly statements. As a result, we may overstate or understate our revenue for the relevant reporting period. Any difference between our estimated and actual revenue may result in subsequent adjustments to our revenue reported in our financial statements.

We have a limited operating history, which may make it difficult for you to evaluate our business.

We were incorporated in May 2002. As our operating history is limited, the revenue and income potential of our business and markets are unproven. In addition, we face numerous risks, uncertainties, expenses and difficulties frequently encountered by companies at an early stage of development. Some of these risks and uncertainties relate to our ability to:


†	maintain our current, and develop new, cooperation arrangements upon which our business depends;

†	increase the number of our users by expanding the type, scope and technical sophistication of the content and services we offer;

†	respond effectively to competitive pressures;

†	increase awareness of our brand and continue to build user loyalty; and

†	attract and retain qualified management and employees.

We cannot predict whether we will meet internal or external expectations of our future performance. If we are not successful in addressing these risks and uncertainties, our business, financial condition and results of operations may be materially adversely affected.

We have only recently attained profitability, and our historical financial information may not be representative of our future results of operations.

We have only attained profitability since the first quarter of 2003. We have experienced growth in our business in recent periods in part due to the growth in China’s wireless value-added services industry, which may not be representative of future growth or sustainable. We cannot assure you that our historical financial information is indicative of our future operating or financial performance, or our profitability will be sustained.

We depend on our key personnel and our business and growth prospects may be severely disrupted if we lose their services.

Our future success depends heavily upon the continued service of our key executives. In particular, we rely on the expertise and experience of Yunfan Zhou and Nick Yang, our founders and senior officers, in our business operations, and their personal relationships with our other significant shareholders, employees, the regulatory authorities, our clients, our suppliers, the mobile operators and Beijing AirInbox and Beijing Boya Wuji Technologies Co., Ltd., or Beijing Boya Wuji, our operating companies. If Yunfan Zhou or Nick Yang, or both of them, become unable or unwilling to continue in their present positions, or if they join a competitor or form a competing company in contravention of their employment agreements, we may not be able to replace them easily, our business may be significantly disrupted and our financial condition and results of operations may be materially adversely affected. We do not currently maintain key-man life insurance for any of our key personnel.

Each of Yunfan Zhou and Nick Yang was a party to an employment agreement with Sohu.com Inc. that restricted him during the period of his employment with Sohu.com Inc. and for a period of one year after the termination of such employment from (i) participating or otherwise being involved in any entity that operates an Internet portal in China without the prior written authorization of Sohu.com Inc. and (ii) soliciting or hiring any employee of Sohu.com Inc or soliciting business on behalf or for the benefit of any entity that operates an Internet portal in China from any customer, supplier or business partner of Sohu.com Inc. After their resignation from Sohu.com Inc. in March 2002 and incorporation of our company in May 2002, Messrs. Zhou and Yang received claims made by Sohu.com Inc. in respect of breaches by them of these restrictions. Such claims were amicably resolved between Sohu.com Inc. and each of Messrs. Zhou and Yang in September 2002. We are not aware of any further claims or legal proceedings initiated or threatened by Sohu.com Inc. against Yunfan Zhou, Nick Yang or us. However, we cannot assure you that Sohu.com Inc. would not bring any claims or legal proceedings against Yunfan Zhou, Nick Yang or us in the future.

If the PRC government finds that the agreements that establish the structure for operating our business do not comply with PRC government restrictions on foreign investment in the value-added telecommunications industry, we could be subject to severe penalties.

In December 2001, in order to comply with China’s commitments with respect to its entry into the World Trade Organization, or WTO, the State Council promulgated the Administrative Rules for Foreign Investments in Telecommunications Enterprises, or the Telecom FIE Rules. The Telecom FIE Rules set forth detailed requirements with respect to capitalization, investor qualifications and application procedures in connection with the establishment of a foreign-invested telecommunications enterprise. Pursuant to the Telecom FIE Rules, the ultimate ownership interest of a foreign investor in a foreign-funded telecommunications enterprise that provides value-added telecommunications services, including Internet content services, shall not exceed 50%.

We and our subsidiary, KongZhong Information Technologies (Beijing) Co., Ltd., or KongZhong Beijing, are considered as foreign persons or foreign-invested enterprises under PRC laws. As a result, we operate our wireless value-added services in China through Beijing AirInbox, which is owned by PRC citizens. In addition, we have recently set up Beijing Boya Wuji, which is also owned by PRC citizens, to operate our wireless value-added services through mobile operators other than China Mobile. We do not have any equity interest in these operating companies and instead enjoy the economic benefit of them through contractual arrangements, including agreements on provision of loans, provision of services, license of intellectual property, and certain corporate governance and shareholder rights matters. These operating companies conduct substantially all of our operations and generate substantially all of our revenues. They also hold the licenses and approvals that are essential to our business.

There are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations, including but not limited to the laws and regulations governing the validity and enforcement of our contractual arrangements. Accordingly, we cannot assure you that PRC regulatory authorities will not determine that our contractual arrangements with Beijing AirInbox and Beijing Boya Wuji violate PRC laws or regulations.

If we or our operating companies were found to violate any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violation, including, without limitation, the following:


†	revoking our or our operating companies’ business license;

†	shutting down the servers or blocking our or our operating companies’ web sites;

†	restricting or prohibiting our use of the proceeds from this offering to finance our business and operations in China;

†	requiring us to restructure our ownership structure or operations; and/or

†	requiring us or our operating companies to discontinue our wireless value-added services business.

Any of these or similar actions could cause significant disruptions to our business operations or render us unable to conduct our business operations and may materially adversely affect our business, financial condition and results of operations.

Our contractual arrangements with Beijing AirInbox and Beijing Boya Wuji may not be as effective in providing operational control as direct ownership of these businesses and may be difficult to enforce.

PRC laws and regulations currently restrict foreign ownership of companies that provide value-added telecommunications services, which include wireless value-added services and Internet content services. As a result, we conduct substantially all of our operations and generate substantially all of our revenues through Beijing AirInbox and Beijing Boya Wuji pursuant to a series of contractual arrangements with them and their respective shareholders. These agreements may not be as effective in providing control over our operations as direct ownership of these businesses. In particular, our operating companies could fail to perform or make payments as required under the contractual agreements, and we will have to rely on the PRC legal system to enforce these agreements, which we cannot be sure would be effective.

Rapid growth and a rapidly changing operating environment may strain our limited resources.

We have limited operational, administrative and financial resources, which may be inadequate to sustain the growth we want to achieve. As our user base increases, we will need to increase our investment in our technology infrastructure, facilities and other areas of operations. Our product development, customer service and sales and marketing in particular are important to our future success. If we are unable to manage our growth and expansion effectively, the quality of our services and our customer support could deteriorate and our business may suffer. For example, any such performance issue could prompt China Mobile to cease offering our services over their networks. Our future success will depend on, among other things, our ability to:


†	develop and quickly introduce new services, adapt our existing services and maintain and improve the quality of all of our services, particularly as new mobile technologies such as the third generation, or 3G, are introduced,

†	effectively maintain our relationships with China Mobile,

†	expand the percentage of our revenues which are recurring and are derived from monthly subscription-based services,

†	enter into and maintain relationships with desirable content providers,

†	continue training, motivating and retaining our existing employees and attract and integrate new employees, including into our senior management,


†	develop and improve our operational, financial, accounting and other internal systems and controls, and

†	maintain adequate controls and procedures to ensure that our periodic public disclosure under applicable laws, including U.S. securities laws, is complete and accurate.

We may face increasing competition, which could reduce our market share and materially adversely affect our financial condition and results of operations.

The PRC wireless value-added services market has seen increasingly intense competition. China Mobile’s listed subsidiary, China Mobile (Hong Kong) Limited, reported in its 2003 annual results announcement that over 880 service providers supply content and services for its Monternet^TM network in 2003. We compete with these companies primarily on the basis of brand, type and timing of service offerings, content, users as well as business partner and channel relationships. We also compete for experienced and talented employees. While we believe that we have certain advantages over our competitors, some of them may have greater access to capital markets, more human and financial resources than we do, and a longer operating history than us. For instance, Internet portals providing wireless value-added services may have an advantage over us with their more established brand names, user base and Internet distribution channels. Furthermore, our competitors may be able to offer a broader range of products and services than we are presently able to offer.

We are facing increasing competition as additional service providers develop new technology and cooperation relationships with key business partners. Our primary competitors in the advanced second generation, or 2.5G, wireless value-added services market in China include Internet portals as well as wireless value-added service providers focused on 2.5G services. Our competitors that hold significant market shares in wireless access protocol, or WAP, are Beijing Mobile Navi Information Technology Services Company, TOM Online Inc., Shenzhen Xuntian Telecommunication Technology Ltd. and Tencent Technology Limited’s Mobile QQ, and our competitors that hold significant market shares in multimedia messaging services, or MMS, are TOM Online Inc., Sina Corporation, NetEase.com Inc. and Sohu.com Inc.

Competition is particularly intense in China’s second generation, or 2G, based wireless value-added services market as the barriers to entry are relatively low compared to the 2.5G market, resulting in a much higher number of wireless value-added service providers. Our primary competitors in this market include Internet portals. Our competitors that hold significant market shares in this market are Tencent Technology Limited’s Mobile QQ, Sina Corporation, Sohu.com Inc., TOM Online Inc. and NetEase.com Inc.

We may need additional capital and may not be able to obtain such capital on acceptable terms.

Capital requirements are difficult to plan in our rapidly changing industry. We currently expect that we will need capital to fund our future acquisitions, service development, technological infrastructure and sales and marketing activities.

Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:


†	investors’ perceptions of, and demand for, securities of telecommunications value-added services companies;

†	conditions of the U.S. and other capital markets in which we may seek to raise funds;

†	our future results of operations, financial condition and cash flows;

†	PRC governmental regulation of foreign investment in value-added telecommunications companies;


†	economic, political and other conditions in China; and

†	PRC governmental policies relating to foreign currency borrowings.

Any failure by us to raise additional funds on terms favorable to us, or at all, may have a material adverse effect on our business, financial condition and results of operations. For example, we may not be able to carry out parts of our growth strategy to acquire assets, technologies and businesses that are complementary to our existing business or necessary to maintain our growth and competitiveness.

The dividends and other distributions on equity we may receive from our subsidiary are subject to restrictions under PRC law or agreements that it may enter into with third parties.

We are a holding company. Our wholly-owned subsidiary, KongZhong Beijing, has entered into contractual arrangements with Beijing AirInbox and Beijing Boya Wuji, through which we conduct our wireless value-added activities and receive substantially all of our revenues in the form of service fees. We rely on dividends and other distributions on equity paid by our subsidiary and service fees from Beijing AirInbox and Beijing Boya Wuji for our cash requirements in excess of any cash raised from investors and retained by us. If our subsidiary incurs debt in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. In addition, PRC law requires that payment of dividends by our subsidiary can only be made out of its net income, if any, determined in accordance with PRC accounting standards and regulations. Under PRC law, our subsidiary is also required to set aside no less than 10% of its after-tax net income each year to fund certain reserve funds unless such reserve funds have reached 50% of the registered capital of our subsidiary, and these reserves are not distributable as dividends. See note 12 to our historical consolidated financial statements included in this prospectus. Any limitation on the payment of dividends by our subsidiary could materially adversely affect our ability to grow, fund investments, make acquisitions, pay dividends, and otherwise fund and conduct our business.

We may not be able to adequately protect our intellectual property, and we may be exposed to infringement claims by third parties.

We believe the copyrights, service marks, trademarks, trade secrets and other intellectual property we use are important to our business, and any unauthorized use of such intellectual property by third parties may adversely affect our business and reputation. We rely on the intellectual property laws and contractual arrangements with our employees, clients, business partners and others to protect such intellectual property rights. Third parties may be able to obtain and use such intellectual property without authorization. Furthermore, the validity, enforceability and scope of protection of intellectual property in the Internet and wireless value-added related industries in China is uncertain and still evolving, and these laws may not protect intellectual property rights to the same extent as the laws of some other jurisdictions, such as the United States. Moreover, litigation may be necessary in the future to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources, and have a material adverse effect on our business, financial condition and results of operations.

Due to the manner in which we obtain, collect, produce and aggregate content and applications for our wireless value-added services, and because our services may be used for the distribution of information, claims may be filed against us for defamation, negligence, copyright or trademark infringement or other violations. In addition, third parties could assert claims against us for losses in reliance on information distributed by us. For example, if we are found to have infringed any intellectual property rights of others, we may be enjoined from using such intellectual property, and we may incur licensing fees or be forced to develop alternative intellectual property. We may also incur

significant costs in investigating and defending the claims, even if they do not result in liability. We have not purchased liability insurance for these types of claims.

We may not be able to register the Chinese name of our service mark “KongZhong Network” in China, and we may not be able to effectively prevent its unauthorized use by third parties.

The Chinese name of our service mark “KongZhong Network” may be deemed a generic term under existing PRC trademark laws and regulations, which prohibit registration of generic terms as trademarks or service marks. We are in the process of applying for registration of the Chinese name of “KongZhong Network” as our service mark. Our applications, however, may not be accepted and we may not be able to register the Chinese name of “KongZhong Network” as a service mark in China. As a result, we may not be able to effectively prevent the unauthorized use of the Chinese name of our service mark, “KongZhong Network”, and our brand name and reputation may be adversely affected by such unauthorized use.

Future acquisitions may have an adverse effect on our ability to manage our business.

Selective acquisitions form part of our strategy to further expand our business. If we are presented with appropriate opportunities, we may acquire additional businesses, technologies, services or products that are complementary to our core wireless value-added services business. Future acquisitions and the subsequent integration of new companies into ours would require significant attention from our management, in particular to ensure that the acquisition does not disrupt our relationships with the mobile operators, or affect our users’ opinion of our services and customer support and is effectively integrated with our existing operations and wireless value-added services. The diversion of our management’s attention and any difficulties encountered in any integration process could have an adverse effect on our ability to manage our business. Future acquisitions would expose us to potential risks, including risks associated with the assimilation of new operations, services and personnel, unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions and potential loss of, or harm to, relationships with employees and content providers as a result of integration of new businesses. Given the sophisticated technologies used in the wireless value-added services industry, the successful, cost-effective integration of other businesses’ technology platforms and services into our own would also be a critical, and highly complex, aspect of any acquisition.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption and cost of the insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

Our ability to generate revenues could suffer if the PRC market for advanced wireless value-added services does not develop as anticipated.

The wireless value-added services market in China has evolved rapidly over the past four years, with the introduction of new and advanced services, development of consumer preferences, market entry by new competitors and adaptation of strategies by existing competitors. Accordingly, it is extremely

difficult to accurately predict consumer acceptance and demand for various existing and potential new offerings and services, and the future size, as well as composition and growth, of this market. Furthermore, given the limited history and rapidly evolving nature of our market, we cannot predict the price that wireless users will be willing to pay for our services or whether users will have concerns about security, reliability, cost and quality of service associated with advanced wireless value-added services. If acceptance of our advanced wireless value-added services is different than anticipated, our ability to maintain or increase our revenue and net income could be materially and adversely affected.

The laws and regulations governing the wireless value-added telecommunications and Internet industry in China are developing and subject to future changes. Substantial uncertainties exist as to the interpretation and implementation of those laws and regulations.

Although wireless value-added services are subject to general regulation regarding telecommunications services, we believe that currently, there are no PRC laws at the national level specifically governing wireless value-added services, such as our services related to WAP, MMS, short messaging services, or SMS, Java^TM, interactive voice response, or IVR, and color ring back tones, or CRBT.

Beijing AirInbox operates Internet web sites in China, which constitute one of the channels through which our services are offered. In recent years, the PRC government has begun to promulgate laws and regulations applicable to Internet-related services and activities, many of which are relatively new and untested and subject to future changes. In addition, various regulatory authorities of the central PRC government, such as the State Council, the Ministry of Information Industry, or MII, the State Administration of Industry and Commerce, or SAIC, and the Ministry of Public Security, are empowered to issue and implement rules to regulate certain aspects of Internet-related services and activities. Furthermore, some local governments have also promulgated local rules applicable to Internet companies operating within their respective jurisdictions. As the Internet industry itself is at an early stage of development in China, there will likely be new laws and regulations promulgated in the future to address issues that may arise from time to time. As a result, uncertainties exist regarding the interpretation and implementation of current and future PRC Internet laws and regulations.

Beijing AirInbox has obtained various value-added telecommunications services licenses for the provisions of its services. In addition, it is in the process of applying for a trans-regional value-added telecommunications license with the MII, in order to provide services in multiple provinces, autonomous regions and municipalities. In addition, Beijing Boya Wuji is in the process of applying for certain licenses required for its services. We cannot assure you that we will obtain these licenses or that the regulatory authorities will not take any action against us if we fail to obtain them. If Beijing AirInbox or Beijing Boya Wuji fails to obtain or maintain any of the required licenses or permits, it may be subject to various penalties, including redressing the violations, confiscation of income, imposition of fines or even suspension of its operations. Any of these measures could materially disrupt our operations and materially and adversely affect our financial condition and results of operations.

The PRC government or the telecommunications operators may prevent us from distributing, and we may be subject to liability for content that any of them believes is inappropriate.

China has promulgated regulations governing telecommunications service providers, Internet access and the distribution of news and other information. In the past, the PRC government has stopped the distribution of information over the Internet that it believes to violate Chinese law, including content that is obscene, incites violence, endangers national security, is contrary to the national interest or is defamatory.

The telecommunications operators also have their own policies that restrict the distribution by wireless value-added service providers of content they deem inappropriate. For instance, they have punished certain providers for distributing content deemed by them to be obscene. Such punishments have included censoring of content, delays in payments of fees by the mobile operators to the offending service provider, forfeiture of fees owed by the mobile operators to the offending service provider and suspension of the service on the mobile operators’ networks. Accordingly, even if we comply with PRC governmental regulations relating to licensing and foreign investment restrictions, if the PRC government or the mobile operators were to take any action to limit or prohibit the distribution of information we provide or to limit or regulate any current or future content or services available to our users, our revenues could be reduced and our reputation harmed.

Unexpected network interruptions, security breaches or computer virus attacks could have a material adverse effect on our business, financial condition and results of operations.

Any failure to maintain the satisfactory performance, reliability, security and availability of our network infrastructure may cause significant harm to our reputation and our ability to attract and maintain users. Major risks involved in such network infrastructure include, among others, any break-downs or system failures resulting in a sustained shutdown of all or a material portion of our servers, including failures which may be attributable to sustained power shutdowns, or efforts to gain unauthorized access to our systems causing loss or corruption of data or malfunctions of software or hardware.

Our network systems are vulnerable to damage from fire, flood, power loss, telecommunications failures, computer viruses, hackings and similar events. Any network interruption or inadequacy that causes interruptions in the availability of our services or deterioration in the quality of access to our services could reduce our user satisfaction and competitiveness. In addition, any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could have a material adverse effect on our business, financial condition and results of operations. We do not maintain insurance policies covering losses relating to our systems and we do not have business interruption insurance.

The growth of our business may be adversely affected due to public concerns over the security and privacy of confidential user information.

The growth of our business may be inhibited if the public concern over the security and privacy of confidential user information transmitted over the Internet and wireless networks is not adequately addressed. Our services may decline and our business may be adversely affected if significant breaches of network security or user privacy occur.

Substantially all of our assets are located in China and substantially all of our revenue is derived from our operations in China. Accordingly, our results of operations and prospects are subject, to a significant extent, to the economic, political and legal developments in China.

The PRC’s economic, political and social conditions, as well as government policies, could affect our business. The PRC economy differs from the economies of most developed countries in many respects.

According to Global Insight, since 1978, China has been one of the world’s fastest-growing economies in terms of gross domestic product, or GDP, growth. We cannot assure you, however, that such

growth will be sustained in the future. Moreover, the recent slowdown in the economies of the United States, the European Union and certain Asian countries may adversely affect economic growth in China.

The PRC’s economic 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 use 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 productive assets in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. It also exercises significant control over PRC economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. We cannot assure you that China’s economic, political or legal systems will not develop in a way that is detrimental to our business, results of operations and prospects.

Any future outbreak of Severe Acute Respiratory Syndrome or any other epidemic in China may have a material adverse effect on our business operations, financial condition and results of operations.

From December 2002 to June 2003, China and certain other countries experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health Organization declared that SARS had been contained. However, in recent months, a few new cases of SARS have been reported in Asia. An outbreak in the future may disrupt our business operations and have a material adverse effect on our financial condition and results of operations. In addition, health or other government regulations may require temporary closure of our offices, or the offices of our advertisers, content providers or partners, which may severely disrupt our business operations and have a material adverse effect on our financial condition and results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of SARS or any other epidemic.

Government control of currency conversion may adversely affect our financial condition and results of operations.

We receive substantially all of our revenues in Renminbi, which currently is not a freely convertible currency. A portion of these revenues must be converted into other currencies to meet our foreign currency obligations including, among others, payment of dividends declared, if any, in respect of our ordinary shares.

Under China’s existing foreign exchange regulations, our subsidiary, KongZhong Beijing, is able to pay dividends in foreign currencies, without prior approval from the State Administration of Foreign Exchange, by complying with certain procedural requirements. However, we cannot assure you that the PRC government will not take measures in the future to restrict access to foreign currencies for current account transactions.

Foreign exchange transactions under the capital accounts of our subsidiary, KongZhong Beijing, and Beijing AirInbox and Beijing Boya Wuji continue to be subject to significant foreign exchange controls and require the approval of PRC governmental authorities, including the State Administration of Foreign Exchange, or SAFE. In particular, if KongZhong Beijing borrows foreign currency loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance KongZhong Beijing by means of additional capital contributions, these capital contributions must be approved by certain government authorities including the Ministry of Commerce or its local counterparts. In addition, if we finance Beijing AirInbox or Beijing Boya Wuji by loans, we must obtain approval from SAFE. These limitations could affect the ability of KongZhong Beijing, Beijing AirInbox and Beijing Boya Wuji to obtain foreign exchange through debt or equity financing.

Fluctuation of the Renminbi could adversely affect the value of and dividends payable on our ADSs.

The value of the Renminbi fluctuates and is subject to changes in PRC political and economic conditions. Since 1994, the conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China, which are set daily based on the previous day’s interbank foreign exchange market rates. Since 1994, the official exchange rate for the conversion of Renminbi to U.S. dollars has generally been stable. Any devaluation of the Renminbi, however, may adversely affect the value of, and dividends, if any, payable on, our ordinary shares in foreign currency terms, since we will receive substantially all of our revenues, and express our profits, in Renminbi.

The PRC legal system embodies uncertainties which could limit the legal protections available to you and us.

The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. Although legislation in China over the past 20 years has significantly improved the protection afforded to various forms of foreign investment and contractual arrangements in China, these laws, regulations and legal requirements are relatively new and their interpretation and enforcement involve uncertainties, which could limit the legal protection available to us, and foreign investors, including you. In addition, the PRC government may enact new laws or amend current laws that may be detrimental to our current contractual arrangements with Beijing AirInbox and Beijing Boya Wuji, which may in turn have a material adverse effect on our business operations.

You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management.

We are a company incorporated under the laws of the Cayman Islands, and our subsidiary and substantially all of our assets are located outside the United States. In addition, some of our directors and officers and their assets are located outside the United States. As a result, it may not be possible to effect service of process within the United States upon our directors or officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws.

Our PRC legal counsel, Llinks Law Office, has advised us that the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States, the United Kingdom or most other western countries. As a result, recognition and enforcement in China of judgments of a court obtained in those jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible. See “Enforceability of civil liabilities.”

We have been advised by Maples and Calder Asia, our Cayman Islands legal advisers, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon certain of the civil liability provisions of the securities laws of the United States or any State thereof and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon certain of the civil liability provisions of the securities laws of the United States or any State thereof, if and to the extent that such provisions are penal in nature. However, in the case of laws that are not penal in nature, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will generally recognize and enforce a judgment of a foreign court of competent jurisdiction without retrial on the merits. A Cayman Islands court may stay proceedings if concurrent proceedings are being brought elsewhere.

If an active trading market for our ADSs does not develop, the price of our ADSs may suffer and may decline below the initial offering price.

There is no public market for our ADSs or our ordinary shares underlying the ADSs prior to this offering. If an active public market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs may be adversely affected. We have applied to have our ADSs approved for quotation on the Nasdaq National Market. We can provide no assurances that a liquid public market for our ADSs will develop.

The initial public offering price for our ADSs will be determined by negotiation between us and the underwriters based upon several factors, and we can provide no assurance that the price at which the ADSs are traded after this offering will not decline below the initial public offering price.

Sales of substantial amounts of ADSs in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of the ADSs.

Upon completion of this offering, we will have ordinary shares outstanding (including those represented by ADSs), of which ordinary shares (including those represented by ADSs), or approximately %, will be publicly held by investors participating in this offering. The ADSs sold in this offering will be freely tradable in the United States without restriction or further registration under the Securities Act, and the ordinary shares held by our existing shareholders may be deposited into the ADS facility and sold in the public market in the future pursuant to, and subject to the restrictions contained in, Rule 144 under the Securities Act and the deposit agreement. If any existing shareholders sell or are perceived as intending to sell a substantial number of our ordinary shares, the prevailing market price for our ADSs could be adversely affected.

You will experience immediate dilution in the book value of the ADSs that you purchase because the initial public offering price per ADS is higher than the net tangible book value per ADS.

The initial public offering price per ADS is higher than the net tangible book value per ADS prior to this offering. Therefore, when you purchase ADSs from this offering at the initial public offering price, you will incur an immediate dilution of $ per ADS. If we issue additional ADSs, you may experience further dilution.

You may not be able to exercise your right to vote the ordinary shares underlying your ADSs.

Under the terms of the ADSs and the deposit agreement, you have a general right to vote the ordinary shares underlying the ADSs that you hold. You may instruct the depositary bank, Citibank, N.A., to vote the ordinary shares underlying our ADSs, subject to the terms of the deposit agreement and only if we request Citibank to ask for your instructions. Otherwise, you will not be able to exercise your right to vote unless you withdraw the ordinary shares underlying the ADSs. However, you may not receive voting materials in time to ensure that you are able to instruct Citibank to vote your shares or receive sufficient notice of a shareholders’ meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, Citibank and its agents may not be able to timely send out your voting instructions or carry out your voting instructions in the manner you have instructed. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ordinary shares are not voted as you requested. See “Description of American Depositary Shares— Voting rights.”

We are incorporated under Cayman Islands law and it may be difficult for you to protect your interests as a shareholder and your ability to protect your rights through the U.S. federal courts may be limited.

Our corporate affairs are governed by our Memorandum and Articles of Association, by the Companies Law (2003 Revision) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors and actions by minority shareholders are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from English common law, the decisions of whose courts are of persuasive authority but are not binding on a court in the Cayman Islands. Cayman Islands law in this area may not be as established and may differ from provisions under statutes or judicial precedent in existence in jurisdictions in the United States. In addition, shareholders of Cayman Islands companies may not have standing to initiate shareholder derivative actions before the federal courts of the United States. As a result, our public shareholders may face different considerations in protecting their interests in actions against the management, directors or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States, and our ability to protect our interests if we are harmed in a manner that would otherwise enable us to sue in a United States federal court may be limited. See “Description of share capital— Differences in corporate law.”

If our dividend is declared and paid in a foreign currency, you may be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

You will be taxed on the U.S. dollar value of your dividends at the time you receive them, even if you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S. dollars. Specifically, if a dividend is declared and paid in a foreign currency, the amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot rate of the foreign currency to the U.S. dollar on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

Our ordinary shares are transferable subject to restrictions in our articles of association. However, our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share without assigning any reasons therefore. In addition, the registration of transfers may be suspended and the register closed as our board of directors may determine, for up to 45 days in any year.

The trading prices of our ADSs are likely to be volatile, which could result in substantial losses to investors.

The trading prices of our ADSs are likely to be volatile and could fluctuate widely in response to factors beyond our control. In particular, the market prices for shares of Internet and technology-related companies often reach levels that may bear no established relationship to the operating performance of these companies. These broad market and industry factors may significantly affect the market prices of our ADSs, regardless of our actual operating performance. The market prices of our ADSs following the offering may be volatile.

Other factors that may affect the volatility in the price and trading volumes for our ADSs include:


†	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 the wireless value-added services market;

†	announcements by our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

†	additions or departures of key personnel;

†	potential litigation; or

†	performance and fluctuation of the market prices of other PRC-related companies or technology companies which have securities listed or quoted in the U.S. market.

Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade. We cannot give you any assurance that these factors will not occur in the future.

These statements relate to our future prospects, developments and business strategies. The statements contained in this prospectus that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties. We have used the words “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “hope” and similar expressions in this prospectus to identify forward-looking statements. These forward-looking statements are made based on our current expectations and beliefs concerning future events affecting us and are subject to risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements.

In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual results may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risks set forth in “Risk factors.”

Because of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus might not occur in the way we expect, or at all. We do not intend to update or otherwise revise the forward-looking statements in this prospectus, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on any forward-looking information.

We were incorporated in May 2002 under the laws of the Cayman Islands as Communication Over The Air Inc., an exempted limited liability company. In March 2004, we changed our name to KongZhong Corporation. Our founders, Yunfan Zhou and Nick Yang, each beneficially owns 27.4% of our company, while the remaining 45.2% is owned by 10 institutional and individual investors. See “Principal and selling shareholders.”

We conduct our business in China solely through our wholly-owned subsidiary, KongZhong Beijing. In order to meet domestic ownership requirements under PRC law, which restrict us and KongZhong Beijing, as a foreign or foreign-invested company, from operating in certain value-added telecommunications and Internet services, we have established Beijing AirInbox in China, which is wholly-owned by PRC citizens. We have also recently established Beijing Boya Wuji in China, which is also wholly-owned by PRC citizens. We do not have any equity interests in Beijing AirInbox or Beijing Boya Wuji, but instead enjoy the economic benefits of these companies through a series of contractual arrangements as described below.

PRC regulations currently restrict foreign ownership of companies that provide value-added telecommunications services, which include wireless value-added services. See also “Regulation.” To comply with PRC regulations, we conduct substantially all of our operations through Beijing AirInbox, which is 45% owned by Yang Cha, one of our employees, 42% by Songlin Yang, an uncle of our co-founder, Nick Yang, 10% by Yunfan Zhou, our co-founder and 3% by Zhen Huang, the wife of Nick Yang. We also established in March 2004 Beijing Boya Wuji, which is equally owned by each of Yunfan Zhou and Zhen Huang, to conduct our wireless value-added services through mobile operators other than China Mobile. We do not have any equity interest in Beijing AirInbox or Beijing Boya Wuji, but instead enjoy the economic benefits of these companies through a series of contractual

arrangements, which we and KongZhong Beijing have entered into with these companies and their respective shareholders as described below. For a description of each of these agreements, see “Related party transactions—Other related party agreements.”

As part of these contractual arrangements, we have entered into loan agreements with each of the shareholders of Beijing AirInbox, pursuant to which long-term loans were provided to each of these shareholders to be invested exclusively in Beijing AirInbox. Each shareholder has also agreed to repay these loans only in the form of a transfer of all of his or her interest in Beijing AirInbox to either KongZhong Beijing or our designees to the extent allowed by PRC law under certain circumstances. We currently do not plan to extend any additional loans to the shareholders of Beijing AirInbox or any loans to the shareholders of Beijing Boya Wuji in the future. See “Related party transactions— Other related party agreements.”

Beijing AirInbox and Beijing Boya Wuji and their respective shareholders have also entered into exclusive share option agreements with KongZhong Beijing. Pursuant to these agreements, each of the shareholders of Beijing AirInbox and Beijing Boya Wuji has granted an exclusive option to KongZhong Beijing or our designees to purchase all or part of such shareholder’s equity interest in Beijing AirInbox or Beijing Boya Wuji, as applicable, in accordance with PRC law, and has covenanted not to encumber such equity interest in any manner other than as permitted by KongZhong Beijing.

KongZhong Beijing has entered into certain business operation agreements with Beijing AirInbox and Beijing Boya Wuji and their respective shareholders. Pursuant to these agreements, Beijing AirInbox and Beijing Boya Wuji and their respective shareholders agreed to appoint individuals designated by KongZhong Beijing to the management team of Beijing AirInbox and Beijing Boya Wuji, and to refrain from taking certain actions that may materially affect these companies’ operations. Each of the shareholders of Beijing AirInbox and Beijing Boya Wuji has also executed an irrevocable power of attorney in favor of individuals designated by KongZhong Beijing. Pursuant to the powers of attorney, those designated individuals have full power and authority to exercise all of such shareholders’ rights with respect to their equity interests in Beijing AirInbox or Beijing Boya Wuji.

KongZhong Beijing has entered into an exclusive technical and consulting services agreement with each of Beijing AirInbox and Beijing Boya Wuji. Pursuant to these exclusive technical and consulting services agreements, KongZhong Beijing provides technical and consulting services to Beijing AirInbox and Beijing Boya Wuji in exchange for services fees. Each of the shareholders of Beijing AirInbox and Beijing Boya Wuji also entered into equity pledge agreements with Beijing KongZhong, pursuant to which these shareholders pledged their interest in Beijing AirInbox and Beijing Boya Wuji, respectively, for the performance of these companies’ payment obligations under the respective exclusive technical and consulting services agreements.

KongZhong Beijing has entered into an exclusive trademark license agreement and domain name agreement with each of Beijing AirInbox and Beijing Boya Wuji. Pursuant to these agreements, KongZhong Beijing granted each of Beijing AirInbox and Beijing Boya Wuji a non-exclusive license to use its trademarks and domain names in exchange for a fee.

In the opinion of our PRC legal counsel, Llinks Law Office, the ownership structures of KongZhong Beijing, Beijing AirInbox and Beijing Boya Wuji, our contractual arrangements with these companies and their respective shareholders and the businesses and operations of these companies as described in this prospectus, are in compliance with all existing PRC laws and regulations and are enforceable in accordance with their terms and conditions. In addition, our PRC legal counsel is of the opinion that, with respect to Beijing AirInbox, no consent, approval or license, other than those already obtained, is required under any of the existing PRC laws and regulations for the effectiveness and enforceability of the ownership structures, contractual arrangements, businesses and operations of these companies except for a trans-regional value-added telecommunications services permit. As a newly incorporated

company, Beijing Boya Wuji is in the process of applying for certain licenses and permits that are necessary for its business. Nevertheless, there are substantial uncertainties regarding the interpretation and implementation of current PRC laws and regulations. See “Risk factors— Risks relating to our business— PRC laws and regulations restrict foreign investment in China’s telecommunications services industry, and substantial uncertainties exist with respect to our contractual arrangements with Beijing AirInbox and Beijing Boya Wuji due to uncertainties regarding the interpretation and application of current or future PRC laws and regulations,” and “—Our contractual arrangements with Beijing AirInbox and Beijing Boya Wuji may not be as effective in providing operational control as direct ownership of these businesses” and “Regulation.” As discussed in those risk factors, certain events may cause us to lose the benefits and control intended to be created by these arrangements.

We estimate we will receive net proceeds from the offering of approximately $ million from the sale of ADSs after deducting the underwriting discounts and expenses payable by us in the offering and assuming an initial public offering price of $ per ADS. We will not receive any proceeds from the sale of ADSs by the selling shareholders. We currently intend to use the net proceeds to us as follows, though the allocation of the use of proceeds may change along with evolving business conditions and other management considerations:


†	up to 50% for acquisitions or investments in businesses that we believe are complementary to our existing business, although no acquisitions or investments are pending;

†	up to 10% for product development;

†	up to 10% for sales and marketing; and

†	any remaining balance for general corporate purposes.

To the extent that the net proceeds we receive from this offering are not immediately applied for the above purposes, we intend to use them for our working capital, to purchase U.S. Treasury debt securities and other short-term investment grade debt securities or to deposit the proceeds into interest-bearing bank accounts. These investments may have a material adverse effect on the U.S. federal income tax consequences of an investment in our ADSs. It is possible that we may become a passive foreign investment company, or PFIC, for United States federal income taxpayers, which could result in negative tax consequences to you. These consequences are described in more detail in “Taxation.”

Our industry is evolving rapidly and could cause significant and rapid changes to our strategies and business plans. Accordingly, the actual application of the proceeds may change. As new business opportunities arise or circumstances change, we may reallocate all or part of the net proceeds to other business plans or new projects or hold such funds in temporary investments.

We currently intend to retain future earnings, if any, to finance our business and to fund growth and expansion of our business and, therefore, do not expect to pay any cash dividends in the foreseeable future. Any future determination to pay dividends will be made at the discretion of our board of directors and will be based upon our financial results, shareholders’ interests, general business conditions and strategies, capital requirements, contractual restrictions on the payment of dividends and any other conditions our board of directors deems relevant.

Holders of ADSs will be entitled to receive dividends, subject to the terms of the deposit agreement, to the same extent as the holders of our ordinary shares. Cash dividends will be paid to the depositary in U.S. dollars and paid to holders of ADSs according to the terms of the deposit agreement. Other distributions, if any, will be paid by the depositary to holders of ADSs by any means it deems legal and practical. Under the deposit agreement, the depositary is required to distribute dividends to the holders of ADS unless such distribution is prohibited by law or is impracticable. The amounts distributed to holders will be net of fees, expenses, taxes and other governmental charges payable by holders under the deposit agreement. See “Description of American Depositary Shares— Dividends and distributions.”

Dilution is the amount by which the initial public offering price paid by purchasers of the ADSs offered hereby will exceed the pro forma net tangible book value per ADS after the offering. As of March 31, 2004, our pro forma net tangible book value per ADS was $ , or $ per ordinary share. Net tangible book value per ordinary share represents our total tangible assets minus our total liabilities and liquidation values of our preferred shares, divided by the total number of ordinary shares outstanding as of March 31, 2004. Net tangible book value per ADS is equal to times the net tangible book value per ordinary share. Our pro forma net tangible book value per ordinary share represents the amount of net tangible book value per ordinary share after giving effect to the automatic conversion of all of our outstanding Series A convertible preferred shares and Series B redeemable convertible preferred shares into our ordinary shares.

After giving effect to the sale of our ADSs offered in this offering (assuming an initial public offering price of $ per ADS) and after deducting underwriting discounts and commissions and other estimated expenses of this offering, but without taking into account any other changes in such tangible book value after March 31, 2004, our net tangible book value per ADS would decrease to $ per ADS. This represents an immediate increase of $ in net tangible book value per ADS to our existing shareholders and an immediate dilution of $ in net tangible book value per ADS to investors purchasing at the initial public offering price.

The following table illustrates the immediate dilution per ADS to new investors:

The following table summarizes, on a pro forma basis as of March 31, 2004, the differences between existing shareholders and new investors with respect to the number of ordinary shares purchased from us, the total consideration paid to us and the average price per ordinary share paid by existing shareholders and by new investors purchasing the ADSs in this offering at the initial public offering price of $ per ADS and without giving effect to underwriting discounts and commissions and other estimated offering expenses payable by us.

The foregoing discussion and table assumes no exercise of any outstanding stock options. As of March 31, 2004, there were stock options outstanding to purchase an aggregate of 86,120,000 ordinary shares, of which 18,045,000 were exercisable, at a weighted average exercise price of $0.0060 per share. If all these options had been exercised on March 31, 2004, before giving effect to this offering, our pro forma net tangible book value would have been approximately $ , or

$ per ordinary share and $ per ADS, the increase in net tangible book value attributable to new investors would have been $ per ordinary share, or $ per ADS, and the dilution in pro forma net tangible book value to new investors would have been $ per ordinary share, or $ per ADS.


†	on a pro forma basis reflecting conversion of outstanding Series A and Series B preferred shares; and

†	on a pro forma as adjusted basis to reflect this offering, assuming an initial public offering price of $ per ADS, after deducting underwriting discounts and commissions and other estimated expenses payable by us in relation to the offering, as if such sale occurred, and assuming the underwriters do not exercise the over-allotment option.

Except as set forth below, there has been no material change in our consolidated capitalization since March 31, 2004.

This information should be read in conjunction with “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and related notes thereto included elsewhere in this prospectus.

We present our historical consolidated financial statements in U.S. dollars. In addition, certain pricing information is presented in U.S. dollars and certain contractual amounts that are in Renminbi include a U.S. dollar equivalent solely for the convenience of the reader. Except as otherwise specified, this pricing information and these contractual amounts are translated at RMB8.2770 = $1.00, the prevailing rate on March 31, 2004. The translations are not a representation that the Renminbi amounts could actually be converted to U.S. dollars at this rate. For a discussion of the exchange rates used for the presentation of our financial statements, see note 2 to our financial statements.

The People’s Bank of China sets and publishes daily a base exchange rate with reference primarily to the supply and demand of Renminbi against the U.S. dollar in the market during the prior day. The People’s Bank of China also takes into account other factors such as the general conditions existing in the international foreign exchange markets. Although Chinese governmental policies were introduced in 1996 to reduce restrictions on the convertibility of Renminbi into foreign currency for current account items, conversion of Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or security, requires the approval of the State Administration for Foreign Exchange and other relevant authorities.

The noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York were RMB8.2769 = $1.00 on May 28, 2004. The following table sets forth the high and low noon buying rates between Renminbi and U.S. dollars for each of the periods shown:

The following table sets forth the period-end noon buying rates and the average noon buying rates between Renminbi and U.S. dollars for each of 1999, 2000, 2001, 2002, 2003 and 2004 (through May 28), calculated by averaging the noon buying rates on the last day of each month of the periods shown:

The following selected consolidated financial data should be read in conjunction with our audited consolidated financial statements, the notes thereto and “Management’s discussion and analysis of financial condition and results of operations” included elsewhere in this prospectus. The selected consolidated statements of operations data for the period from May 6, 2002 to December 31, 2002 and for the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited), and the selected consolidated balance sheet data as of December 31, 2002 and 2003 and March 31, 2004 (unaudited) set forth below are derived from our audited consolidated financial statements included elsewhere in this prospectus. Our audited consolidated financial statements have been prepared and presented in accordance with U.S. GAAP and audited by Deloitte Touche Tohmatsu. We commenced operations in May 2002. Due to the relatively new and rapidly evolving nature of the wireless value-added services industry in China, the short history of our company and other factors affecting our business as described under “Risk factors,” our results of operations in any period are not necessarily indicative of the results that may be expected for any future period.

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the related notes thereto and other information appearing elsewhere in this prospectus. Our audited consolidated financial statements have been prepared in accordance with U.S. GAAP. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information provided under the caption “Risk factors.”

We are the leading provider of 2.5G wireless interactive entertainment, media and community services to customers of China Mobile, which has the largest mobile subscriber base in the world. We primarily deliver our services through the more advanced 2.5G wireless standard. The higher transmission capacity of 2.5G allows users to access higher quality graphics and richer content and interactivity, in comparison with the 2G wireless standard. We also offer a range of services based on the 2G wireless standard. We deliver our 2.5G services through WAP, MMS and Java^TM technology platforms and our 2G services through SMS, IVR and CRBT technology platforms.

We were incorporated under the laws of the Cayman Islands on May 6, 2002. Our gross revenues for the year ended December 31, 2003 were $7.8 million, whereas our gross revenues for the period from May 6, 2002 to December 31, 2002 were $0.2 million. Our net income for the year ended December 31, 2003 was $2.4 million, as compared to a net loss of $0.5 million for the period from May 6, 2002 to December 31, 2002. In the first quarter of 2004, our gross revenues and net income reached $7.1 million and $3.1 million, respectively, compared to gross revenues of $0.7 million and net income of $97,100 in the first quarter of 2003 and gross revenues of $3.8 million and net income of $1.6 million in the fourth quarter of 2003.

For each quarter since our founding, we have devoted significant resources to product development. We have steadily built up our product development team in order to analyze consumer demands and to expand the range of our service offerings to attract new customers and increase usage among our existing customers. The size of our product development team increased from 79 persons as of March 31, 2003 to 149 persons as of December 31, 2003 and to 201 persons as of March 31, 2004. We expect to remain committed in the coming year to enhancing our product development capabilities through a managed enlargement of our product development team while focusing on research for and development of proprietary technology and content.

We have also committed significant resources since our founding to building our sales and marketing team, which we believe has been crucial in promoting our brand and placing our services in the hands of users by building our relationships with mobile operators and distribution channels. The size of our sales, marketing and customer services team increased from 20 persons as of March 31, 2003 to 54 persons as of December 31, 2003 and to 78 persons as of March 31, 2004. In addition to growing our sales and marketing team, we have also participated in joint promotional arrangements to promote our brand and services. We expect our focus on sales and marketing efforts to continue in the coming year.

PRC regulations currently restrict foreign ownership of companies that provide value-added telecommunications services, which include wireless value-added services and Internet content services. According to PRC laws and regulations, as of December 11, 2003, foreign investors are permitted to hold up to 50% of a company in China engaged in value-added telecommunications services.

However, uncertainty exists as to how these regulations will be implemented. The PRC government authorities are still in the process of drafting detailed rules with respect to the procedures for the application for and approval of establishing a foreign-invested value-added telecommunications services enterprise. As a result, we conduct substantially all of our operations through Beijing AirInbox, which is owned by PRC citizens. We have also recently established Beijing Boya Wuji, through which we intend to conduct operations with mobile operators other than China Mobile, including China Unicom. We have entered into loan agreements with each of the shareholders of Beijing AirInbox, pursuant to which long-term loans were provided to each of the shareholders of Beijing AirInbox in an aggregate amount of $1.2 million (RMB$10 million) to be invested exclusively in Beijing AirInbox. We have also entered into a series of contractual arrangements with Beijing AirInbox, Beijing Boya Wuji and their shareholders, including the exclusive technical and consulting services agreements and trademark and domain name license agreements pursuant to which we are entitled to receive service and license fees. In addition, we have entered into equity pledge agreements with each of the shareholders of our operating companies, pursuant to which each of the shareholders pledged all of his or her interest in our operating companies to us as security for the performance by each of our operating companies of their obligations under the exclusive technical and consulting services agreements. As a result of these contractual arrangements, under U.S. GAAP, we are the primary beneficiary of the investments in our operating companies and we consolidate their results of operations in our consolidated financial statements. For a description of the PRC regulations restricting foreign ownership of companies that provide wireless value-added services and Internet content services in China, see “Regulation.” For a description of the contractual arrangements with our operating companies, see “Our corporate structure” and “Related party transactions.” For a discussion of the tax implications of charging service fees pursuant to the contractual arrangements with our operating companies, see “—Taxation.” For a description of the consolidation of our financial statements, see note 2 to the audited consolidated financial statements.

We have a limited operating history on which to base an evaluation of our business and prospects. Our prospects should be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in the early stages of their development, particularly in new and rapidly evolving markets such as wireless value-added services.

The major factors affecting our results of operations and financial condition include:


†	Growth of the wireless value-added services consumer market in China;

†	Technological advancement of the mobile telecommunications market, including the adoption of 2.5G and subsequent standards of mobile handsets and networks, in China;

†	Attractiveness and variety of our services;

†	Change in the number, scope and terms of our cooperation arrangements with the mobile operators, content providers, mobile handset manufacturers, mobile handset distributors and other key players in China’s mobile telecommunications industry;

†	Our product development efforts to capitalize on market opportunities; and

†	Expansion of our marketing and promotion activities.

In particular, our business may be adversely affected if the terms or conditions of our contractual arrangements with mobile operators should change with regard to any particular type of service. In order to reduce the risk that our results of operations and financial conditions would be overly dependent upon, and disproportionately impacted by, any particular service offering, technology platform or mobile operator, we have sought to broaden the range of our services, develop new relationships with mobile operators and expand our distribution channels. The growth of our product

development and sales and marketing teams underscores our focus on enhancing our ability to bring new services to market quickly and effectively so that we can preserve our leading position on key 2.5G services with China Mobile. Meanwhile, we have also begun developing our relationship with China Unicom and other mobile operators in order to broaden the base of our operation. In addition, we have entered into distribution arrangements with major mobile handset manufacturers to further enhance the distribution of our services and promote our brand.

We derive revenues from providing wireless value-added services to mobile phone users, substantially all of whom are customers of China Mobile and its subsidiaries.

The following table sets forth the historical consolidated revenue attributable to services derived from each of our 2.5G and 2G technology platforms in terms of amount and as a percentage of our total gross revenues for the periods indicated:

We derive our revenue primarily through contracts with mobile operators that are nationwide in scope or that cover large geographic areas of China. However, we believe that users in Guangdong province and the coastal provinces of China constitute the most significant portion of our user base. As a result, we allocate additional resources to these areas, including establishing sales offices in most of these provinces.

Prior to 2004, we generated all of our revenues from fees paid by mobile phone users who use our services through China Mobile’s network. In the first quarter of 2004, we began to receive revenue from services provided on the network of China United Telecommunications Corporation, or China Unicom. We recognize revenue derived from our services before deducting the service fees and the net transmission charges paid to the mobile operators. Fees for our services are either charged on a transaction or monthly subscription basis, and vary according to the type of services delivered. For a description of our fees and arrangements with the mobile operators, see “Business— Our services— Strategic relationships— Mobile operators.” We recognize all revenues in the period in which the services are performed. For a description of our revenue recognition policy, see “—Critical accounting policies.”

As mobile operators do not provide us detailed revenue breakdown on a service-by-service basis, we depend on our internal database system to monitor revenue derived from each of our services. We make our business decisions including research and development of new services and reallocation of resources to popular services based on our internal data, taking into account other factors including strategic considerations.


†	Service fees due to the mobile operators, which are generally 15% of the gross revenues;

†	Payments to content providers for the use of their content, and to mobile handset manufacturers and other industry partners with whom we have cooperation arrangements, in the form of a fixed fee or a percentage of our aggregate net cash received from the mobile operators with respect to services provided through the cooperation arrangements;

†	Net transmission charges payable by us to the mobile operators, calculated as the number of messages we send to users in excess of the number of message requests received by us multiplied by a per message transmission fee, which varies depending on the total volume of messages sent in any given month; and

†	Bandwidth leasing charges and depreciation and facility costs relating to equipment used to provide wireless-value added services.

Our cost of revenues for the period from May 6, 2002 to December 31, 2002 and the year ended December 31, 2003 was $84,335 and $2.3 million, respectively. For the first quarter of 2004, our cost of revenues reached $2.2 million, compared to $0.1 million from the first quarter of 2003 and $1.2 million for the fourth quarter of 2003. Our cost of revenues increased substantially in 2003 as a result of the increase in the volume of our services and our cooperation arrangements with additional business partners; however, we were able to increase our gross margin and operating margin through economies of scale, as certain royalty payments to third party content owners are fixed in amount regardless of how widely we distribute the content and the depreciation and fees associated with server facilities are fixed regardless of the level of utilization. As part of our business strategy, we intend to pursue more cooperation arrangements, which may increase our cost of revenues in the future.

Our operating expenses include product development, sales and marketing, general and administrative expenses and amortization of deferred stock compensation.

The following table sets forth certain consolidated operating expenses data in terms of amount and as a percentage of our gross revenues for the periods indicated:

Product Development Expenses. Our product development expenses consist primarily of the compensation and benefits for our product development team, which focuses on developing and improving our services and adapting them for next generation technology platforms. While our product development expenses have increased since our formation due to the increase in the size of our

product development team, our product development expenses as a percentage of our gross revenues have decreased significantly since our inception in May 2002. We expect our product development expenses to increase in absolute terms as our company grows, but expect such expenses to remain stable or decrease slightly as a percentage of our gross revenues.

Sales and Marketing Expenses. Our sales and marketing expenses consist primarily of advertising, sales and marketing expenses, including expenses associated with sponsoring promotional events, and the compensation and benefits for our sales, marketing and customer service departments. Our sales and marketing expenses have increased since our inception, primarily due to the growth of our sales and marketing team as well as an expansion of our marketing efforts. We expect that our sales and marketing expenses will increase as we further promote our KongZhong brand name in future periods.

General and Administrative Expenses. Our general and administrative expenses consist primarily of business tax, compensation and benefits for general management, finance and administrative personnel, professional fees, lease expenses and other office expenses. Our general and administrative expenses have increased since our inception, but have decreased significantly as a percentage of our gross revenues. We expect our general and administrative expenses to increase as our business expands in future periods and as a result of the increased administrative costs we expect to incur upon becoming a publicly listed company.

Amortization of Deferred Stock Compensation. In June 2002, we adopted our 2002 Plan, which governs the stock option grants we have made. We grant options to purchase our shares to our employees and we record a compensation charge for the excess of the fair value of the stock at the measurement date over the amount our employee must pay to acquire the stock. Deferred stock compensation is amortized on a straight-line basis and charged to expense over the vesting period of the underlying options, which is generally over four years. See “Management— Stock options” for a description of our stock option plan and grants.

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Below we have summarized our accounting policies that we believe are both important to the portrayal of our financial results and involve the need to make estimates about the effect of matters that are inherently uncertain. We also have other policies that we consider to be key accounting policies. However, these policies do not meet the definition of critical accounting estimates because they do not generally require us to make estimates or judgments that are difficult or subjective.

Our revenues are primarily derived from providing wireless interactive entertainment, media and community value-added services to customers of China Mobile and its subsidiaries. The fees for such services are determined by us in consultation with the mobile operators, are charged on a transaction basis or on a monthly subscription basis and vary according to the type of services delivered.

We deliver wireless value-added services to users through the mobile operators’ networks and we rely upon the mobile operators to provide us with billing and collection services. We have, however, developed an internal system that records the number of transactions that are sent from our servers, which we then compare to the confirmations received from the relevant mobile operator. Generally, within 15 to 30 days after the end of each month, each of the mobile operators delivers to us a statement confirming the value of the wireless value-added services provided by us for which they

billed to users in that month, and usually within 60 days after the end of each month, the mobile operator will pay us for the wireless value-added services, less their service fees and net transmission charges.

We internally tabulate the value of the wireless value-added services provided based upon individual delivery confirmations sent to us by the mobile operators each time we deliver a service to the mobile operator for delivery to a user. We also receive monthly statements from the mobile operators with respect to the total volume of services delivered to users in that month. Historically, there has been a discrepancy between the value based on the delivery confirmations and the value set forth in the monthly statements. This discrepancy arises for various reasons, including:


†	Late notification of delinquent customers. The mobile operators may from time to time classify certain customers as delinquent customers for non-payment of services. The mobile operators request all service providers to cease delivering services to customers once they are classified as delinquent. However, time lags often exist between when a customer is classified as delinquent and when we receive such information from the mobile operations. As a result, we occasionally unintentionally provide services to these delinquent customers for which the mobile operators will not make payments to us.

†	Customer database out of synchronization. Customers may cancel their subscriptions through the mobile operators. Although we synchronize our and the mobile operators’ databases of customer information on an ongoing basis, our databases are not always completely in synchronization with those of the mobile operators. As a result, until our databases are synchronized with the mobile operators’, we could provide services to customers who have cancelled their subscriptions, for which we are not entitled to receive revenue.

†	Duplicate billing. China Mobile typically generates system identification numbers to identify customers who use our WAP services, rather than directing the real phone numbers to us. Occasionally the platform operators inadvertently generate multiple identification numbers for one mobile number. In such case, the multiple bills for the multiple identification numbers have to be eliminated from the monthly statement the mobile operators provide to us.

†	Delivery failure. When mobile operators send us delivery confirmations within 72 hours of our delivery of value-added services, the confirmations will indicate three possible outcomes: success, failure, or unknown. Our internal system recognizes successful confirmations as services provided. As a result, there exist discrepancies between our records and the monthly statement provided by the mobile operators for confirmations marked as “unknown” where our services were successfully delivered or where the confirmation was incorrect.

In future periods, we may release our unaudited quarterly financial statements to the market. Due to our past experience with the timing of receipt of the monthly statements from the operators, we expect that we may need to rely on our own internal estimates for the portion of our reported revenues for which we will not have received monthly statements. Our internal estimates will be based on our own internal tabulation of expected revenues from services provided. As the internal tabulation may not be entirely consistent with the actual revenues confirmed by the monthly statements that we eventually receive, we would multiply our internal tabulation of expected revenue by a realization factor determined according to the average discrepancy over the previous 12 months between our internal tabulations of expected revenues and the actual revenues based on the monthly statements. As a result, we may overstate or understate our revenue for the relevant report period. Any difference between our estimated and actual revenue may result in subsequent adjustments to our revenue reported in our financial statements.

Pursuant to the cooperation agreements that we have entered into with China Mobile and its subsidiaries, we generally do not bear credit risk with respect to outstanding receivables from the mobile users, with the exception of our SMS services provided through Chongqing Mobile Telecommunication Corporation, or Chongqing Mobile, for which we bear the risk of customer default. We derived less than 1% of our revenue from SMS services provided through Chongqing Mobile in both 2003 and the three months ended on March 31, 2004.

We evaluate our cooperation arrangements with the mobile operators to determine whether to recognize our revenue on a gross basis or net of the services fees and net transmission charges paid to the mobile operators. Our determination is based upon an assessment of whether we act as a principal or agent when providing our services. We have concluded that we act as a principal in the arrangement. Factors that support our conclusion include:


†	We are able to establish prices within ranges prescribed by the mobile operators;

†	We determine the service specifications of the services we will be rendering; and

†	We are able to control the selection of our content suppliers.

Although the mobile operators must approve the prices of our services in advance, we have been able to adjust our prices from time to time to reflect or react to changes in the market. In addition, the mobile operators usually will not pay us if users do not receive the services or cannot be billed due to transmission and billing failures. As a result, we bear a portion of the delivery and billing risks for our portion of the revenues generated with respect to our services.

Based on these factors, we believe that recognizing revenues on a gross basis is appropriate.

Our stock-based employee compensation plan is described in more detail under “Management— Stock options.” We grant stock options to our employees and we record a compensation charge for the excess of the fair value of the stock at the measurement date over the amount an employee must pay to acquire the stock. We amortize deferred stock compensation using the straight-line method over the vesting periods of the related options, which are generally four years.

We have recorded deferred stock-based compensation to represent the difference between the deemed fair value of our ordinary shares for accounting purposes and the option exercise price. We determined the deemed fair value of our ordinary shares based upon several factors, including a valuation report from an independent appraiser and the price of our then most recent preferred share placement. We recorded deferred stock-based compensation expense of $0, $0.2 million and $2.2 million for stock options granted to employees for the period from May 6, 2002 to December 31, 2002, the year ended December 31, 2003 and the three months ended March 31, 2004, respectively, and we amortized $0, $21,986 and $80,738 for the period from May 6, 2002 to December 31, 2002, the year ended December 31, 2003 and the three months ended March 31, 2004, respectively. If we had used different assumptions or criteria to determine the deemed fair value of our ordinary shares, materially different amounts of stock-based compensation could have been reported.

Pro forma information regarding net income (loss) and net income (loss) per share is required in order to show our net income (loss) as if we had accounted for employee stock options under the fair value method. We use the Black-Scholes option pricing model to compute the fair value. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the expected stock price volatility. We use projected volatility rates, which are based upon historical volatility rates experienced by comparable public companies. Because our employee stock options have characteristics significantly different from those of publicly traded

options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in our management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of our stock options.

The historical pro forma net income (loss) and pro forma net income (loss) per share that we used in calculating the fair value of the options granted to employees may not be representative of the pro forma effects in future years of net income (loss) and earnings per share for the following reasons:


†	The number of future shares to be issued under these plans is not known; and

†	The assumptions used to determine the fair value can vary significantly.

The following table sets forth our supplemental selected unaudited quarterly results of operations for the periods indicated. This information should be read in conjunction with the consolidated financial statements and related notes contained elsewhere in this prospectus. In our management’s opinion, we have prepared our quarterly results of operations on substantially the same basis as our audited consolidated financial statements. This information includes all adjustments that we consider necessary for the fair presentation of our financial position and operating results for the periods presented. Due to the relatively new and rapidly evolving nature of the wireless value-added services industry in China, the short history of our company and other factors affecting our business as described under “Risk factors,” our results of operations in any period are not necessarily indicative of the results that may be expected for any future periods.



		For the three months ended


		June 30, 2002⁽¹⁾					September 30, 2002						December 31, 2002						March 31, 2003						June 30, 2003

					Percentage					Percentage						Percentage						Percentage						Percentage
					of					of						of						of						of
		Amount			revenues		Amount			revenues			Amount			revenues			Amount			revenues			Amount			revenues



		(in thousands of U.S. dollars, except percentages)
Gross revenues
	2.5G⁽²⁾	$	—			—	$	37.1			85.9	%	$	94.2			60.0	%	$	346.0			49.2	%	$	914.9			74.6	%
	2G⁽³⁾		—			—		6.1			14.1	%		62.9			40.0	%		357.0			50.8	%		311.5			25.4	%

	Total gross revenues		—			—		43.2			100.0	%		157.1			100.0	%		703.0			100.0	%		1,226.4			100.0	%
Cost of revenues			—			—		(18.2	)		(42.1	)%		(66.1	)		(42.1	)%		(146.5	)		(20.8	)%		(330.7	)		(27.0	)%

Gross profit			—			—		25.0			57.9	%		91.0			57.9	%		556.5			79.2	%		895.7			73.0	%
Operating expenses:
	Product development		(27.6	)		—		(37.1	)		(85.9	)%		(99.5	)		(63.3	)%		(176.2	)		(25.1	)%		(271. 3	)		(22.1	)%
	Sales and marketing		(7.1	)		—		(15.0	)		(34.7	)%		(106.8	)		(68	)%		(140.7	)		(20.0	)%		(212. 6	)		(17.3	)%
	General and administrative		(44.6	)		—		(70.2	)		(162.5	)%		(202.5	)		(128.9	)%		(142.4	)		(20.3	)%		(175.0	)		(14.3	)%
	Amortization of deferred stock compensation		—			—		—			—	%		—			—	%		—			—	%		—			—	%

Total operating expenses			(79.3	)		—		(122.3	)		(283.1	)%		(408.8	)		(260.2	)%		(459.3	)		(65.4	)%		(658.9	)		(53.7	)%

Income (loss) from operations			(79.3	)		—		(97.3	)		(225.2	)%		(317.8	)		(202.3	)%		97.2			13.8	%		236.8			19.3	%
Other expenses			—			—		—			—	%		—			—	%		—			—	%		—			—	%
Interest income, net			0.2			—		—			—	%		0.3			0.2	%		(0.1	)		—	%		(0.3	)		—	%

Net income (loss)		$	(79.1	)		—	$	(97.3	)		(225.2	)%	$	(317.5	)		(202.1	)%	$	97.1			13.8	%	$	236.5			19.3	%

[Continued from above table, first column(s) repeated]



		For the three months ended


		September 30, 2003						December 31, 2003						March 31, 2004

					Percentage						Percentage						Percentage
					of						of						of
		Amount			revenues			Amount			revenues			Amount			revenues



		(in thousands of U.S. dollars, except percentages)
Gross revenues
	2.5G⁽²⁾	$	1,604.6			79.0	%	$	3,090.5			80.3	%	$	5,244.4			73.4	%
	2G⁽³⁾		426.2			21.0	%		756.0			19.7	%		1,903.2			26.6	%

	Total gross revenues		2,030.8			100.0	%		3,846.5			100.0	%		7,147.6			100.0	%
Cost of revenues			(651.1	)		(32.1	)%		(1,155.7	)		(30	)%		(2,239.0	)		(31.3	)%

Gross profit			1,379.7			67.9	%		2,690.8			70.0	%		4,908.6			68.7	%
Operating expenses:
	Product development		(390.2	)		(19.2	)%		(531.8	)		(13.8	)%		(716.5	)		(10.0	)%
	Sales and marketing		(203.7	)		(10.0	)%		(284.4	)		(7.4	)%		(294.1	)		(4.1	)%
	General and administrative		(262.7	)		(12.9	)%		(302.6	)		(7.9	)%		(675.7	)		(9.5	)%
	Amortization of deferred stock compensation		(8.8	)		(0.4	)%		(13.2	)		(0.3	)%		(80.8	)		(1.1	)%

Total operating expenses			(865.4	)		(42.5	)%		(1,132.0	)		(29.4	)%		(1,767.1	)		(24.7	)%

Income (loss) from operations			514.3			25.4	%		1,558.8			40.6	%		3,141.5			44.0	%
Other expenses			—			—	%		—			—	%		(0.7	)		—	%
Interest income, net			0.7			—	%		0.7			—	%		1.3			—	%

Net income (loss)		$	515.0			25.4	%	$	1,559.5			40.6	%	$	3,142.1			44.0	%

Gross Revenues. Our business has grown quickly, which has resulted in significant increases in our gross revenues each quarter throughout the comparison periods. Substantially all of these increases resulted from rapid growth in China’s 2.5G wireless value-added services market and the usage volume

of our WAP, MMS, and SMS services. We commercially launched MMS services in April 2003. In addition, during various quarters, we have promoted certain services, which further increased revenues during such quarters. For example, we entered into an exclusive cooperation arrangement to promote the movie “Hero” through WAP and SMS, which generated $0.2 million in revenues in the first quarter of 2003. We also launched many new services in the first and second quarters of 2003, which resulted in increases in our revenues in that quarter. For example, we launched WAP based ringtone and picture download services in April 2003, which generated $0.1 million, $0.3 million, $0.8 million and $1.4 million in revenues in the second, third and fourth quarters of 2003 and the first quarter of 2004, respectively. Our gross revenues increased by 86% to $7.1 million in the first quarter of 2004 from $3.8 million in the fourth quarter of 2003. This increase was driven by strong growth in our services across both 2G and 2.5G technology platforms, as a result of continuing growth in China’s wireless value-added services market.

Cost of Revenues. Our cost of revenues has increased substantially each quarter throughout the comparison periods. This increase was primarily due to the increases in the service fees and net transmission charges paid to the mobile operators as a result of the increase in our revenue and usage volume. Our service and other fees paid under our cooperation arrangements with our content and distribution partners also resulted in an increase in our cost of revenues as we increased the number and scope of our cooperation arrangements. For the first quarter of 2004, our cost of revenues increased 94% to $2.2 million from $1.2 million in the fourth quarter of 2003. The increase was driven primarily by increases in service fees and transmission charges that we paid to mobile operators and fees that we paid to handset manufacturers and content partners. We expect our cost of revenues will continue to increase, particularly as our newly added distribution channels begin to increase their contribution and we continue to add distribution channels.

Gross Profit. Our gross profit has increased throughout the comparison periods. Our gross profit as a percentage of gross revenues, or gross margin, has fluctuated over the periods as a result of certain promotional activities or increases in cooperation arrangements. The major factors affecting the fluctuations in our gross margin include the amount of fees we pay to the mobile operators, content providers and distribution partners, which depends primarily on the number and scope of our cooperation arrangements, economies of scale and net transmission charges we pay to the mobile operators, which may be affected by the proportion of revenues from WAP to total revenues. For the first quarter of 2004, our gross profit increased by 82% to $4.9 million from $2.7 million for the fourth quarter of 2003. This increase was driven by the increase in our revenues.

Operating Expenses. Our operating expenses have increased throughout the comparison periods, driven primarily by increases in our product development expenses, sales and marketing expenses and general and administrative expenses. For the first quarter of 2004, our total operating expenses increased by 56% to $1.8 million from $1.1 million in the fourth quarter of 2003. As a percentage of gross revenues, our operating expenses have declined from our inception through the first quarter of 2004.

Our product development expenses have increased as a result of the expansion of our product development team as our business grew. However, our product development expenses as a percentage of gross revenues have continuously declined from our inception through the first quarter of 2004 as a result of economies of scale.

Our sales and marketing expenses have increased as a result of an expansion in marketing activities to promote our brand name and to establish additional distribution channels. We expect our sales and marketing expenses will continue to increase, particularly as we establish sales presences in additional geographic areas in China.

Our general and administrative expenses have increased as a result of the expansion of our business, including an increase in our business tax, the compensation and benefits for general management, finance and administrative personnel, professional fees, lease expenses and other office expenses. In the first quarter of 2004, our general and administrative expenses increased significantly, primarily as a result of increases in professional fees, business tax, salary for general management, finance and administrative personnel, travel expenses, and other office expenses.

We recorded amortization of deferred stock compensation in the third and fourth quarters of 2003 and the first quarter of 2004 as a result of the issuance of stock options to our employees under the 2002 Plan, which also contributed to the increase in our operating expenses.

Year ended December 31, 2003 compared to the period from May 6, 2002 (date of inception) through December 31, 2002

The following table sets forth, for the periods presented, certain data from our consolidated results of operations. This information should be read in conjunction with the consolidated financial statements and related notes contained elsewhere in this prospectus.

Gross Revenues. Our gross revenues substantially increased to $7.8 million in 2003 from $0.2 million for the period from May 6, 2002 to December 31, 2002. The increase in our gross revenues was largely due to the additional services that we provided in 2003, which generated $2.1 million in revenue in 2003. We offered a total of 470 2.5G based services and 204 2G based services in 2003, as compared to 16 services based on 2.5G platforms and 41 services based on 2G

platforms in 2002. The increase was also due to the full year effect of our operating results in 2003, during which we expanded our business to develop additional services and establish more distribution channels and partners. The number of subscriptions of our services increased to 10.9 million in 2003 from 0.4 million for the period from May 6, 2002 to December 31, 2002. The number of downloads of our services increased to 8.8 million in 2003 from 0.8 million for the period from May 6, 2002 to December 31, 2002.

Cost of Revenues. Our cost of revenues increased substantially to $2.3 million in 2003 from $84,335 for the period from May 6, 2002 to December 31, 2002. This increase was driven by the increase in the service fees and net transmission charges paid to the mobile operators as a result of the increase in our revenue and usage volume. An increase in the service fees relating to our cooperation arrangements with other business partners also resulted in an increase in our cost of revenues as we increased the number and scope of our cooperation arrangements.

Gross Profit. Our gross profit in 2003 increased substantially from 2002 primarily due to a substantial increase in the volume of our services and related revenues. We achieved a gross profit of $5.5 million in 2003 as compared to $0.1 million in 2002. As our gross revenues have increased at a higher rate than our cost of revenues, our gross margin increased in 2003.

Operating Expenses. Our operating expenses increased substantially to $3.1 million in 2003 from $0.6 million for the period from May 6, 2002 to December 31, 2002. This increase was primarily driven by an increase in our product development expenses and sales and marketing expenses. Increases in our general and administrative expenses and amortization of deferred stock compensation also contributed to the increase in our operating expenses. Our total number of employees increased to 229 as of December 31, 2003 from 51 as of December 31, 2002.

Our product development expenses increased to $1.4 million in 2003 from $0.2 million for the period from May 6, 2002 to December 31, 2002, primarily due to the expansion of our product development team as our business grew. We expanded our product development team to 149 employees as of December 31, 2003 from 27 employees as of December 31, 2002.

Our sales and marketing expenses increased to $0.8 million in 2003 from $0.1 million for the period from May 6, 2002 to December 31, 2002 as a result of an increase in marketing activities to promote our brand name and to establish additional distribution channels. We expanded our sales, marketing and customer services team to 54 employees as of December 31, 2003 from 14 employees as of December 31, 2002.

Our general and administrative expenses increased to $0.9 million in 2003 from $0.3 million for the period from May 6, 2002 to December 31, 2002 as a result of the expansion of our business, including increases in our professional fees, business tax, the compensation and benefits for general management, finance and administrative personnel, travel expenses, lease expenses and other office expenses. Our general and administrative staff grew to 18 employees as of December 31, 2003 from 8 employees as of December 31, 2002.

Our amortization of deferred stock compensation increased to $21,986 in 2003 from $0 for the period from May 6, 2002 to December 31, 2002 as a result of the issuance of stock options to our employees under the 2002 Plan.

Three months ended March 31, 2004 compared to three months ended March 31, 2003

The following table sets forth, for the periods presented, certain data from our unaudited consolidated results of operations. This information should be read in conjunction with the consolidated financial statements and related notes contained elsewhere in this prospectus.

Gross Revenues. Our gross revenues substantially increased to $7.1 million for the three months ended March 31, 2004 compared to $0.7 million for the same period in 2003. This increase in our gross revenues was largely due to the rapid growth in China’s 2.5G wireless value-added services market and the usage volume of our WAP, MMS and SMS services. We commercially launched our MMS services in April 2003 and our Java^TM services in November 2003. We also launched our WAP services in September 2002 and introduced a number of additional WAP services in 2003. The number of subscriptions of our services increased to 7.7 million for the three months ended March 31, 2004 from 1.3 million for the same period in 2003.

Cost of Revenues. Our cost of revenues increased substantially to $2.2 million for the three months ended March 31, 2004 from $0.1 million for the same period in 2003. This increase was primarily driven by an increase in the service fees and net transmission charges paid to the mobile operators as a result of the increase in our revenue and usage volume. An increase in the service fees relating to our cooperative arrangements with other business partners also contributed to the increase in our cost of revenues as we increased the number and scope of our cooperation arrangements.

Gross Profit. Our gross profit for the three months ended March 31, 2004 increased substantially from the same period in 2003 primarily due to a substantial increase in the volume of our services and related revenues. We achieved a gross profit of $4.9 million for the three months ended March 31, 2004 as compared to $0.6 million for the same period in 2003.

Operating Expenses. Our operating expenses increased substantially to $1.8 million for the three months ended March 31, 2004 from $0.5 million for the same period in 2003. This increase was primarily driven by an increase in our product development expenses and general and administrative expenses. Increases in our sales and marketing expenses and amortization of deferred stock compensation also contributed to the increase in our operating expenses. Our total number of employees increased to 314 as of March 31, 2004 from 79 as of March 31, 2003.

Our product development expenses increased to $0.7 million for the three months ended March 31, 2004 from $0.2 million for the same period in 2003, primarily due to the expansion of our product development team as our business grew. We expanded our product development team to 201 employees as of March 31, 2004 from 49 employees as of March 31, 2003.

Our sales and marketing expenses increased to $0.3 million for the three months ended March 31, 2004 from $0.1 million for the same period in 2003 as a result of an increase in marketing activities to promote our brand name and to establish additional distribution channels. We expanded our sales, marketing and customer services team to 78 employees as of March 31, 2004 from 20 employees as of March 31, 2003.

Our general and administrative expenses increased to $0.7 million for the three months ended March 31, 2004 from $0.1 million for the same period in 2003 as a result of the expansion of our business, including increases in our professional fees, business tax, the compensation and benefits for general management, finance and administrative personnel, travel expenses and other office expenses. Our general and administrative staff grew to 23 employees as of March 31, 2004 from 10 employees as March 31, 2003.

Our amortization of deferred stock compensation increased to $80,738 from $0 for the same period in 2003 as a result of the issuance of stock options to our employees under the 2002 Plan.

Our primary sources of liquidity have historically been capital contributions from our founders, private placements of preferred shares to investors and cash generated from operating activities. In the future, we anticipate that our primary sources of liquidity will come from cash flow from operating activities and the proceeds of this offering. As of December 31, 2003 and March 31, 2004, our cash and cash equivalents were $3.7 million and $5.7 million, respectively.

We do not bill or collect payment from users of our services directly, but instead depend on the billing systems and records of China Mobile and its subsidiaries to record the volume of our services provided, charge our users, collect payments and remit to us our revenue, less transmission fees and service fees. If China Mobile ceases to continue to cooperate with us, we will explore cooperation with other mobile service providers, including China Unicom, and explore alternative billing systems to collect bills from users.

Net cash provided by operating activities was $2.0 million in 2003 compared to net cash used in operating activities of $0.6 million for the period from May 6, 2002 to December 31, 2002, and our net cash provided by operating activities was $2.2 million for the first quarter of 2004, as compared to net cash used in operating activities of $0.2 million for the same period in 2003. This difference was primarily due to the net income we generated.

Net cash used in investing activities increased significantly to $0.9 million in 2003 from $0.3 million for the period from May 6, 2002 to December 31, 2002. For the first quarter of 2004, our net cash used in investing activities reached $0.4 million, as compared to $69,000 for the same period in 2003. Our net cash used in investing activities has primarily been used to purchase computer, transmission and office equipment in connection with the expansion of our business.

We had no cash provided by or used in financing activities in 2003. Net cash provided by financing activities in the first quarter of 2004 was $0.1 million, as a result of the contribution by Yunfan Zhou and Zhen Huang to the registered capital of our affiliate, Beijing Boya Wuji. For the period from May 6, 2002 to December 31, 2002, cash provided by financing activities was $3.5 million, which consisted of the proceeds from our issuance of ordinary shares, Series A preferred shares and Series B preferred shares to investors.

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 for working capital purposes, capital expenditures and various contractual obligations, for at least the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these sources are insufficient to satisfy our cash requirements, we may seek to sell debt securities or additional equity or to obtain a credit facility. The sale of convertible debt securities or additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in incurring debt service obligations and could result in operating and financial covenants that would restrict our operations. Given our short operating history, we currently do not have any lines of credit or loans with any commercial banks. As a result, we are unlikely to rely on any bank loans to meet our liquidity needs. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

We intend to meet our future funding needs through cash flow generated from operating activities and the proceeds of this offering. Our treasury objective is to maintain safety and liquidity of our cash.

Therefore, we intend to keep our cash and cash equivalents in short-term deposits and short-term government bills or bonds.

As of March 31, 2004, we did not have any outstanding loan capital issued or agreed to be issued, bank overdrafts, loans, debt securities or other similar indebtedness, liabilities under acceptance (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, finance leases or purchase commitments, guarantees or other material contingent liabilities. In addition, there has not been any material change in our indebtedness, commitments and contingent liabilities since March 31, 2004.

We have entered into certain leasing arrangements relating to our office premises. Pursuant to our additional leasing arrangements entered into in May 2004, as of May 31, 2004, our operating lease obligations are $0.6 million, 1.0 million and 0.4 million in 2004, 2005 and 2006, respectively, and 1.9 million in total. As of March 31, 2004, we do not have any long-term debt obligations or purchase obligations.

Our total capital expenditures for plant and equipment in 2003 and for the period from May 6, 2002 to December 31, 2002 were $0.9 million and $0.3 million, respectively. Our total capital expenditures for the first quarter of 2004 were $0.4 million. We currently have approximately $0.2 million worth of capital expenditures in progress, which will primarily be used in China. Our capital expenditures in progress are financed primarily from cash flows from operating activities, as well as capital contributions by our founders and proceeds from the issuance of shares in our company to investors. We have not had any material capital divestitures and do not have any in progress.

Our capital expenditure is spent primarily on servers, transmission equipment and personal computers. In general, there is a positive correlation between our revenue and the amount of traffic that passes through our servers and transmission equipment. From time to time we need to purchase additional

servers and transmission equipment as a result of increased business traffic. Our purchase of personal computers is primarily driven by headcount increases.

As mobile operators do not provide us detailed revenue breakdown on a service-by-service basis, we depend on our internal database system to monitor revenue derived from each of our services. We make our business decisions based on our internal data, taking into account other factors including strategic considerations.

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Our exposure to market risk for changes in interest rates relates primarily to the interest income generated by our cash deposits with our banks. We have not used any derivative financial instruments in our investment portfolio. Interest earning instruments carry a degree of interest rate risk. We have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates. However, our future interest income may fall short of expectations due to changes in interest rates.

While our reporting currency is the U.S. dollar, to date, virtually all of our revenues and costs are denominated in Renminbi and the majority of our assets and all of our liabilities are denominated in Renminbi. Following this offering, most of our assets will be denominated in U.S. dollars. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be impacted by fluctuations in the exchange rate between U.S. dollars and Renminbi. If the Renminbi depreciates against the U.S. dollar, the value of our Renminbi revenues and assets as expressed in our U.S. dollar financial statements will decline. See “Risk factors— Risks relating to the People’s Republic of China— Fluctuation of the Renminbi could materially affect the value of our ADSs.”

We have experienced de minimis foreign exchange gains or losses to date. We do not engage in any hedging activities, and may in the future experience economic loss as a result of any foreign currency exchange rate fluctuations.

In recent years, China has not experienced significant inflation, and thus inflation has not had a significant effect on our business since our inception. According to the China Statistical Bureau, China’s overall national inflation rate, as represented by the general consumer price index, was approximately 1.2%, (0.8%) and 0.7% in 2003, 2002 and 2001, respectively.

The Cayman Islands currently do not levy any 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.

In addition, pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor-in-Council that (i) no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us or our operations and (ii) no tax to be levied on profits, income gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable by us on or in respect of our shares, debentures or other obligations or by way of the withholding in whole or in part of any relevant payment as defined in Section 6(3) of the Tax Concessions Law (1999 Revision). This undertaking is for a period of 20 years from May 21, 2002.

KongZhong Beijing, Beijing AirInbox and Beijing Boya Wuji are incorporated in the PRC and subject to the Income Tax Law of the PRC Concerning Foreign Investment and Foreign Enterprises and various local income tax laws. Generally, PRC companies are subject to an enterprise income tax of 33%. However, KongZhong Beijing benefits from preferential tax treatment as a high technology enterprise, pursuant to which its net income is tax exempt until 2005, subject to a 7.5% enterprise income tax for the following three years and subject to a 15% enterprise income tax thereafter. Beijing AirInbox also benefits from preferential tax treatment as a high technology enterprise, pursuant to which its net income is tax exempt until the end of this year, subject to a 7.5% enterprise income tax for the following three years and subject to a 15% enterprise income tax thereafter. Beijing AirInbox will need to apply for confirmation of the 7.5% enterprise income tax treatment at the end of this year. Beijing Boya Wuji has been certified as a high technology enterprise, pursuant to which it will be entitled to preferential tax treatment similar to that Beijing AirInbox currently enjoys. Each of KongZhong Beijing, Beijing AirInbox and Beijing Boya Wuji’s high technology enterprise status is subject to periodic review by the relevant PRC governmental authority. If any of these entities is found not to qualify as a high technology enterprise for PRC tax purposes, then such entity will not be eligible for the preferential tax treatment.

KongZhong Beijing and Beijing AirInbox have recorded net losses in the past, which they may carry forward for five years from the end of the period in which the loss was recorded to offset future net income for tax purposes. We cannot, however, give any assurances that KongZhong Beijing and Beijing AirInbox will record sufficient net income within the carry forward periods to realize the full tax benefit of these past net losses, and therefore, have recorded a full valuation allowance on the deferred tax asset balance. For a discussion of our deferred tax valuation allowance accounting policy, see “—Critical accounting policies.” The tax losses carried forward as of December 31, 2003 amounted to $1.1 million and will expire by 2008.

In addition, our revenues are subject to business taxes. Since August 2003, both Beijing AirInbox and Beijing Boya Wuji are subject to a 3.3% business tax for wireless value-added services and a 5.5% business tax for other services. KongZhong Beijing is subject to a 5% business tax. In future periods, we expect that a substantial portion of our revenues will be generated through Beijing AirInbox and Beijing Boya Wuji. In addition, pursuant to the arrangements that KongZhong Beijing has entered into with each of Beijing AirInbox and Beijing Boya Wuji, Beijing AirInbox and Beijing Boya Wuji pay us service and license fees. The amount of such payments will be subject to the 5% business tax payable by KongZhong Beijing. See “Related party transactions— Other related party agreements.”

(or assets in some circumstances) in statements of positions or consolidated balance sheets, as appropriate. The financial instruments within the scope of this Statement are: (i) mandatorily redeemable shares that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embody an obligation that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares (excluding certain financial instruments indexed partly to the issuer’s equity shares and partly, but not predominantly, to something else). This Statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The Statement also requires disclosures about alternative ways of settling the instruments and about capital structure of entities all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position, cash flows or results of operations.

In November 2002, the FASB issued Interpretation Number (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This interpretation requires certain disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN No. 45 are effective for interim and annual periods ending after December 15, 2002 and have been adopted in the financial statements. The initial recognition and initial measurement requirements of FIN No. 45 are effective prospectively for guarantees issued or modified after December 31, 2002. The adoption of the recognition and initial measurement requirements of FIN No. 45 did not have a material impact on the Company’s financial position, cash flows or results of operations.

In January 2003, the FASB issued FIN 46. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. FIN 46 was applicable for periods ending December 15, 2003. In December 2003 the FASB issued FIN 46R which provides for the deferral of the implementation date to the end of the first reporting period after December 15, 2004 unless the Company has a special purpose entity in which case the provisions must be applied for fiscal years ending December 31, 2003. However, the Company has retroactively adopted the provisions as of 2002.

In November 2002, the Emerging Issue Task Force (“EITF”) reached a consensus on Issue No. 00-21 (“EITF No. 00-21”), “Revenue Arrangements with Multiple Deliverables”. EITF No. 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue generating activities. EITF No. 00-21 will be effective for fiscal periods beginning after June 15, 2003. The Company has adopted EITF No. 00-21 and it did not have a material impact on the Company’s financial position, cash flows or results of operations.

In recent years, the telecommunications industry in China has grown at a rapid pace, particularly in the mobile telecommunications market segment. China is now the largest mobile telecommunications market in the world, with over 268.7 million mobile phone users as of the end of 2003, according to data published by China’s MII. Chinese consumers have been quick to adopt and use new wireless value-added services as a means of communication, as well as a source of information and entertainment, partly due to the proliferation of mobile phones as a more accessible alternative to both fixed-line phone services and personal computer-based Internet services in China.

The table below sets forth certain data with respect to demographics, mobile and fixed-line phone users and Internet users in China for the periods indicated:

Source: Data in respect of China’s population and GDP is derived from information published by the National Bureau of Statistics of China; data in respect of mobile phone and fixed-line phone users is derived from information published by the MII; data in respect of Internet users is derived from information published by the China Internet Network Information Center, or CNNIC.

While the growth in the number of users and penetration rate in the fixed-line segment has been significant in recent years, the annual growth rate of fixed-line users is expected to be significantly lower than that of mobile phone users. Norson Telecom Consulting, an independent research agency, projects that fixed-line phone users will grow to 318.2 million by the end of 2005, representing a compound annual growth rate of 8.8% from 2003. International Data Corporation, or IDC, estimates that China will have 361.5 million mobile phone users by the end of 2005, representing a compound annual growth rate of 14.3% from 2003. Despite significant growth in mobile phone users, the mobile phone penetration rate in China remains low compared to the rate in other countries, such as Korea, Japan, the United Kingdom and the United States.

The table below sets forth comparative industry and economic information for certain countries and regions.

Source: Data in respect of population, mobile subscribers and mobile penetration is derived from information published by Gartner Dataquest, except for (i) the population data for the United States and Brazil, which are derived from information published by the Economist Intelligence Unit, 2004 and (ii) the mobile penetration data for the United States and Brazil, which are calculated from the population and subscriber data set forth in this table. Data in respect of GDP per capita is derived from information published by the Economist Intelligence Unit, 2004.

The wireless value-added services market, which provides services that allow mobile phone users to receive and transmit text, images and other forms of digital data or voice content via their mobile handsets, represents a new and fast-growing sector within China’s rapidly evolving telecommunications industry. Analysys Consulting Ltd., or Analysys, estimates that total wireless value-added services revenue in China rose from $211.5 million in 2002 to $452.5 million in 2003 and is expected to grow to $800.4 million in 2004. Wireless value-added service providers deliver their services through the telecommunications infrastructure of mobile operators and rely on the mobile operators for billing and payment collection services. Wireless value-added services are provided to mobile phone users through the cooperation of several players in the value chain. Content providers, such as the media, create the basic content, which service providers, such as ourselves, produce, aggregate and repackage as wireless value-added services to be delivered through the mobile operators’ networks. Mobile phone users

receive services through mobile phones produced by mobile handset manufacturers. The following figure illustrates the wireless value-added services industry value chain:

The 2.5G wireless value-added services market reflects the evolution of wireless data services in China as handsets and wireless networks become more sophisticated and are able to handle higher data transmission speeds. This enables users to access richer and more complex content via their mobile phones with higher levels of interactivity. China Mobile and China Unicom have only begun to introduce 2.5G wireless data services over their networks in the last two years. Analysys estimates that the number of users of WAP and MMS increased by 454% between 2002 and 2003 and that the market for WAP and MMS will grow to $180.6 million in 2004, from $53.5 million in 2003, representing a 237% increase over the same time period.

China Mobile launched its Monternet^TM platform for wireless value-added services in November 2000 and China Unicom launched its Uni-Info^TM platform in May 2001 using a business model similar to the model used in Japan and Korea. The industry development experienced in Japan and Korea is described below:


†	*i-mode in Japan.* In Japan, NTT DoCoMo Inc., the country’s largest mobile operator, launched its highly successful i-mode service, a packet-based service for mobile phones offered by NTT DoCoMo Inc., in February 1999. The i-mode business model is based upon the mobile operator providing a platform for third party service providers to offer services to customers of the mobile operator. This model encouraged the development of innovative and popular content that capitalized on the distinct cultural characteristics and preferences of Japanese consumers. Japan’s youth are entertainment and technology oriented and view early adoption of new services as a sign of being current and popular. As a result, wireless value-added services flourished in Japan, and according to Pyramid Research, an independent research organization, the revenue generated from such services grew from $1.1 billion in 1999 to $12.0 billion in 2002. i-mode provides a high quality user experience similar to 2.5G. NTT DoCoMo Inc. became the first mobile operator in the world to offer commercial service based on third generation, or 3G, technology in 2001.

†	*n.TOP in Korea.* SK Telecom, Korea’s sole wireless provider until 1996, was able to use its dominant market position to further the growth of wireless data services. In particular, SK Telecom sought to capitalize on the popularity of the Internet in Korea, which has the world’s highest broadband penetration rate. In 1999, SK Telecom launched its highly successful n.TOP wireless data and Internet service, which allows subscribers to access information, send and receive Internet e-mail and effect e-commerce transactions. According to Pyramid Research, the total value of Korea’s wireless value-added services market grew from $85 million in 1999 to $949 million in 2002. According to Pyramid Research, in 2000, SK Telecom launched the world’s first Code Division Multiple Access 1X, or CDMA 1x, RTT high speed data network.


†	*Rapid expansion of China’s mobile telecommunications industry.* With the rapid development of mobile telecommunications infrastructure to provide cheaper and more accessible alternatives to fixed-line phone services, mobile telecommunications services are becoming an increasingly important medium of communication and source of information and entertainment. Despite the substantial growth in recent years, the mobile phone penetration rate in China remains low compared to the penetration rate in more developed countries, providing a potential for continued growth. IDC estimates that the number of mobile phone users in China will reach 493.0 million by the end of 2008, representing a compound annual growth rate of 11.8% from 2003 to 2008.

†	*Increasing user receptivity.* Given the rapid growth of the economy and the rise of GDP per capita in China, Chinese consumers have more disposable income to purchase advanced mobile phones and to spend on wireless value-added services. As disposable income increases and users become more receptive to adopting more advanced wireless value-added services as a means of communication and sources of information and entertainment, the market for 2.5G wireless value-added services is expected to continue growing.

†	*Availability of more advanced handsets in the Chinese market.* Global System for Mobile Communication, or GSM, network is the 2G digital technology used by China Mobile for its network. While the penetration rate of 2.5G mobile phones is relatively low in China currently, Gartner estimates that 48% and 60% of the handsets based on General Packet Radio Services, or GPRS, a pack-based wireless communications services on GSM networks, sold in 2004 and 2005, respectively, will utilize the 2.5G wireless standard, creating opportunities for growth in more advanced wireless value-added services. The advancement of mobile handsets from 2G to 2.5G has led to an evolution in the wireless value-added services market over the past few years, from simple point-to-point text messaging via SMS to more advanced services delivered over the 2.5G wireless standard that allow users to access higher quality graphics and richer content and interactivity, such as WAP-based mobile games and media, MMS-based content and Java^TM-based mobile games.

†	*Support from mobile operators.* Mobile operators have been upgrading and expanding the mobile telecommunications infrastructure in China, including the building of nationwide 2.5G-enabled mobile networks that provide high-speed data and voice transmission capacity. China Mobile launched its 2.5G network in May 2002, to provide WAP services on a trial basis. China Mobile and China Unicom have promoted the development and usage of wireless value-added services on their networks to mobile phone users. For example, in April 2003, China Mobile launched a marketing initiative called M-Zone^TM, which promotes wireless value-added services to younger mobile phone users and had attracted over 10 million subscribers by the end of 2003, according to China Mobile’s 2003 annual results announcement.

The wireless value-added services market is evolving as mobile telecommunications technology becomes more advanced. As this market increasingly shifts towards more advanced wireless standards, mobile operators are upgrading their networks and users are upgrading to new handsets enabled with more advanced 2.5G technology platforms such as WAP, MMS and Java^TM.

China Mobile provides its 2.5G mobile data services using GPRS. It launched its WAP services in May 2002 and MMS services in October 2002. China Unicom, which provides its 2.5G mobile data services using its CDMA 1x network, launched its MMS service, in November 2002 and WAP services in April 2003. Analysys reported that the number of users in China of WAP and MMS increased in 2003 to

7.9 million and 1.8 million, respectively, from 1.8 million and none in 2002, representing a combined WAP and MMS growth rate of 454%. Analysys estimates that the market for WAP services will increase to $97.9 million in 2004 from $25.7 million in 2003, representing an increase of 280%, and MMS services will increase to $82.8 million in 2004 from $27.8 million in 2003, representing an increase of 198%. In comparison with 2.5G services, Analysys estimates that the market for SMS in China was $398.7 million in 2003, representing an increase of 90% from 2002, and will grow to $611.2 million in 2004, representing an increase of 54.5% from 2003.

Mobile operators in China have plans to upgrade their networks to offer third generation, or 3G, wireless telecommunications services, which will enable users to transmit larger amounts of data more quickly, including more sophisticated content, such as streaming media and multi-player mobile games. The PRC government is conducting tests of internationally recognized standards for 3G wireless telecommunications services as a preliminary step before issuing 3G telecommunications operator licenses. No timetable for issuing 3G licenses has been announced by the PRC government. The greater ease of data transmission, as facilitated by new and upgraded technologies and networks, is expected to lead to increased demand for enhanced wireless value-added services, including services that utilize more sophisticated content such as streaming media and multi-player mobile games. See “Special note regarding forward-looking statements.”

Wireless value-added services are provided through various technology platforms. Technology platforms utilizing the 2.5G wireless standard include, among others, WAP, MMS and Java^TM. Technology platforms utilizing the 2G wireless standard include, among others, SMS, IVR and CRBT.


†	*Short Messaging Services (SMS).* SMS allows mobile phone users to send and receive text messages as well as download and transmit ringtones, e-mail alerts, news information and other content. The data capacity of SMS is 140 bytes per message, which limits the type and complexity of content that can be transmitted.

†	*Wireless Access Protocol (WAP).* WAP allows users to directly access and browse the Internet on their mobile phones and download specially configured information from Internet portals.

†	*Multimedia Messaging Services (MMS).* MMS allows users to enhance their messages with sound and images. In October 2002, China Mobile introduced MMS, which has a data capacity of 50 kilobytes, which is 366 times the SMS capacity. Its ability to integrate text, visual and audio messages makes it more attractive than traditional SMS.

†	*Java*^TM. Wireless value-added services based on Java^TM technology allows mobile phone users to play interactive games and download applications to expand the functionality of their mobile phones.

†	*Interactive Voice Response (IVR).* IVR services allow users to access voice content from their mobile phones. For example, users can choose to send songs to other users, chat in voice chat-rooms, use voice-dating services and receive information through voice rather than data. The dating and chat-room services allow users to talk to each other.

†	*Color Ring Back Tones (CRBT).* CRBT allows a mobile phone user to customize the sound callers hear when ringing the user’s mobile phone.

New wireless value-added services have been entering the market each year as Chinese mobile operators have sought to tap new sources of revenue. The operators are currently working with content providers to bring to the market streaming media, animation and personal information management.

We are the leading provider of 2.5G wireless interactive entertainment, media and community services in terms of revenue to customers of China Mobile, which has 166.1 million mobile phone users as of December 31, 2003, the largest mobile subscriber base in the world. China Mobile ranked KongZhong as the number one wireless value-added service provider on its network in terms of revenue for 2.5G wireless value-added services in 2003 and the first quarter of 2004. In addition, we have recently begun to provide wireless value-added services on the networks of China Unicom and China Netcom Group Corporation, or China Netcom. Each of China Mobile, China Unicom and China Netcom is a state-owned enterprise, the majority of the equity interest of which is owned by the People’s Republic of China. We are headquartered in Beijing and provide our services throughout China.

We primarily deliver our services through the more advanced 2.5G wireless standard. The higher transmission capacity allows users to access higher quality graphics and richer content and interactivity, in comparison with the 2G wireless standard at similar costs. We deliver our 2.5G services through WAP, MMS and Java^TM technology platforms. We also offer a range of data and voice services based on the 2G wireless standard through SMS, IVR and CRBT technology platforms.

We deliver a broad range of services, through multiple technology platforms, which users can access directly from their mobile phones, by choosing an icon embedded in select models of handsets, or from a mobile operator’s portal or web site. Our services are organized in three major categories, consisting of:


†	Interactive entertainment. Our interactive entertainment services include mobile games, pictures, karaoke, electronic books and mobile phone personalization features, such as ringtones, wallpaper, clocks and calendars.

†	Media. Our media services provide content such as domestic and international news, entertainment, sports, fashion, lifestyle and other special interest areas.

†	Community. Our community services include interactive chat, message boards, photo albums, dating and networking.

Users can purchase our value-added services on a per use basis and, in most cases, on a subscription basis. We provide our services mainly pursuant to our cooperation arrangements with the mobile operators, the terms of which are generally for one year or less. We do not directly bill our users, and depend on the billing systems and records of the mobile operators to bill and collect all fees. We generally do not have the ability to independently verify the accuracy of the billing systems of the mobile operators. As mobile operators do not provide us detailed revenue breakdown on a service-by-service basis, we depend on our internal database system to monitor revenue derived from each of our services. We make our business decisions based on our internal data, taking into account our historical experience in reconciling our internal data to our actual results of operations and other factors including strategic considerations.

Our focus on establishing a leadership position in the rapidly growing advanced wireless value added services market in China and our ability to cultivate partnerships with key industry players in the

Chinese market have resulted in rapid growth of our financial and operating performance. Since commencing operations in May 2002, we have:


†	Grown our revenues and net income to US$7.8 million and $2.4 million, respectively, in 2003;

†	Grown our revenues and net income to $7.1 million and $3.2 million, respectively, in the first quarter of 2004;

†	Grown our gross revenues and net income by 86% and 106%, respectively, in the first quarter of 2004 over the previous quarter;

†	Maintained our focus on 2.5G services with 2.5G services contributing approximately 73% of our gross revenues in the first quarter of 2004; and

†	Increased our number of registered users to 9.4 million, of which 5.8 million users were classified as active users during the first quarter of 2004.

We were incorporated in the Cayman Islands on May 6, 2002 as Communication Over The Air Inc., an exempted limited liability company. See “Description of share capital— General.” In March 2004, we changed our name to KongZhong Corporation. Our principal executive office is currently located at 8/F, Tower A, Yuetan Building, No. 2 Yuetan North Street, Beijing, China 100045, and will be moved to 33/F, Tengda Building, No. 168, Xiwai Avenue, Haidian District, Beijing, China, 100044 in August 2004. Our telephone number is (8610) 6808-1818.

We believe the major challenges faced by wireless value-added service providers in China in the near future include:


†	Establishing a differentiated brand name and services through a combination of market positioning and knowledge of evolving customer needs;

†	Cultivating strong relationships with the mobile operators and other key content and distribution partners in China and abroad;

†	Identifying and targeting specific customer segments in order to build loyal user communities and a diversified revenue stream through the use of multiple distribution partners; and

†	Managing transitions among the rapidly changing technologies and wireless standards and developing compelling high-quality services in order to accelerate the migration to more sophisticated and attractive wireless value-added services.

Strong market position with a well-recognized brand name in wireless interactive entertainment, media and community services.

We have capitalized on our early-mover advantage, to establish a strong market position and build a brand name recognized by consumers and industry participants. In particular,


†	We have achieved the number one ranking in terms of revenue generated through the usage of each of the three principal 2.5G technology platforms— WAP, MMS and Java^TM— on China Mobile’s GPRS network, based on data provided by China Mobile;

†	Leveraging off our market position, we have focused on developing a reputation for introducing trendsetting services that attract young and trend-conscious consumers, who we believe lead other consumers to use our services and as a result are key in widening our user base; and

†	We have built our brand recognition among industry participants seeking to develop productive commercial relationships with a wireless service provider attuned to evolving consumer demands.

Strategic relationships with China’s largest mobile operator, key content and distribution partners, including handset manufacturers.

Since our establishment, we have focused on building our business by strengthening our relationship with China Mobile, the largest mobile network in terms of subscribers in China. This has been achieved through our consistent performance as one of China Mobile’s top 2.5G wireless value-added service providers. As a result, we are able to achieve the following:


†	Cooperate with China Mobile to promote and develop 2.5G wireless value-added services. We were one of the first wireless value-added service providers to embed WAP services in GSM mobile phones utilizing China Mobile’s network.

†	Enhance our attractiveness as a partner to strategic content, technology and distribution companies. We have established mutually beneficial partnerships with mobile handset manufacturers, such as Motorola, Ningbo Bird, Samsung and Panasonic, as well as other content suppliers and mobile handset distributors in China.

Demonstrated leadership in understanding and addressing customer needs by offering a diversified portfolio of innovative services.

A cornerstone of our strong market position is our commitment to understanding our market and developing and improving the services that meet and shape the demands of our current and prospective customers. By conducting customer and market research and focusing our product development strategies accordingly, we are able to achieve the following:


†	Provide a diversified portfolio of services through multiple technology platforms. Our broad range of services covers a wide array of interests in interactive entertainment, media and community, allowing us to target multiple customer segments to form a loyal customer base.

†	Establish ourselves as an important partner to consumer services companies. Our knowledge of our user base and distribution channels makes us an attractive industry partner for companies looking to cross-sell or market their own products and services into our user base.

Strong product development team devoted to enhancing current and developing new services.

With over 190 programmers and product development specialists, who design, test and operate our services, we believe we have one of the largest product development teams in the wireless interactive and information business in China. Our knowledge of the demands and preferences of our target customer segments, combined with our advanced technology and product expertise, allows us to develop and introduce services to meet our users’ changing requirements. Our services have won awards in several categories, including the number one WAP game by China Mobile in May 2002, the

first prize in China Mobile’s MMS contest in October 2002 and the first prize in China Mobile’s Java contest in May 2003. As a result, we are able to achieve the following:


†	Proactively anticipate market demand for innovative services. We were one of the first wireless service providers in China to introduce a number of innovative 2.5G wireless value-added services, including WAP community and mobile games services, MMS services and Java^TM games. This early-mover position helps us to establish a loyal user base who in turn lead others to use our services and to secure limited resources, such as cooperation relationships with key industry players, which reinforces our early-mover competitive advantage.

†	Develop a variety of proprietary programming tools that allow us to bring services to market quickly and efficiently. In response to the current lack of a standard operating system among mobile phones produced by different manufacturers, we have developed software tools that allow our services to be readily adapted for use on most mobile phones on the market to ensure a consistent user experience. Such tools reduce the marginal cost of adapting our services to additional models of mobile phones.

Our management team has extensive operating experience in China’s telecommunications and Internet industries, experience in Nasdaq-listed companies and proven entrepreneurial success. In particular,


†	Our Chief Executive Officer and President acquired substantial experience through their start-up, development and sale of a successful Internet portal in China;

†	Our Chief Executive Officer and President have each served in a senior management position in Sohu.com Inc., a Nasdaq-listed Internet portal company and our Chief Financial Officer has served as chief financial officer in ASE Test Limited, a Nasdaq-listed company engaged in independent semiconductor testing services;

†	Our management has developed KongZhong into a reputable and popular brand in the wireless value-added services market; and

†	Our management has built an agile, entrepreneurial corporate culture in which our team is focused on achieving and maintaining a leading position in the advanced wireless value-added services market.

Our strategic objective is to build the leading brand and be the leading provider of wireless interactive entertainment, media and community services to mobile phone users across all mobile operators in China. We will undertake strategic initiatives focused on expanding our market presence, diversifying our range of service offerings and enhancing and sustaining our profitability and market position. In particular, we intend to:

The strength of our brand and reputation in the market depends on the distinctiveness and quality of our services. With China at an early and formative stage in the development of consumer brand consciousness and the wireless value-added services market in China still relatively fragmented, we intend to continue to develop our KongZhong brand to harness the growing receptiveness among Chinese consumers for brand-based product differentiation. We intend to:


†	Continue building our reputation as a trendsetter among wireless value-added services users by actively linking our branding campaigns and activities with our service offerings;


†	Promote our services through multiple channels, including the Internet, radio, television, print media and billboards; and

†	Develop innovative joint brand-promotion campaigns with key industry partners by actively promoting our company as the preferred channel of publicity among media-savvy enterprises seeking to reach trend-conscious consumers and as the preferred partner in collaborative lifestyle marketing in China by trend-setting international brands.

Capture market opportunities to strengthen and diversify our business and revenue streams.

We intend to leverage on the strength of our position as the leading provider of wireless interactive entertainment, media and community services on China Mobile’s Monternet^TM network to diversify our revenue streams. We intend to:


†	Foster cooperation relationships with additional mobile operators and new business partners to facilitate long-term diversification of our partnerships; for example, we have recently commenced providing our services through China Unicom’s networks;

†	Further build our sales team throughout China; and

†	Proactively seek alternative business opportunities, such as mobile advertising and mobile commerce, or transacting business using a mobile phone as an access device and method of payment.

Continue to develop and expand the scope of strategic relationships with key industry players.

We intend to continue to build valuable strategic relationships with key industry players in order to enhance our services offerings and to expand our distribution channels. We intend to:


†	Continue working closely with mobile operators on product development and marketing initiatives to develop and offer new services to mobile phone users across different technology platforms, particularly focusing on advanced 2.5G and subsequent wireless standards;

†	Expand our cooperation arrangements with mobile handset manufacturers and other distribution partners in order to expand our distribution channels through which we can increase the volume of services we sell; for instance, in addition to extending the number of mobile phones with embedded KongZhong services, we will also seek to work with off-line media outlets to help sell KongZhong services through their channels; and

†	Identify and seek cooperation arrangements with content providers and owners of proprietary content and brands to develop and offer appealing wireless value-added services utilizing their content and intellectual property.

Continue to develop and diversify our portfolio of service offerings to attract new customers and to increase usage among our existing customers.

One of the key strengths of our business is our ability to identify lifestyle trends and innovative product concepts from around the world and translate such trends and concepts into commercially viable offerings to Chinese consumers. In light of the short product cycles in the wireless value-added market, we aim to bring a steady, expanding stream of services to market through in-house development and cooperation with third-party content developers both within and outside of China to attract new customers and retain existing customers. We intend to:


†	Continue devoting resources within our company to assessing articulated demands and unarticulated potential demands of consumers and develop innovative proprietary service offerings in 2.5G and 3G wireless standards that would channel and serve these demands;


†	Scout out and develop cooperation arrangements with innovative emerging content developers within China; and

†	Monitor developments in markets overseas and localizing advanced wireless entertainment and information services from outside China to meet and shape the demands of consumers in China.

Enhance our profitability by optimizing our product mix and focusing on the development and marketing of advanced wireless value-added services.

We seek to optimize our product mix in order to enhance and sustain our profitability and create value for our shareholders. We intend to:


†	Analyze the margin characteristics of our services to determine the optimal mix of services to achieve greater profitability;

†	Develop and promote technologically advanced value-added services; and

†	Develop and promote subscription-based services in order to increase our recurring revenue.

Selectively acquire businesses and form strategic alliances that enhance our service portfolio, proprietary content, distribution channels and technology.

To complement the organic growth of our company and extend our product development and distribution capabilities, we intend to acquire businesses and form strategic partnerships when suitable opportunities arise. We seek to capture these opportunities by actively identifying and analyzing potential acquisition targets and strategic partners that would:


†	Strengthen our leading position in 2.5G services, such as opportunities to augment our supply of innovative proprietary content or to further enhance our management team; and

†	Expand our sources of revenue geographically or through alternative distribution channels.

We provide interactive entertainment, media and community services through multiple technology platforms to mobile phone users. We provide most of our services through 2.5G technology platforms, including WAP, MMS and Java^TM, which offer higher quality graphics, richer content and interactivity. We also offer services through 2G technology platforms, including SMS, IVR and CRBT.

The following diagram illustrates how our services are provided through technology platforms to users.

Users have the option of ordering our services directly from our web site, www.KongZhong.com, or their mobile phones by ordering our services through our access code or by choosing the icon embedded in select models of handsets. Users may also order some of our services from a mobile operator’s portal or web site. Substantially all of our services are ordered by users directly through their mobile phones and all services are delivered through mobile phones. Depending on the type of service, users can order our services on a transaction basis or subscribe to our services on a monthly basis.

We continuously produce and source new content that appeals to our target consumers for advanced value-added services. Utilizing software we have developed, our experienced team of editors and producers edit, redesign and repackage our content for our different services and technology platforms in a manner that appeals to consumers and ensures a consistent user experience across different mobile handset models. We obtain our content through in-house writers, freelance writers and third-party suppliers. Through contractual arrangements, we have exclusive rights over the content produced by our in-house writers, the content specifically produced for us by freelance writers and some of the content sourced from third-party suppliers.

†

Interactive Entertainment. We offer a wide range of interactive entertainment services, including mobile games, pictures and logos, karaoke, color ring back tones, electronic books and mobile phone personalization features, such as ringtones, wallpaper, icons, clocks and calendars. We provide our interactive entertainment services through all of our technology platforms. Our product development team tailors our mobile games to maximize ease of play and ensure a consistency of user experience across different handset models. Mobile phone users can download on demand or subscribe for regular downloads of our interactive entertainment services, although


	most of our mobile games are offered on a transaction basis. Some of our most popular interactive entertainment services include:


	—	Mobile Games. We primarily offer mobile games based on WAP and Java^TM. Our mahjong game has networking capacity that enables mobile phone users to play this mobile game with other players through the China Mobile network. Other popular mobile games include an interactive shooting game and a role-playing game in which players assume the roles of historical heroes engaged in various battles. We also offer karaoke, which allows users to sing along to melodies while the words and pictures change on the mobile phone screen.

	—	Pictures and Logos. Mobile phone users can download pictures and logos to personalize the background of their mobile phone screens. Such pictures include models, pets and scenic photos.

	—	Polyphonic Ringtones. Our ringtones enable a mobile phone user to personalize their ringtones to the melodies of their favorite songs or special sound effects.


†	*Media.* Users can download our media content on either a transaction basis or a monthly subscription basis. Mobile phone users can download information on demand or subscribe for periodic messages, which includes content covering international and domestic news, entertainment, sports, fashion, lifestyle and other special interest areas. Some of our most popular media services include:


	—	News. We offer international and domestic news, delivered in a format easy for the reader to peruse. Our WAP version enables users to easily search for news that interests them.

	—	Entertainment. Our entertainment magazine focuses on high-profile celebrities and includes star biographies, interviews and photos.

	—	Autos. Our auto magazine features information on different makes and models of automobiles and on the automobile industry generally.


†	*Community.* Users can engage in community-oriented activities such as interactive chatting, message boards, photo albums, dating and networking. Users may only access our community services on a monthly subscription basis. Some of our most popular community services include:


	—	Chat. We offer a variety of chat services. For instance, we have a virtual reality game that allows mobile phone users to choose the lifestyle they dream of and interact with the city’s other inhabitants/ players.

	—	Photo Albums. Our photo albums allow mobile users to post and arrange their photos taken with their mobile handsets into albums accessible via their handsets. Utilizing the WAP technology platform, mobile users can access photo albums in a similar manner to accessing photo albums on the Internet.

	—	Dating. Our dating mobile services are highly popular. We have a mobile chat and dating service available on WAP and MMS, which allows users to utilize the enhanced features of advanced technology of 2.5G to choose their chatting partners from a selection of pictures taken with users’ mobile phone cameras. We also offer a WAP-based dating service designed to simulate a campus environment tailored for students.


†	*Wireless Application Protocol (WAP).* WAP allows users to browse content on their mobile phones so that users can request and receive information in a manner similar to accessing information on Internet web sites through personal computers. We provide our WAP service over GPRS networks, which allows users to download color and animated pictures, logos and wallpaper, interactive mobile games, customized ringtones and other Internet content. We launched WAP services in May 2002, but did not begin to receive revenue for such services until September 2002, when China Mobile started to allow service providers to charge fees for WAP services. We currently offer over 231 WAP services, substantially all of which are only available on a subscription basis. As of March 31, 2004, we had a total of approximately 3.9 million WAP registered users. In the first quarter of 2004, we had approximately 2.6 million active WAP users. According to China Mobile, we were ranked number one in terms of revenue for WAP on China Mobile’s network for each of the four quarters in 2003 and for the first quarter of 2004.

†	*Multimedia Messaging Services (MMS).* MMS is a messaging service that we deliver over GPRS networks and, in China, allows up to 50 kilobytes of data to be transmitted in a single message, compared to 140 bytes of data via SMS. As a result, MMS enables users to download colorful pictures and advanced ringtones. We launched MMS services in October 2002, but did not begin to receive revenue for such services until April 2003, when China Mobile started to allow service providers to charge fees for MMS. Our monthly subscription services automatically send information to users’ mobile phones, and include news, beauty, celebrity photographs and special collectible items. Our services that can be downloaded on a transaction basis include pictures, screensavers, ringtones and special sound effects. We currently offer over 235 MMS services. As of March 31, 2004, we had a total of approximately 2.1 million MMS registered users. In the first quarter of 2004, we had approximately 1.5 million active MMS users. According to China Mobile, we were ranked number one in terms of revenue for MMS on China Mobile’s network in each quarter since its commercial launch of MMS services in April 2003.

†	*Java*^TM. Java^TM technology allows mobile phone users to play interactive and networking mobile games and karaoke and download applications to customize their mobile phone settings, such as screensavers and clocks. We launched services based on the Java^TM programming language in September 2003, but did not begin to receive revenue for such services until November 2003, when China Mobile started to allow service providers to charge fees for Java^TM services. We currently offer over 186 Java^TM services. For the first quarter of 2004, we had a total of approximately 0.3 million Java^TM downloads. We expect revenue from our Java^TM-based services to increase as more models of mobile phones sold in China incorporate this technology and we develop new Java^TM services utilizing the Java^TM language. According to China Mobile, we were ranked number one in terms of revenue for Java^TM on China Mobile’s network in the first quarter of 2004.


†	*Short Messaging Services (SMS).* SMS is the basic form of mobile messaging service, allowing users to access our products through their mobile phones on a subscription or transaction basis, and is supported by substantially all mobile phone models currently sold. We launched and began receiving revenue from SMS in July 2002. We currently offer over 259 SMS services, including jokes, entertainment and horoscopes. As of March 31, 2004, we had a total of approximately 3.3 million registered users of our SMS services. According to China Mobile, we were ranked number 25 in terms of revenue for SMS on China Mobile’s network in the first quarter of 2004.

†	*Interactive Voice Response (IVR).* Interactive voice response services allow users to access voice content from their mobile phones. We launched and began receiving revenue from IVR services in


	December 2003 and currently offer three IVR products, including chat and English language education. We expect revenue from our IVR services to increase as IVR becomes more popular and we develop new IVR services. As of March 31, 2004, we had a total of approximately 65,000 registered users of our IVR services. According to China Mobile, we were ranked number eight in terms of revenue for IVR services on China Mobile’s network in the first quarter of 2004.

†	*Color Ring Back Tone (CRBT).* Color ring back tones allow a mobile phone user to customize the sound callers hear when ringing the user’s mobile phone. We offer a variety of entertaining content, including pre-recorded messages, movie dialogues and soundtracks and a wide range of classical and popular music. We launched and began receiving revenue from our CRBT services in October 2003 in Beijing and have subsequently begun to offer CRBT services in other provinces. We plan to expand geographically our offering of CRBT services in 2004. China Mobile does not rank service providers in terms of revenue for CRBT services as the overall revenue derived from all CRBT services is relatively small compared to other types of value-added services on China Mobile’s network.

The following table sets forth certain operating data for our various wireless value-added services as of, or for the periods ended on, the dates indicated:

We have established cooperation arrangements with mobile operators, mobile handset manufacturers, content providers and other business partners to produce, promote and market our services. We provide our wireless value-added services mainly pursuant to cooperation agreements through China Mobile’s Monternet^TM network. We also recently began providing our wireless value-added services through China Unicom’s Uni-Info^TM network and China Netcom’s Personal Handyphone System, or PHS system. In addition, we cooperate with several of China’s leading mobile handset manufacturers, which manufacture select handset models with a wireless value-added services icon in the handset’s menu that enables users to access our services directly. Furthermore, we have established promotion arrangements with Internet companies pursuant to which they promote our products on their web sites. We pay service fees to the mobile operators, mobile handset manufacturers, mobile handset distributors, content providers and other partners, where relevant.

China Mobile is the world’s largest mobile telecommunications network operator in terms of subscribers. Our working relationship with China Mobile is critical to the operation and continued development of our business. See “Risk factors—Risks relating to our business—We depend on China Mobile for substantially all of our revenue, and any loss or deterioration of our relationship with China Mobile may result in severe disruptions to our business operations and the loss of substantially all of our revenues.” As of December 31, 2003, we have entered into approximately 20 cooperation agreements for our different services with various provincial subsidiaries of China Mobile to provide wireless value-added services in China. We derive substantially all of our revenue through these mobile operators and work with them in the development and promotion of wireless value-added services. We were one of the first wireless service providers to work with China Mobile to develop and offer WAP, MMS and Java^TM. In addition, we have jointly promoted wireless value-added services with China Mobile, which is generally more cost effective and wide reaching than our promoting these services through traditional advertising.

We establish the fees to the users of our services in consultation with the mobile operators and pay a service fee to the mobile operator through which our services are provided. We charge our users content fees on either a transaction or a monthly subscription basis, which vary among our different services.

Pursuant to our agreements with the subsidiaries of China Mobile, generally we pay to the mobile operator 15% of the fees we generate from providing our services to users through the mobile operator’s network. In addition, the mobile operator deducts a net transmission charge from our portion of the fees. Such transmission charge is equivalent to the transmission fee set forth in the table below multiplied by the number of messages we send through the mobile operator’s network in excess of the number of messages we receive from users requesting our services. The amount of such transmission fee differs for WAP, MMS, Java^TM, SMS, IVR and CRBT and varies depending on the volume of messages sent. Generally, the term of these agreements is for a period of one year or less, but are automatically renewable unless either party objects.

The following table sets forth our principal fees charged to users for our services and service and transmission charges paid to China Mobile and its subsidiaries as of December 31, 2003.

We rely primarily on the mobile operators to provide billing and collection services for us. The fees for our services are incorporated into the mobile operator’s invoices, which are sent to users on a monthly basis. We receive monthly statements from each of the mobile operators, which indicate the aggregate amount of fees that were charged to users for services that we provided. For a description of our revenue recognition policy, see “Management’s discussion and analysis of financial condition and results of operations—Critical accounting policies—Revenue recognition.” Also see “Risk factors—Risks relating to our business—We depend on China Mobile for substantially all of our revenue, and any loss or deterioration of our relationship with China Mobile may result in severe disruptions to our business operations and the loss of substantially all of our revenues.”

The term of our contracts with the mobile operators is generally one year or shorter. We usually renew these contracts or enter into new ones when the prior contracts expire, but on occasion, the renewal or the execution of new contracts can be delayed by a period of one month or longer. Based on our historical experience in the event that a contract expires and is not promptly renewed, the mobile operator typically continues to honor the expired contract until such time that a new contract is entered into. We cannot assure you that any mobile operator will in fact continue to honor an expired contract. The specific termination and other material provisions of our more significant contracts with the mobile operators are set forth below.

On May 23, 2003, Beijing AirInbox entered into a cooperation agreement with China Mobile to provide WAP services on the Monternet^TM portal. Pursuant to this agreement, Beijing AirInbox pays a service fee of 15% of the revenues charged to users to China Mobile, less net transmission charges. Beijing AirInbox may not provide the same content that it provides to China Mobile under this agreement to other operators or WAP portals. Any violation of such provision entitles China Mobile to terminate this agreement. The agreement will expire on September 30, 2004.

On June 5, 2003, Beijing AirInbox entered into a cooperation agreement with China Mobile to provide MMS services on China Mobile’s network. Pursuant to this agreement, Beijing AirInbox pays a service fee of 15% of the revenues charged to users to China Mobile, less net transmission charges. Beijing AirInbox may not provide the same content that it provides to China Mobile under this agreement to other mobile operators. Any violation of such provision entitles China Mobile to terminate this agreement. This agreement will expire on June 4, 2004, but will be automatically renewed if neither party objects.

On May 1, 2004, Beijing AirInbox renewed a cooperation agreement with Beijing Mobile Telecommunication Co., Ltd., or Beijing Mobile, a subsidiary of China Mobile, to provide SMS services through China Mobile’s network. Pursuant to this agreement, Beijing AirInbox pays to Beijing Mobile a service fee of 15% of the revenues charged to users, less net transmission charges. Beijing Mobile has a right to terminate this agreement prior to expiration under certain circumstances, including the delivery of content by Beijing AirInbox in violation of applicable PRC law or policies of Beijing Mobile. This agreement will expire on October 31, 2004, but will be automatically renewed if neither party objects.

We have also established distribution arrangements with mobile handset manufacturers, such as Motorola, Ningbo Bird, Samsung and Panasonic, which manufacture select handset models with a wireless value-added services icon in the handset’s menu or in the menu of the Monternet^TM portal accessed through the handsets that enables users to access our wireless value-added services directly from their mobile phones. In 2004, we entered into agreements with Samsung and Panasonic, pursuant to which we will establish and maintain their web sites specially designed for wireless value-added services downloads and exclusively manage the provision of wireless value-added services through these web sites to the users of Samsung and Panasonic mobile phones.

We have cooperation arrangements with several leading mobile handset manufacturers. Pursuant to these arrangements, mobile handset manufacturers receive 40% to 70% of the net cash that we receive from mobile operators with respect to wireless value-added services that are accessed through links to our services in the user’s handset or Monternet^TM portal. The terms of these agreements are generally for one year, and pertain to specific mobile handset models. In addition to bundling our services with such mobile handset manufacturers, we also leverage our relationship with them to enter into joint marketing programs.

We have also entered into licensing agreements with content providers. Pursuant to these agreements, we contract with our content providers to use their content for a fixed licensing fee or for a certain percentage, approximately 30% to 70%, of the net cash we receive from mobile operators with respect to messages that contain the licensed content. These arrangements are typically for one or two years and not exclusive, except for the content specifically produced for us by our freelance writers and certain content from our third-party content providers. We currently have over 30 content suppliers, including Olarks Mobile Entertainment Co., Ltd., Xiamen Index Corporation and Beijing Zhongbiaoxin Network Technology Development Corp. We have also entered into arrangements with Namco Limited, Gamevil Inc. and NEC Corporation.

We have established promotion arrangements with Internet and other companies such as Shenzhen Aisidi Industry Co., Ltd., Baidu (Beijing) Co., Ltd. and China Film Corporation, pursuant to which they promote our products on their web sites in exchange for a fee that is based on the sales of our services on their web sites. Pursuant to these arrangements, we generally pay 20% to 80% of the net

cash we receive from the mobile operators in connection with the services delivered to users that utilize products on their web sites.

We also work with mobile handset distributors to market our services to mobile handset buyers. Pursuant to our distribution arrangements with mobile handset distributors, they promote our services by setting a unique access code for our services as a default on the handsets they sell, educating buyers about our services and including our promotional pamphlets describing our services in the informational packages provided to buyers. These arrangements provides us with an alternative distribution channel, allowing us to sell and market our services through the distributor’s sales channels. In return, we generally pay the mobile handset distributors 40% to 70% of the net cash we receive from the mobile operators in connection with the services accessed through the unique access code.

As our business focus is on technologically advanced wireless value-added services, our product development team focuses on creating innovative products that utilize new wireless standards. China Mobile started operating its 2.5G network in May 2002, for its WAP services on a trial basis. This new wireless standard enables wireless value-added service providers to send more data in a shorter period of time, thereby facilitating the transmission of more advanced data services. Our product development team focuses on refining and upgrading our current services, as well as creating new and innovative services that utilize the latest technology. We were one of the first wireless value-added service providers to work with China Mobile to develop and offer MMS and WAP services and have continued to be a leading developer of innovative services compatible with such technology platforms. We believe that our timely delivery of new services that meet the mobile operator’s specifications demonstrates our technical capabilities and strengthens our cooperation relationship with China Mobile. In addition, we plan to work with the mobile operators to offer new services that are compatible with more advanced technologies, such as personal digital assistants, flash animation and audio/ video services.

In addition to developing a range of innovative services, we have also developed a variety of programming tools that allow us to enhance consumer’s enjoyment of our services. For instance, in response to the current lack of a standard operating system among mobile phones produced by different manufacturers in China, which may result in inconsistent user experiences for users accessing our services through different handset models, we have developed software tools that allow our services to be readily adapted for use on most mobile phones on the market. Such tools reduce the marginal cost of adapting our services to additional models of mobile phones and optimize user experience in terms of format and presentation of our services. Thus, we are able to input content into our system which will be recalibrated and tailored for a user’s mobile phone or formatted for a particular technology platform.

As of March 31, 2004, our product development team consisted of 201 people, organized into departments based on platforms such as WAP, MMS, Java^TM and SMS. Within each department, the team is further divided into specific product areas such as media, community and interactive entertainment. Our product development team includes engineers with a wide range of technical experience across different technology platforms in the wireless telecommunications sector.

We are committed to establishing our KongZhong name as a well-recognized and reputable brand not only among mobile phone users, but also among mobile operators, key industry players and owners of brand names. We sell our services principally to and through China Mobile, as well as other

distribution partners. We market through our web site, promotional events, direct marketing and media advertising. We provide customer support to China Mobile and our end users.

We focus on marketing our KongZhong brand name, as we believe branding is important in the wireless interactive entertainment, media and community services market. We have registered KongZhong Network as a commercial website with the State Administration on Industry and Commerce. As a result, no one else may operate a website, whether commercial or otherwise, by using the name of KongZhong Network. We are also the registered owner of the www.kongzhong.com, www.kongzhong.com.cn, www.kongzhong.net and www.kongzhong.net.cn domain names, and are in the process of applying for the registration of the Chinese name of “KongZhong Network” as our service mark. Even in the event we are not able to acquire a service mark for the Chinese name of “KongZhong Network,” we do not expect to face a proliferation of counterfeit services or products without any legal remedy as we may seek remedy for piracy under China’s Anti-Unfair Competition Law, by bringing a suit against a third party that uses the Chinese name of “KongZhong Network” if the overall design or appearance of that third party’s services is substantially the same as that of the well-known or established services provided by us. Moreover, the primary focus of our brand promotion is on our logo, the KongZhong thumb, which is a legally registered trademark in China, and this registration and the investment that we have made in the logo should not be affected by whether we are able to acquire a service mark for the Chinese name of “KongZhong Network”.

We utilize our leading position among providers of wireless interactive entertainment, media and community services and our knowledge of our customers to attract joint promotion arrangements with brand-owners seeking effective channels of publicity among trend-conscious consumers. Through select distribution channels, we target young and fashion-driven consumers who we believe set trends for consumer products and services in China. We promote our services through joint promotional events with China Mobile, its subsidiaries, mobile handset manufacturers, mobile handset distributors and other business partners. We also participate in marketing campaigns with China Mobile. For example, we are currently working with China Mobile in its M-Zone^TM marketing initiatives, which promote its wireless value-added services to younger mobile phone users. We also engage in joint promotional events with other partners. We seek to be the preferred partners for brand-owners seeking to reach trend-conscious consumers through wireless channels and a preferred wireless partner in collaborative lifestyle marketing in China. For example, we promoted the movie “Hero” pursuant to a joint promotional arrangement under which we offered exclusive wireless value-added services containing pictures and other content relating to the movie. Such promotion significantly increased our revenue, generating over 280,000 SMS and WAP subscriptions and $0.2 million in revenue for Hero-related services in the first quarter of 2003. In addition, we market through traditional offline media venues, such as through newspapers, magazines and flyers.

Substantially all of our services are provided through the networks of China Mobile. Accordingly, we devote significant resources to maintaining, expanding and strengthening our relationship with China Mobile and its subsidiaries. As of March 31, 2004, our sales and marketing department consisted of 52 persons strategically located in 15 provinces in China to work closely with the mobile operators throughout China at the provincial and local level, where pricing and other important decisions on marketing and operations are made. Our localized sales team also helps us gain insight into developments in the local markets and the competitive landscape, as well as new market opportunities.

We also seek alternative distribution channels, such as mobile handset manufacturers and mobile handset distributors. In addition, we sell our services by advertising in media forums, including newspapers, magazines and on television. Our sales force also works with other distribution partners to promote our services.

To motivate our sales professionals, a portion of their compensation is based on the usage of our services in the relevant region. Sales quotas are assigned to all sales personnel according to quarterly sales plans. We intend to increase our marketing budget and staff to further increase awareness of our brand name. We are also exploring a range of other joint marketing strategies in order to maximize our cooperation arrangements and resources.

Customer service is important to us as it is key to building our brand and our relationships with the mobile operators. We train our customer service representatives with an emphasis on customer satisfaction. Our customer service center handles calls, faxes and e-mails from our users, as well as inquiries forwarded from the mobile operators. Our customer service representatives interact on a regular basis with, and provide training materials to, customer service representatives of mobile operators from over 30 provinces to enhance our users’ experience with our services.

There are numerous players in China’s wireless value-added services market. China Mobile’s listed subsidiary, China Mobile (Hong Kong) Limited, reported in its 2003 annual results announcement that over 880 service providers supply content and services for its Monternet^TM network in 2003. We compete with these companies primarily on the basis of brand, the type and timing of service offerings, content, users and business partner and channel relationships. We also compete for experienced and talented employees.

Some of our competitors may have greater access to capital markets, more human and financial resources than we do, and a longer operating history than we have. For instance, Internet portals providing wireless value-added services may have an advantage over us with their longer operating history, more established brand name, larger user base and Internet distribution channels. Furthermore, our competitors may be able to offer a broader range of services than we are presently able to offer. See “Risk factors— Risks relating to our business— We may face increasing competition, which could reduce our market share and materially adversely affect our financial condition and results of operations.”

Our primary competitors in the 2.5G wireless value-added services market in China include Internet portals such as Sina Corporation, Sohu.com Inc., NetEase.com Inc. and TOM Online Inc., as well as providers focused on wireless value-added services such as Tencent Technology Limited’s Mobile QQ, Hurray! Solutions Limited and Beijing Mobile Navi Information Technology Services Company. According to Analysys, in 2003, we, Beijing Mobile Navi Information Technology Services Company, TOM Online Inc., Shenzhen Xuntian Telecommunication Technology Ltd. and Tencent Technology Limited’s Mobile QQ were ranked 1 through 5, respectively, in market share in the WAP services market, and we, TOM Online Inc., Sina Corporation, NetEase.com Inc. and Sohu.com Inc. were ranked 1 through 5, respectively, in market share in the MMS services market.

Competition is particularly intense in China’s 2G-based wireless value-added services market as the barriers to entry are relatively low compared to the 2.5G market, resulting in a much higher number of wireless value-added service providers. As the market for wireless value-added services in China continues to evolve into 2.5G, our focus is primarily on developing our 2.5G services. However, we also offer SMS in our portfolio of services. Our primary competitors in this market include Internet portals such as Sina Corporation, Sohu.com Inc., Netease.com Inc. and TOM Online Inc., and providers focused on wireless value-added services such as Tencent Technology Limited’s Mobile QQ,

LinkTone Limited, Mtone Wireless Corp., New Palm Information Technology Co. and Honglian 95 Information Shareholding Limited. According to Analysys, Tencent Technology Limited’s Mobile QQ, Sina Corporation, Sohu.com Inc., TOM Online Inc. and NetEase.com Inc. were ranked 1 through 5, respectively, in market share in the SMS services market in 2003.

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, confidentiality and licensing agreements with our senior officers, clients, partners and others to protect our intellectual property rights. Despite our efforts to protect our proprietary rights, we cannot be certain that the steps we have taken will prevent misappropriation of our content or technology, particularly in foreign countries where the relevant laws may not protect our proprietary rights as fully as in the United States. For a description of the regulations applicable to our industry in China, see “Regulation.”

We have registered the domain names kongzhong.com, kongzhong.com.cn, kongzhong.net, kongzhong.net.cn, cota.com.cn and cota.cn. We have applied to register certain trademarks in China; however, we are unable to register the Chinese name of our service mark “KongZhong Network” in China because PRC laws and regulations do not permit the registration of generic terms as trademarks or service marks, and the Chinese name of “KongZhong Network” is deemed a generic term. See “Risk factors— Risks relating to our business— We may not be able to adequately protect our intellectual property, and we may be exposed to infringement claims by third parties.”

We maintain most of our servers at the premises of Beijing Communication Corporation, which is the administrator of the central hub of the ChinaNet backbone. We also maintain servers at other Internet data centers, including Beijing Mobile Communication Company Limited, Chongqing Mobile Communication Company Limited and Hangzhou Mobile Communication Company Limited. We believe that utilizing these hosting partners provides significant operating benefits, such as protecting our systems from power loss, break-ins and other potential external causes of service interruption. In addition, we back up all of our data. We believe we will be able to increase our server capacity as needed to accommodate future growth.

Our senior management and many of our employees have had prior experience in the Internet portal or telecommunications-related industries. Our employees receive a base salary and a performance-based bonus. Our bonuses are available to all employees and the amounts of such bonus are calculated based on the performance ranking of the employee. We have a broad-based stock option plan pursuant to which we grant stock options from time to time to employees who have passed their initial probation period. We also offer internal training programs tailored to different job requirements to help enhance our employees’ talents and skills. We believe that these initiatives have contributed to the growth of our business.

In general, our technical personnel and most of our senior executives work for our subsidiary, KongZhong Beijing, and the rest of our employees work for Beijing AirInbox or Beijing Boya Wuji.

As of March 31, 2004, we had 314 employees, including five part-time employees. The table below sets forth the number of our employees by function as of the end of the periods indicated:

We increased the number of our employees by 516% from a total of 51 employees as of December 31, 2002, reflecting our rapid growth.

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.

As stipulated by PRC regulations, we participate in various housing programs, medical care, welfare subsidies, unemployment insurance and pension benefits through defined contribution plans that are organized by municipal and provincial governments for Beijing AirInbox’s employees. We are required under PRC law to accrue for these benefits based on a percentage of approximately 14% of the salaries, bonuses and certain allowances paid to our employees. A member of the retirement plan is entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s retirement date. The total amounts we accrued under our employee benefits plan for the period from May 6, 2002 to December 31, 2002 and in 2003 were approximately $41,625 and $0.3 million, respectively. We are required to make contributions to the plans out of the amounts accrued for medical and pension benefits. The total amounts of contributions we made for such employee benefit plans for the period from May 6, 2002 to December 31, 2002 and in 2003 were approximately $6,203 and $0.1 million, respectively.

We have granted stock options to our employees pursuant to our 2002 Plan, as described in “Management— stock options.”

Our principal executive office currently occupies over 1,900 square meters of office space in Beijing, China. Starting from August 2004, our principle executive office will occupy approximately 5,000 square meters of office space in Beijing, China, primarily under leases that will expire in May 2006. We also lease sales offices in 10 provinces throughout China.

There are no material legal proceedings pending or, to our knowledge, threatened against us. Despite our efforts to comply with the intellectual property rights of third parties, we cannot be certain that we have not, and will not, infringe on the intellectual property rights of others, which may subject us

to legal proceedings and claims in the ordinary course of our business from time to time. Such legal proceedings or claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources. In addition, we may also initiate litigation to protect our intellectual property rights. See “Risk factors— Risks relating to our business— We may not be able to adequately protect our intellectual property, and we may be exposed to infringement claims by third parties.”


†	convening shareholders’ meetings and reporting its work to shareholders at such meetings;

†	implementing shareholders’ resolutions;

†	determining our business plans and investment proposals;

†	formulating our profit distribution plans and loss recovery plans;

†	formulating our debt and finance policies and proposals for the increase or decrease in our issued capital and the issuance of debentures;

†	formulating our major acquisition and disposal plans, and plans for merger, division or dissolution;

†	formulating proposals for any amendments to our memorandum and articles of association; and

†	exercising any other powers conferred by the shareholders’ meetings or under our memorandum and articles of association.

The following table sets forth certain information concerning our directors and senior officers. The business address of each of our directors and executive officers is 8/F, Tower A, Yuetan Building, No. 2 Yuetan North Street, Beijing, China 100045.

Yunfan Zhou, 29, one of our founders, has served as the chairman of the board of directors of our company and our chief executive officer since our inception in May 2002. Prior to establishing our company, Mr. Zhou served as vice president, executive vice president and general manager of Sohu.com Inc., an Internet portal company, from October 2000 to March 2002. In June 1999, Mr. Zhou co-founded ChinaRen Inc., an Internet portal and community company, and served as chief operating officer and general manager until October 2000, when ChinaRen Inc. merged into Sohu.com Inc. Mr. Zhou holds a master’s degree in electrical engineering from Stanford University and a bachelor’s degree in electronic engineering from Tsinghua University.

Nick Yang, 28, one of our founders, has served as president, director and chief technology officer of our company since our inception in May 2002. Prior to establishing our company, Mr. Yang served as vice president of technology and chief technology officer of Sohu.com Inc. from October 2000 to March 2002. In June 1999, Mr. Yang co-founded ChinaRen Inc. and served as chief technology officer until October 2000, when ChinaRen Inc. merged into Sohu.com Inc. Mr. Yang holds a master’s degree

in electrical engineering from Stanford University and a bachelor’s degree from the University of Michigan.

Fan Zhang, 31, is a director of our company. Mr. Zhang has been a Senior Vice President of Draper Fisher Jurvetson ePlanet Ventures, which together with its affiliates holds 8.9% of our shares before the offering. He also holds directorships in a number of private companies. From 1997 to 1999, Mr. Zhang served as a financial analyst in the Investment Banking Division of Goldman Sachs (Asia) L.L.C. He was an engineer at Focus Graphics, Inc. in California from 1992 to 1994. Mr. Zhang holds an MBA degree from Stanford University Graduate School of Business and a bachelor’s degree in economics from Stanford University.

Charlie Y. Shi, 42, is an independent director of our company. Mr. Shi has been a member of the Investment Committee of CMT ChinaValue Capital Advisors Limited since May 2004. From April 2001 to April 2004, Mr. Shi served as a managing director of China Assets Investment Management Limited, a Hong Kong-based investment management company. China Assets Investment Management Limited is the sole investment manager of China Assets (Holding) Limited, a Hong Kong registered investment fund which owns 100% of the shares of Global Lead Technology Limited, a holding company which holds 13.3% of the shares of our company before the offering. From February 2000 to March 2001, Mr. Shi was the senior vice president of SOFTBANK China Venture Capital Limited. He served as deputy managing director of Toplap Investments Limited, an investment advisory and management subsidiary of China Insurance (Hong Kong) Group, from February 1998 to December 1999, and served at Merrill Lynch & Co. from March 1992 to January 1998, holding the last position as assistant vice president. Mr. Shi holds an MBA degree from California Lutheran University and a bachelor’s degree in economics from Fudan University in Shanghai. He is also a graduate of the Harvard Business School Advanced Management Program.

Yongqiang Qian, 31, is an independent director of our company. Mr. Qian is also the chief executive officer of New Oriental Online Company, an entity specializing in online education that he founded in December 2000. He was also a director and vice president of Beijing New Oriental Education and Technology Group, the parent company of New Oriental Online Company, from 2000 to 2004. From 1993 to 1997, he was a co-founder and project manager at Beijing New Oriental School, a company providing educational and training services, and an affiliate of Beijing New Oriental Education and Technology Group. Mr. Qian holds an MBA degree from Yale University School of Management and a bachelor’s degree from North China University of Technology.

Richard Wei, 41, is the chief financial officer of our company. Prior to joining our company in February 2004, Mr. Wei served as the chief financial officer of ASE Test Limited, a leading independent semiconductor testing services provider, from August 2002 to February 2004 and ISE Labs Inc., a subsidiary of ASE Test Limited, from September 2000 to July 2002. Mr. Wei was a research analyst at Lehman Brothers Asia from 1996 to 2000, a research analyst at Morgan Stanley from 1994 to 1996 and a research associate at the Harvard Business School from 1993 to 1994. He also served as a systems engineer at IBM Inc. from 1985 to 1991. Mr. Wei holds an MBA degree from Cornell University and a bachelor’s degree in computer science from the Massachusetts Institute of Technology.

Xianghong Chen, 33, is the marketing director of our company. Prior to joining our company in March 2004, Ms. Chen served as a senior marketing manager of Sprint from 1998 to February 2004. She also served as an operations consultant at Boise Cascade Paper Co. in 1997 and a sales and distribution manager at International Import and Export Corporation at Hangzhou, China from 1992 to 1996. Ms. Chen holds a MBA degree from Indiana University and a bachelor’s degree in arts from Nanjing International Relations University.

There is no family relationship between any of our directors or senior officers.

Each of our senior officers has entered into an employment agreement and a non-compete agreement with us. Pursuant to the employment agreements, each of our senior officers is entitled to receive a basic salary and may also receive an annual bonus if a certain level of performance has been achieved. All of the senior officers are bound by the confidentiality and non-competition provisions in each of their employment agreements and non-compete agreements with us.

Each of Yunfan Zhou and Nick Yang was a party to an employment agreement with Sohu.com Inc. that restricted him during the period of his employment with Sohu.com Inc. and for a period of one year after the termination of such employment from (i) participating or otherwise being involved in any entity that operates an Internet portal in China without the prior written authorization of Sohu.com Inc. and (ii) soliciting or hiring any employee of Sohu.com Inc or soliciting business on behalf or for the benefit of any entity that operates an Internet portal in China from any customer, supplier or business partner of Sohu.com Inc. Both Yunfan Zhou and Nick Yang resigned from Sohu.com Inc. on March 18, 2002. Messrs. Zhou and Yang received claims made by Sohu.com Inc. in respect of breaches by them of these restrictions, but such claims were amicably resolved between Sohu.com Inc. and each of Messrs. Zhou and Yang in September 2002. We are not aware of any further claims or legal proceedings initiated or threatened by Sohu.com Inc. against Yunfan Zhou, Nick Yang or us.

To enhance our corporate governance, our board of directors established three board committees: an audit committee, a nominations committee and a compensation committee, which are comprised solely of independent directors.

We have established an audit committee in accordance with the Nasdaq Listing Rules, which reviews our internal accounting procedures and considers and reports to our board of directors with respect to other auditing and accounting matters, including the selection of our independent auditors, the scope of annual audits, fees to be paid to our independent auditors and the performance of our independent auditors. The members of our audit committee are Charlie Y. Shi and Yongqiang Qian, both of whom are our independent directors.

Our senior officers receive compensation in the form of salaries, annual bonuses and share options. We have entered into service agreements with our senior officers. None of these service agreements provide benefits to our senior officers upon termination. The aggregate remuneration paid and benefits in kind granted to our senior officers for the period from May 6, 2002 to December 31, 2002 and the year ended December 31, 2003 were approximately $10,336 (RMB85,550) and $75,081 (RMB0.6 million), respectively. We do not pay any compensation to our non-executive directors.

We accrued $0.3 million in 2003 and $0.2 million in the first quarter of 2004 to provide housing, medical and pension benefits, unemployment insurance, and staff welfare for all employees, including our executive directors and senior officers.

The 2002 Plan was adopted by our shareholders at a meeting held on June 6, 2002. The 2002 Plan is intended to provide incentives to our directors, officers and employees as well as consultants and advisors of our company and its present or future parent company or subsidiaries, or the related corporations. Pursuant to the 2002 Plan, we originally reserved a total of 3,500,000 (adjusted to 70,000,000 following our share split) ordinary shares for issuance under two categories of options: incentive share options, which may only be granted to officers and employees of the related corporations, and non-qualified options, which may be granted to any employee, officer, director, consultant or advisor of the related corporations. We have increased the number of ordinary shares reserved for issuance in the 2002 Plan to 5,250,000 (adjusted to 105,000,000 following our share split) on February 15, 2004. Such increase should be approved by our shareholders meeting to be held before August 15, 2004.

We have granted an aggregate of 86,120,000 options which are outstanding, of which 18,045,000 were exercisable, as of March 31, 2004 as adjusted by cancellations following initial grants and our share split at exercise prices ranging from $0.0025 to $0.25 per ordinary share.

With respect to the options that we have granted, the vesting schedule for the incentive share options provides for 25% of the options to vest on the first anniversary of the date of the grant, and the remaining 75% to vest in 12 equal quarterly installments beginning one calendar quarter after the date of such anniversary. The non-qualified options vested immediately upon grant of such options. The expiration date for each option is ten years from the date of grant. The exercise price of each option was the estimated fair market value as determined by our board of directors after taking into consideration all factors in good faith.

The 2002 Plan provides for acceleration of awards upon the occurrence of certain consolidations, mergers, acquisitions or sale of all of substantially all assets or shares of our company. In any such case, our board shall take one of more of the following actions, among others, accelerate the date of exercise of such options or any installment of such options, provide a fixed period of time that the grantees must exercise or terminate all options in exchange for cash payment.

Our board of directors administers the 2002 Plan and has wide discretion in awarding share options. Subject to the provisions of the 2002 Plan, our board of directors determines who will be granted options, the type and timing of options to be granted, the vesting schedule and other terms and conditions of the options, including the exercise price.

Generally, if an outstanding incentive share option granted under the 2002 Plan has not vested by the date of termination of the grantee’s employment with us, no further installments of his or her incentive share options will become exercisable following the date of such cessation of employment, and his or her incentive share options will terminate after a period of 90 days from such cessation of employment.

Our board of directors may terminate or amend the 2002 Plan at any time; provided, however, that our board of directors must seek our shareholders’ approval with respect to certain major modifications to the 2002 Plan, and, if such amendment or termination would adversely affect the rights of a grantee under any option granted, the approval of such grantee would be required. Without further action by our board of directors, the 2002 Plan will terminate on June 6, 2012.

The following table sets forth information on stock options that have been granted and are outstanding as of March 31, 2004 pursuant to the 2002 Plan.

We grant stock options to our employees and we record a compensation charge for the excess of the fair value of the stock at the measure date over the amount an employee must pay to acquire the stock compensation using the straight-line method over the vesting periods of the related options, which are generally four years.

We have recorded deferred stock compensation to represent the difference between the deemed fair value of our ordinary shares for accounting purposes and the option exercise prices. We determined the deemed fair value of our ordinary shares based upon several factors, including a valuation report from an independent appraiser and the price of our then most recent preferred share placement. We recorded deferred stock-based compensation expense of $0, $0.2 million and $2.2 million for stock options granted to employees, and amortized $0, $21,986 and $80,738, for the period from May 6, 2002 to December 31, 2002, 2003 and the first quarter of 2004, respectively.

The telecommunications industry, including computer information and Internet access services, is highly regulated by the PRC government. Regulations issued or implemented by the State Council, the MII, and other relevant government authorities cover virtually every aspect of telecommunications network operations, including entry into the telecommunications industry, the scope of permissible business activities, interconnection and transmission line arrangements, tariff policy and foreign investment.

In March 1998, the National People’s Congress of the PRC approved a government restructuring plan that directed the MII to assume, among other things, the regulatory, administrative and other responsibilities of, and rights previously exercised by, the former Ministry of Post and Telecommunications.

The MII, under the leadership of the State Council, is responsible for, among other things:


†	formulating and enforcing telecommunications industry policy, standards and regulations;

†	granting licenses to provide telecommunications and Internet services;

†	formulating tariff and service charge policies for telecommunications and Internet services;

†	supervising the operations of telecommunications and Internet service providers; and

†	maintaining fair and orderly market competition among operators.

In September 2000, the PRC State Council promulgated the Telecommunications Regulations, or the Telecom Regulations. The Telecom Regulations categorize all telecommunications businesses in China as either infrastructure telecommunications businesses or value-added telecommunications businesses, with wireless value-added services classified as value-added telecommunications businesses. The Telecom Regulations also set forth extensive guidelines with respect to different aspects of telecommunications operations in China.

In December 2001, in order to comply with China’s commitments with respect to its entry into the WTO, the State Council promulgated the Telecom FIE Rules. The Telecom FIE Rules set forth detailed requirements with respect to capitalization, investor qualifications and application procedures in connection with the establishment of a foreign invested telecommunications enterprise. Pursuant to the Telecom FIE Rules, the ultimate capital contribution ratio of the foreign investor(s) in a foreign-funded telecommunications enterprise that provides value-added telecommunications services shall not exceed 50%. In addition, all principal investors in such an enterprise must be themselves telecommunications operators. Pursuant to the Foreign Investment Industrial Guidance Catalogue, as of December 11, 2003, the permitted foreign investment ratio of value-added telecommunications services is no more than 50%. However, uncertainty exists as to how these regulations will be implemented. The PRC government authorities are still in the process of drafting detailed rules with respect to the procedures for the application for and approval of establishing a foreign-invested value-added telecommunications services enterprise. To comply with these PRC regulations, we conduct substantially all of our operations through Beijing AirInbox and Beijing Boya Wuji, which are wholly-owned by PRC citizens and incorporated in the PRC. We do not have any equity interests in these operating companies, but instead enjoy the economic benefits of these operating companies through a series of contractual arrangements, which we and our wholly-owned subsidiary have entered into with Beijing AirInbox and Beijing Boya Wuji and their respective shareholders as described in “Our corporate structure” and “Related party transactions.” In the opinion of Llinks Law Office, our PRC legal counsel, the

ownership structures of, and our contractual agreements with, these operating companies comply with all existing PRC laws and regulations, including the Telecom FIE Rules.

In addition to the regulations promulgated by the central PRC government, some local governments have also promulgated local rules applicable to Internet or other value-added telecommunications companies operating within their respective jurisdictions. In Beijing, the Beijing Municipal Administrative Bureau of Industry and Commerce, or the Beijing AIC, has promulgated a number of Internet-related rules. In 2002, the Beijing AIC invalidated a previously issued circular and adopted a new set of rules requiring owners of the domain names of commercial web sites located within Beijing to register their web site names and commercial web sites with the Beijing AIC.

Subsequent to the State Council’s promulgation of the Telecom Regulations and the Internet Information Services Administrative Measures, or the Internet Information Measures, in September 2000, the MII and other regulatory authorities formulated and implemented a number of Internet-related regulations, including but not limited to the Internet Electronic Bulletin Board Service Administrative Measures, or the BBS Measures. The Internet Information Measures require that commercial Internet content providers must obtain an Internet information license from the appropriate telecommunications authorities in order to carry on any commercial Internet content operations within China. Internet content operators must display their operating license numbers in a conspicuous location on their home page. Internet content operators are obliged to police their web sites in order to remove categories of harmful content that are broadly defined. This obligation reiterates Internet content restrictions that have been promulgated by other ministries over the past few years. In addition, the Internet Information Measures also provide that Internet content operators which operate in sensitive and strategic sectors, including news, publishing, education, health care, medicine and medical devices, must obtain additional approvals from the relevant authorities in charge of those sectors as well. The BBS Measures provide that any Internet content operator engaged in providing online BBS is subject to a special approval and filing process with the relevant governmental telecommunications authorities. Of particular note to foreign investors, the Internet Information Measures stipulate that Internet content operators must obtain the consent of the MII prior to establishing an equity or cooperative joint venture with a foreign partner.

Certain local governments have promulgated local rules applicable to Internet companies operating within their respective jurisdictions. In Beijing, the Beijing AIC, has promulgated a number of Internet-related rules. In 2002, the Beijing AIC invalidated a previously issued circular and adopted a new set of rules requiring owners of the domain names of commercial web sites located within Beijing to register their web site names and commercial web sites with the Beijing AIC.

The Beijing Telecommunications Administration Bureau issued to Beijing AirInbox a telecommunications and information services operating license for its Internet content business. These licenses are subject to standard annual reviews. Beijing Boya Wuji is in the process of applying for these licenses.

Pursuant to the Telecom Regulations, a commercial operator of Internet content services must obtain an operating license. Other than this requirement, PRC legislation on wireless telecommunications is generally aimed at regulating equipment and infrastructure rather than applications and value-added service providers.

The Administrative Measures for Telecommunications Business Operating Licenses, or Telecom License Measures, were promulgated by the MII on December 26, 2001. The Telecom License Measures

confirm that there are two types of telecommunications operations licenses for operators in China (including foreign-invested telecommunications enterprises), namely, licenses for infrastructure services and licenses for value-added services, for which a distinction is made as to whether a license is granted for intra-provincial or trans-regional, or inter-provincial, activities. An appendix to the license details the permitted activities of the enterprise to which it was granted. An approved telecommunications service operator must conduct its business, for both infrastructure and value-added services types of businesses, according to the specifications recorded on its Telecom Business Operating License. The MII is the competent approval authority for foreign-invested telecommunications enterprises and for granting trans-regional licenses to value-added telecommunications enterprises.

Other than a general classification of wireless information services as a value-added telecommunications services by an appendix to the Telecom Regulations, as amended, there is currently no nationwide legislation that specifically addresses the provision of wireless value-added services, such as SMS, MMS, WAP, Java^TM, IVR or CRBT services. At this time, it is uncertain when national legislation might be enacted to regulate this business.

Beijing AirInbox has obtained a value-added telecommunications business operation permit to operate wireless value-added businesses in Beijing. It is also in the process of applying for a trans-regional value-added telecommunications license with the MII. Beijing Boya Wuji is in the process of applying for permits to operate wireless value-added businesses in Beijing.

On May 10, 2003, the Ministry of Culture of the PRC promulgated the Internet Culture Administration Tentative Measures, or the Internet Culture Measures, which became effective as of July 1, 2003. The Internet Culture Measures require Internet content providers which engage in Internet culture activities to obtain an Internet culture business operations license from the Ministry of Culture in accordance with the Internet Culture Measures. The term “Internet culture activities” includes, among other things, acts of online dissemination of Internet cultural products, such as audio-visual products, game products, performances of plays or programs, works of art and cartoons, and the production, reproduction, importation, sale (wholesale or retail), leasing and broadcasting of Internet cultural products.

Beijing AirInbox has obtained, and Beijing Boya Wuji is in the process of applying for, an Internet culture business operations license with the Ministry of Culture.

PRC legislation concerning information security and censorship specifically prohibits the use of Internet infrastructure where it results in a breach of public security, the provision of socially destabilizing content or the divulgence of State secrets.


†	“A breach of public security” includes a breach of national security or disclosure of state secrets; infringement on state, social or collective interests or the legal rights and interests of citizens; or illegal or criminal activities.

†	“Socially destabilizing content” includes any action that incites defiance or violation of PRC laws; incites subversion of state power and the overturning of the socialist system; fabricates or distorts the truth, spreads rumors or disrupts social order; advocates cult activities; or spreads feudal superstition, involves obscenities, pornography, gambling, violence, murder, or horrific acts or instigates criminal acts.

†	“State secrets” are defined as “matters that affect the security and interest of the State.” The term covers such broad areas as national defense, diplomatic affairs, policy decisions on State affairs,


	national economic and social development, political parties and “other State secrets that the State Secrecy Bureau has determined should be safeguarded.”

According to the aforementioned legislation, it is mandatory for Internet companies in China to complete security filing procedures with the local public security bureau and for them to update their filings regularly with the local public security bureau regarding information security and censorship systems for their web sites. In this regard, the Detailed Implementing Rules for the Measures for the Administration of Commercial Web Site Filings for the Record, promulgated in July 2002 by the Beijing AIC, state that web sites must comply with the following requirements:


†	they must file with the Beijing AIC and obtain electronic registration marks;

†	they must place the registration marks on their web sites’ homepages; and

†	they must register their web site names with the Beijing AIC.

We have successfully filed and registered our web sites and web site names with the Beijing AIC. Accordingly, we have obtained an electronic registration mark.

The principle legislation governing advertisements in China is the Advertising Law (1996) and the Administrative Regulations of Advertisements (1987), pursuant to which an entity conducting advertising activities must obtain a permit from the local AIC. The SAIC is the government agency responsible for regulating advertising activities in China. In February 2000, the SAIC issued a circular requiring any Internet content operator engaging in advertising activities to obtain an advertising license. The SAIC has not promulgated regulations specifically aimed at wireless advertising through a media other than the Internet, such as through SMS or MMS services.

As part of our non-mobile operator marketing activities, we have developed integrated marketing campaigns with traditional media companies and multinational corporations through certain cross-selling efforts with these companies. If the SAIC were to treat our integrated marketing campaigns or other activities as being advertising activities, we would need to apply to the Beijing SAIC for an advertising license to conduct wireless advertising business (through SMS or MMS, for example). We cannot assure you that such application would be approved by the SAIC. Failure to obtain such approval could result in penalties including being banned from engaging in online advertising activities, confiscation of illegal earnings and fines.

On November 17, 2000, the Internet News Measures were promulgated by the State Council News Office and the MII. These measures stipulate that general web sites established by non-news organizations may publish news released by certain official news agencies if such web sites satisfy the requirements set forth in Article 9 of the measures and have acquired the requisite approval, but may not publish news items produced by themselves or news sources from elsewhere. All the news that we publish and disseminate originates from official news agencies approved by the PRC government.

State Council News Office and MII have not specified whether the Internet News Measures apply to dissemination of news through SMS, MMS, WAP, Java^TM, IVR, CRBT or other wireless technologies. If, in the future, the State Council News Office and MII clarify that the Internet News Measures are applicable to wireless services operators or issue new regulations or rules regulating wireless news dissemination, we may need to apply for a license or permit from governmental agencies in charge of news dissemination. We cannot assure you that such application would be approved by the relevant governmental agencies.

The State News and Publications Administration, or SNPA, is the government agency responsible for regulating publishing activities in China. On June 27, 2002, MII and SNPA jointly promulgated the Tentative Internet Publishing Administrative Measures, or the Internet Publishing Measures, which took effect on August 1, 2002. The Internet Publishing Measures require Internet publishers to secure approval from SNPA. The term “Internet publishing” is defined as an act of online dissemination whereby Internet information service providers select, edit and process works created by themselves or others (including content from books, newspapers, periodicals, audio and video products, electronic publications, and other sources that have already been formally published or works that have been made public in other media) and subsequently post the same on the Internet or transmit the same to users via the Internet for browsing, use or downloading by the public.

SNPA and MII have not specified whether the aforementioned approval in the Internet Publishing Measures is applicable to dissemination of works through SMS, MMS, WAP, Java^TM, IVR, CRBT or other wireless technologies. If, in the future, SNPA and MII clarify that the Internet Publishing Measures are applicable to wireless value-added telecommunications services operators or issue new regulations or rules regulating wireless publishing, we may need to apply for a license or permit from governmental agencies in charge of publishing. We cannot assure you that such application would be approved by the relevant governmental agencies.

The principal regulations governing foreign exchange in China are the Foreign Exchange Control Regulations (1996) and the Administration of Settlement, Sale and Payment of Foreign Exchange Regulations (1996), or the Exchange Regulations. Under the Exchange Regulations, the Renminbi is freely convertible into foreign exchange for current account items, including the distribution of dividends. Conversion of Renminbi for capital account items, such as direct investment, loans, security investment and repatriation of investment, however, is still subject to the approval of the State Administration of Foreign Exchange, or SAFE.

Under the Exchange Regulations, foreign-invested enterprises are required to open and maintain separate foreign exchange accounts for capital account items (but not for other items). In addition, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from SAFE.

Capital investments by foreign-invested enterprises outside of China (excluding Hong Kong, Macau and Taiwan) are also subject to limitations, which include approvals by the Ministry of Commerce, SAFE and the State Reform and Development Commission.

In order to comply with PRC regulations, we operate our business in China through Beijing AirInbox and Beijing Boya Wuji, companies wholly owned by Yang Cha, Songlin Yang, Yunfan Zhou and Zhen Huang, all of whom are PRC citizens. We have entered into a series of contractual arrangements with Beijing AirInbox, Beijing Boya Wuji and their respective shareholders, including agreements on provision of loans, provision of services, license of trademarks and domain names, and certain corporate governance and shareholder rights matters.

We have entered into a shareholders agreement with our shareholders. In addition, we have entered into certain consulting agreements with companies controlled by our current and former shareholders for provision of business advisory services.

RELATED PARTY TRANSACTIONS BETWEEN US AND OUR CURRENT AND FORMER SHAREHOLDERS AND OTHER AFFILIATES

Loan Agreement. On March 31, 2004, we entered into a loan agreement with Yunfan Zhou, Songlin Yang and Zhen Huang, pursuant to which we amended and restated the terms and conditions of our long-term loans in the total principal amount of $0.2 million (RMB2 million) that we provided to Yunfan Zhou, Songlin Yang and Zhen Huang, in the proportion of their shareholding percentages in Beijing AirInbox. The loans are interest-free and the proceeds have been invested into Beijing AirInbox as a capital contribution by the borrowers. Pursuant to the loan agreement, each of the borrowers agreed to transfer his or her interest in Beijing AirInbox to KongZhong Beijing when permitted under PRC law as repayment of the loan. Each of the borrowers also undertook to us that the loan will become due and payable if, among other things, (i) either Yunfan Zhou or Nick Yang resigns or is removed from office by KongZhong Beijing or its affiliates, (ii) the respective borrower commits a criminal offense, (iii) any third party raises against the respective borrower a claim of more than $60,411 (RMB0.5 million), (iv) foreign investment in a telecommunications value-added services business is permitted and the relevant government authorities start approving such foreign investment, or (v) the borrower dies or becomes incapacitated. In addition, the loan shall be repaid only in the form of a transfer of each borrower’s entire equity interest in Beijing AirInbox to us or, if transfer of ownership to us is prohibited under applicable law, to our designees. Upon the transfer of each borrower’s equity interest in Beijing AirInbox, any proceeds from the transfer shall be used to offset his or her loan repayment obligation to us or our designees. The term of the loan agreement is ten years, automatically renewable at our option.

On March 31, 2004, we entered into a loan agreement with Yang Cha, one of our employees, and Songlin Yang, pursuant to which we have agreed to grant loans to Yang Cha in the amount of $0.5 million (RMB4.5 million) and to Songlin Yang in the amount of $0.4 million (RMB3.5 million). These loans are interest-free and the proceeds are to be exclusively invested into Beijing AirInbox as contribution to the capital increase in Beijing AirInbox by Yang Cha and Songlin Yang. The terms and conditions of this loan agreement are substantially the same as the loan agreement that we entered into with Yunfan Zhou, Songlin Yang and Zhen Huang on March 31, 2004. See “—Other related party agreements.”

Termination Agreement. On March 31, 2004, we entered into a termination agreement with KongZhong Beijing, Beijing AirInbox, Yunfan Zhou, Songlin Yang and Zhen Huang, pursuant to which the parties terminated previously existing loan agreements between us and such individuals. The

terminated loan agreements contained substantially similar terms and conditions as those of a superseding loan agreement between us and the same individuals, which was entered into on March 31, 2004. In addition, pursuant to the termination agreement, a previously existing exclusive cooperation agreement has been terminated and superseded by various other agreements entered into by the parties on March 31, 2004, including the Exclusive Technical and Consulting Services Agreement, Equity Pledge Agreement and Business Operation Agreement. See “—Other related party agreements.”

Consulting Agreement. On October 2, 2002, we entered into a consulting agreement with Mobileren Inc., our 27.4% shareholder which is 100% beneficially owned by Yunfan Zhou. Pursuant to this agreement, Mobileren Inc. provided us investment advisory services. In return, we paid Mobileren Inc. a consulting fee in the amount of $90,000.

Consulting Agreement. On April 1, 2003, we entered into a consulting agreement with Wirelessrock Inc., which held a 10% equity interest in us until September 2003 and is 100% owned by Leilei Wang. Pursuant to this agreement, Wirelessrock Inc. provided us investment advisory services. In return, we paid Wirelessrock Inc. a consulting fee in the amount of $90,000.

Option Agreement. Yunfan Zhou, Songlin Yang, Yang Cha and Zhen Huang, the shareholders of Beijing AirInbox, entered into an amended and restated exclusive option agreement with KongZhong Beijing on May 10, 2004 pursuant to which each of these shareholders granted KongZhong Beijing an exclusive option to acquire all of his or her interest in Beijing AirInbox at the price of $12,083.1 (RMB100,000) per one percent of its registered capital. The term of this agreement is the earlier of (i) 10 years from the date of execution and (ii) the date all of the equity interests in Beijing AirInbox have been purchased by KongZhong Beijing.

Yunfan Zhou and Zhen Huang, the shareholders of Beijing Boya Wuji, entered into an exclusive option agreement with KongZhong Beijing on March 31, 2004, pursuant to which each of these shareholders granted KongZhong Beijing an exclusive option to acquire all of his or her interest in the Beijing Boya Wuji at the price of $1,208.2 (RMB10,000) per one percent of its registered capital. The term of this agreement is the earlier of (i) 10 years from the date of execution and (ii) the date all of the equity interests in Beijing Boya Wuji have been purchased by KongZhong Beijing.

Exclusive Technical and Consulting Services Agreements. Beijing AirInbox entered into an exclusive technical and consulting services agreement with KongZhong Beijing on March 31, 2004, pursuant to which KongZhong Beijing will provide ongoing technical and consulting services to Beijing AirInbox on an exclusive basis. The services to be provided under the agreement include, among others, network and web site design and maintenance, research and development and consulting on sales, marketing, customer services, human resources, market research and public relations. The service fees will be calculated quarterly, based on a certain percentage of the revenues of Beijing AirInbox for such quarter. KongZhong Beijing may partially waive any quarterly payment as long as (i) the cash and cash equivalents owned by Beijing AirInbox is below $12.1 million (RMB100 million) and (ii) the payment of service fees by AirInbox is no less than $0.6 million (RMB5 million) for such quarter. The term of this agreement is for 10 years from the date of execution, automatically renewable at KongZhong Beijing’s option. Beijing AirInbox previously entered into an exclusive technical and consulting services agreement with KongZhong Beijing on October 10, 2003 for KongZhong Beijing to provide similar services to Beijing AirInbox in the last three months of 2003. This agreement expired on December 31, 2003.

Beijing Boya Wuji entered into an exclusive technical and consulting services agreement with KongZhong Beijing on March 31, 2004, pursuant to which KongZhong Beijing will provide certain

technical and consulting services to Beijing Boya Wuji on an exclusive basis. The services to be provided under the agreement include, among others, network and web site design and maintenance, research and development and consulting services on sales, marketing, customer services, human resources, market research and public relations. The service fees will be calculated quarterly, based on a certain percentage of the revenues of Beijing Boya Wuji for such quarter, provided that Beijing Boya Wuji is profitable. The term of each of these agreements is for 10 years from the date of execution, automatically renewable at KongZhong Beijing’s option.

Equity Pledge Agreements. Yunfan Zhou, Songlin Yang, Yang Cha and Zhen Huang, the shareholders of Beijing AirInbox, entered into an amended and restated equity pledge agreement with KongZhong Beijing on May 10, 2004. Pursuant to this agreement, each of these shareholders pledged all of his or her interest in Beijing AirInbox to KongZhong Beijing to guarantee the performance by Beijing AirInbox of its obligations under the exclusive technical and consulting services agreement and the domain name license agreement, dated March 31, 2004, and the trademark license agreement dated May 10, 2004 between Beijing AirInbox and KongZhong Beijing. The term of the agreement is from the date on which the pledges are recorded on the shareholders register of Beijing AirInbox until all obligations of Beijing AirInbox guaranteed under this agreement have been fully performed.

Yunfan Zhou and Zhen Huang, the shareholders of Beijing Boya Wuji, entered into an equity pledge agreement with KongZhong Beijing on March 31, 2004. Pursuant to this agreement, each of these shareholders of Beijing Boya Wuji pledged all of his or her interest in Beijing Boya Wuji to KongZhong Beijing to guarantee the performance by Beijing Boya Wuji of its obligations under the exclusive technical and consulting services agreement, the trademark license agreement and the domain name license agreement, dated March 31, 2004, between Beijing Boya Wuji and KongZhong Beijing. The term of this agreement is from the date on which the pledges are recorded on the shareholders register of Beijing Boya Wuji until all obligations of Beijing Boya Wuji guaranteed under this agreement have been fully performed.

Business Operation Agreements. Beijing AirInbox, its shareholders, Yunfan Zhou, Songlin Yang, Yang Cha and Zhen Huang and KongZhong Beijing entered into an amended and restated business operation agreement on May 10, 2004. Pursuant to this agreement, Beijing AirInbox and its shareholders agreed that, without the prior written consent of KongZhong Beijing or its designees, Beijing AirInbox will not engage in any transactions which may have a material adverse effect on its assets, liabilities, equity or operations, including (i) lending to or assuming any obligations of a third party, (ii) selling or purchasing any assets or rights valued at more than $24,164 (RMB0.2 million), (iii) replacing or dismissing any directors or senior officers, (iv) incurring any security interest over its assets and intellectual property to any third party or assigning to any third party its rights or obligations under this agreement, (v) amending the articles of association or changing the business scope of Beijing AirInbox, and (vi) changing the normal operational process or amending any material internal guidelines of Beijing AirInbox. In addition, Beijing AirInbox and its shareholders will appoint the designees of KongZhong Beijing, who must be employees of KongZhong Beijing, as the directors, general manager and other senior officers of Beijing AirInbox. Each of the shareholders has also agreed to execute a power of attorney to grant the designees of KongZhong Beijing full power and authority to exercise all of the respective shareholder’s rights in Beijing AirInbox. The term of this agreement is for 10 years from the date of execution, automatically renewable at KongZhong Beijing’s option. In addition, according to a letter agreement between KongZhong Beijing and us, determination of any designees by KongZhong Beijing must be approved by the majority of our board of directors.

Beijing Boya Wuji, its shareholders, Yunfan Zhou and Zhen Huang, and KongZhong Beijing entered into a business operation agreement on March 31, 2004. Pursuant to this agreement, Beijing Boya Wuji and its shareholders agreed that, without the prior written consent of KongZhong Beijing or its designees, Beijing Boya Wuji will not engage in any transactions which may have a material adverse

effect on its assets, liabilities, equity or operations, including (i) lending to or assuming any obligations of a third party, (ii) selling or purchasing any assets or rights valued at more than $24,164 (RMB0.2 million), (iii) replacing or dismissing any directors or senior officers, (iv) incurring any security interest over its assets and intellectual property to any third party or assigning to any third party its rights or obligations under this agreement, (v) amending the articles of association or changing the business scope of Beijing Boya Wuji and (vi) changing the normal operations or amending any material internal guidelines of Beijing Boya Wuji. In addition, Beijing Boya Wuji and its shareholders will appoint the designees of KongZhong Beijing, who must be employees of KongZhong Beijing, as directors, general manager and other senior officers of Beijing Boya Wuji. Each of the shareholders has also agreed to execute a power of attorney to grant the designees of KongZhong Beijing full power and authority to exercise all of the respective shareholder’s rights in Beijing Boya Wuji. The term of this agreement is for 10 years from the date of execution, automatically renewable at KongZhong Beijing’s option. In addition, according to a letter agreement between KongZhong Beijing and us, determination of any designees by KongZhong Beijing must be approved by the majority of our board of directors.

Powers of Attorney. Each of Yunfan Zhou, Songlin Yang, Yang Cha and Zhen Huang, the shareholders of Beijing AirInbox, executed an irrevocable power of attorney on May 10, 2004, granting Yunfan Zhou or any other designee of KongZhong Beijing full power and authority to exercise all of his or her rights as a shareholder in Beijing AirInbox.

Each of Yunfan Zhou and Zhen Huang, the shareholders of Beijing Boya Wuji, executed an irrevocable power of attorney on March 31, 2004, granting Yunfan Zhou or any other designee of KongZhong Beijing full power and authority to exercise all of his or her rights as a shareholder in Beijing Boya Wuji.

Intellectual Property Agreements. KongZhong Beijing entered into an amended and restated trademark license agreement with Beijing AirInbox on May 10, 2004, granting Beijing AirInbox a non-exclusive license to use certain trademarks for a quarterly fee equal to 5% of the gross revenues of Beijing AirInbox, which is waived before KongZhong has obtained registration of such trademarks in China. In addition, such fee may be waived by KongZhong Beijing if it believes such waiver is necessary for the business of Beijing AirInbox. The term of the agreement is 10 years from the date of execution, automatically renewable at KongZhong Beijing’s option.

KongZhong Beijing entered into a domain name license agreement with Beijing AirInbox on March 31, 2004, granting Beijing AirInbox a non-exclusive license to use the domain names owned by KongZhong Beijing for a quarterly fee equal to 5% of the gross revenues of Beijing AirInbox, which may be waived by KongZhong Beijing if it believes such waiver is necessary for the business of Beijing AirInbox. The term of the agreement is 10 years from the date of execution, automatically renewable at KongZhong Beijing’s option.

KongZhong Beijing entered into an amended and restated trademark license agreement with Beijing Boya Wuji on May 10, 2004, granting Beijing Boya Wuji a non-exclusive license to use certain trademarks for a quarterly fee equal to 5% of the gross revenues of Beijing Boya Wuji, which is waived before KongZhong has obtained registration of such trademarks in China. In addition, such fee may be waived by KongZhong Beijing if it believes such waiver is necessary for the business of Beijing Boya Wuji. The term of the agreement is ten years from the date of execution, automatically renewable at KongZhong Beijing’s option.

KongZhong Beijing entered into a domain name license agreement with Beijing Boya Wuji on March 31, 2004, granting Beijing Boya Wuji a non-exclusive license to use the domain names owned by KongZhong Beijing for a quarterly fee equal to 5% of the gross revenues of Beijing AirInbox, which may be waived by Kongzhong Beijing if it believes such waiver is necessary for the business of

Beijing Boya Wuji. The term of the agreement is 10 years from the date of execution, automatically renewable at KongZhong Beijing’s option.

On September 12, 2002, we entered into a shareholders agreement with the holders of our Series A and Series B preferred shares and the holders of our ordinary shares.

Pursuant to the shareholders agreement, the rights of the holders of our Series A and Series B preferred shares under these agreements shall terminate upon the closing of this offering, except that, upon receipt of demand within six months following this offering, we are obligated to register for public offering all or any portion of the ordinary shares issuable upon conversion of our preferred shares. The holders of our Series A and Series B preferred shares are also entitled to participate in certain registrations of securities that we initiate after this offering. See “Description of share capital—Registration rights.”

In addition, without the prior written consent of our shareholders representing no less than 66 2/3% of the ordinary shares held by the investors who had purchased our Series B preferred shares, none of Yunfan Zhou and Nick Yang, our founders, may directly or indirectly transfer any of our ordinary shares held by him, or any equity interests of Beijing AirInbox held or controlled by him, or, in the case of Yunfan Zhou, any equity interests of Mobileren Inc., within 180 days after the closing of this offering.

The table below sets forth information with respect to the beneficial ownership, within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, of our ordinary shares, as of March 31, 2004, (1) assuming the conversion of all of our preferred shares into ordinary shares, and (2) as adjusted to reflect the sale of our ADSs offered in this offering for:


†	each person whom we know owns beneficially more than 5% of our ordinary shares;

†	each of our directors and each of our senior officers who beneficially own our ordinary shares; and

†	each other selling shareholder who will participate in this offering.


(1)	Assumes that the underwriters exercise the over-allotment option in full. The underwriters may choose to exercise the over- allotment option in part or not at all.

(2)	Draper Fisher Jurvetson ePlanet Ventures L.P., Draper Fisher Jurvetson ePlanet Partners Fund, LLC and Draper Fisher Jurvetson ePlanet Ventures GmbH KG & Co. together hold 8.9% of our company prior to the offering and % following this offering.

(3)	eGarden I, Calver Investments Limited and eGarden Ventures (HK), Ltd. together hold 8.3% of our company prior to this offering and % following this offering.

(4)	Represents stock options to acquire ordinary shares which are exercisable immediately. The options have an exercise price of $0.0025 per ordinary share.

(5)	Includes Yunfan Zhou and Nick Yang.

Mobileren Inc., a British Virgin Islands company, is 100% owned by one of our founders, Yunfan Zhou. Prior to September 2002, Mr. Zhou directly held 11,725,000 ordinary shares of our company. In September 2002, Mobileren Inc. purchased 3,150,000 Series A preferred shares from us, of which 500,000 were transferred to CENO Investment Limited in September 2003. The address of Mobileren Inc. is c/o Yunfan Zhou, 8/F, Tower A, Yuetan Building, No. 2 Yuetan North Street, Beijing, China 100045 until July 31, 2004, and will be c/o Yunfan Zhou, 33/F, Tengda Building, No. 168, Xiwai Avenue, Haidian District, Beijing China, 100044 starting from August 1, 2004. As adjusted by our share split, Mr. Zhou and his family member beneficially hold 234,500,000 ordinary shares and 105,500,000 Series A preferred shares of our company in aggregate.

Nick Yang is one of the founders of our company. In May and September 2002, he purchased 11,725,000 ordinary shares of our company and 3,150,000 Series A preferred shares of our company from us, of which 500,000 were transferred to CENO Investment Limited in September 2003. His address is 8/F, Tower A, Yuetan Building, No. 2 Yuetan North Street, Beijing, China 100045 until July 31, 2004, and will be 33/F, Tengda Building, No. 168, Xiwai Avenue, Haidian District, Beijing China, 100044 starting from August 1, 2004. As adjusted by our share split, Mr. Yang holds 234,500,000 ordinary shares and 53,000,000 Series A preferred shares of our company.

Global Lead Technology Limited is a British Virgin Islands company, a wholly-owned subsidiary of China Assets (Holdings) Ltd. As adjusted by our share split, it holds 140,000,000 Series B preferred shares of our company. Its address is 1801 Hang Seng Building, 77 Des Voeux Road, Central, Hong Kong.

Draper Fisher Jurvetson ePlanet Ventures L.P., a Cayman Islands limited partnership, together with its affiliates, Draper Fisher Jurvetson ePlanet Partners Fund, LLC, a U.S. company, and Draper Fisher Jurvetson ePlanet Ventures GmbH KG & Co., a German company, hold 93,333,340 Series B preferred shares of our company, as adjusted by our share split. Their address is 2882 Sand Hill Rd., Suite 150, Menlo Park, CA 94025, U.S.

eGarden I, a Cayman Islands company, together with its affiliates, Calver Investments Limited, a Channel Islands company controlled by Samuel Shin Fang, and eGarden Ventures (HK), Ltd., a British Virgin Islands company equally owned by John Zhao and Samuel Shin Fang, hold 87,500,000 shares, including 52,500,000 Series A preferred shares and 35,000,000 Series B preferred shares, of our company in aggregate, as adjusted by our share split. In July 2003, our former shareholder Wirelessrock Inc. transferred 1,400,000 Series A preferred shares to eGarden I and 1,224,000 Series A preferred shares to Calver Investments Limited. Their address is Unit 412, New East Ocean Center, 9 Science Museum Road, Tsim Sha Tsui, Kowloon, Hong Kong.

Lucky Dragon Holdings Group Ltd. is a British Virgin Islands company and an affiliate of Chinney Development Company Limited, controlled by Law Wu Fu. Prior to March 2004, Chinney Development Company Limited held these shares directly. Its address is 19th Floor, Hang Seng Building, 77 Des Voeux Road, Central, Hong Kong. As adjusted by our share split, it holds 81,666,660 Series B preferred shares of our company.

Yin Alice Chau is a family member of Yunfan Zhou. In October 2003, Wirelessrock Inc. transferred 2,625,000 Series A preferred shares to Liang Hong, who in return transferred these shares to Yin Alice Chau in February 2004. Her address is c/o Yunfan Zhou, 8/F, Tower A, Yuetan Building, No. 2 Yuetan North Street, Beijing, China 100045 until July 31, 2004, and will be c/o Yunfan Zhou, 33/F, Tengda Building, No. 168, Xiwai Avenue, Haidian District, Beijing China, 100044 starting from August 1, 2004. As adjusted by our share split, she holds 52,500,000 Series A preferred shares of our company.

Yang Cha is our current in-house counsel and former outside legal advisor. He also holds 45% of the equity interest in Beijing AirInbox Information Technologies Co., Ltd. Yang Cha’s address is 8/F, Tower A, Yuetan Building, No. 2 Yuetan North Street, Beijing, China 100045 until July 31, 2004, and will be 33/F, Tengda Building, No. 168, Xiwai Avenue, Haidian District, Beijing China, 100044 starting from August 1, 2004.

Upon the completion of this offering, under the terms of our preferred shares, all of our outstanding Series A and Series B preferred shares will be mandatorily converted into our ordinary shares if (i) the aggregate proceeds to us from this offering are in excess of $12 million and (2) our resulting market capitalization is no less than $50 million.

Among the 12 shareholders of our company, one record holder is in the United States, holding 0.2% of our outstanding shares.

The selling shareholders named above acquired their shares in offerings which were exempt from registration under the U.S. Securities Act of 1933 because they involved either private placements or offshore sales to non-U.S. persons.

To our knowledge, we are not owned or controlled, directly or indirectly, by another corporation, by any foreign company or by any other natural or legal persons, severally or jointly.

None of our existing shareholders has voting rights that will differ from the voting rights of other shareholders after the completion of this offering. We are not aware of any arrangement which may at a later date result in a change of control of our company.

Set forth below is information concerning our share capital and a brief summary of the material provisions of our memorandum and articles of association, the material applicable laws of the Cayman Islands and certain other applicable laws and regulations. See “Risk factors— Risks relating to our ADSs—Shareholder rights under Cayman Islands law may differ materially from shareholder rights in the United States.” You and your advisers should refer to the text of our articles of association and to the texts of applicable laws and regulations for further information.

We were incorporated in the Cayman Islands in May 2002 as Communication Over The Air Inc., an exempted limited liability company, and we are governed by the Companies Law (2003 Second Revision) Cap. 22 of the Cayman Islands, or the Companies Law, and the common law of the Cayman Islands. An exempted company under Cayman Islands law is a company that conducts its business outside of the Cayman Islands, is exempted 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 any future taxation. In March 2004, we changed our name to KongZhong Corporation and split each share into 20 shares.

As of the date hereof, our authorized share capital is 1,000,000,000,000 shares, divided into 999,419,000,000 ordinary shares, 231,000,000 Series A preferred shares and 350,000,000 Series B preferred shares, par value $0.0000005 per share, and there were 469,000,000 ordinary shares and 581,000,000 preferred shares issued and outstanding. In May 2002, we issued 23,450,000 ordinary shares, or 469,000,000 ordinary shares after giving effect to our share split, at a price of $0.00001 per share. In September and October 2002, we issued and sold 11,550,000 (or 231,000,000 after giving effect to our share split) Series A preferred shares, at the price of $0.04762 per share and 17,500,000 (or 350,000,000 after giving effect to our share split) Series B preferred shares, at the price of $0.17143 per share.

All the outstanding ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their shares.

We granted four tranches of options to our employees and advisors in July and December 2002, August 2003 and February 2004, respectively, at exercise prices ranging from $0.0025 to $0.25 per ordinary share, of which options to purchase an aggregate number of 86,120,000 of our ordinary shares are outstanding as of March 31, 2004. See “Management— Stock options.”

This offering consists of an offering of ADSs representing ordinary shares. The following discussion primarily concerns ordinary shares and the rights of holders of ordinary 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 depositary facility in which the ordinary shares are held in order to exercise shareholders’ rights in respect of ordinary shares. The depositary will agree, so far as it is practical, to vote or cause to be voted the amount of ordinary shares represented by ADSs in accordance with the non-discretionary written instructions of the holders of such ADSs. See “Description of American Depositary Shares— Voting rights.”

Currently, the primary sources of our shareholders’ rights are our memorandum of association and articles of association and the Companies Law that, among other things, impose certain standards of conduct, fairness and disclosure on us, our directors and our shareholders.

An annual general meeting and any extraordinary general meeting called for the passing of a special resolution shall be called by not less than 20 days’ notice in writing. Notice of every general meeting shall be given to all of our shareholders.

Notwithstanding that a meeting is called by shorter notice than that mentioned above, it shall be deemed to have been duly called, if it is so agreed (i) in the case of a meeting called as an annual general meeting, by all of our shareholders entitled to attend and vote at the meeting or their proxies; or (ii) in the case of any other meeting, by a majority of the number of shareholders having a right to attend and vote at the meeting, holding not less than 95% of the ordinary shares.

No business except the appointment of a chairman shall be transacted at any general meeting unless a quorum is present at the commencement of business.

Shareholders present in person or in proxy that represent not less than one third in nominal value of our total issued shares will constitute a quorum.

A corporation shareholder shall be deemed to be present in person if represented by its duly authorized representative. Such duly authorized representative shall be entitled to exercise the same powers on behalf of the corporation which he or she represents as that corporation could exercise if it were our individual shareholder.

Our articles of association provide that members may take action by written resolution, provided that the resolution is signed by all members that would be entitled to vote with respect to such action at a general meeting. Under Delaware law, which is discussed for comparative purposes, shareholders may also take action by written consent, provided that the consent is signed by holders of outstanding shares having not less than the minimum number of votes that would be necessary to take such action at a meeting at which all shares entitled to vote thereon were present and voted.

Each ordinary share is entitled to one vote on all matters upon which the ordinary shares are entitled to vote, including the election of our directors. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman or any other member present in person or by proxy holding at least 10% in nominal value of our total issued shares giving the right to attend and vote at a meeting.

Share certificates registered in the names of two or more persons are deliverable to the person named in the share register, and if two or more such persons tender a vote, the vote of the person whose name first appears in the share register will be accepted to the exclusion of any other.

While there is nothing under the laws of the Cayman Islands which specifically prohibits or restricts the creation of cumulative voting rights for the election of directors of the company, unlike the requirement under Delaware law that cumulative voting for the election of directors is permitted only if expressly authorized in the certificate of incorporation, it is not a concept that is accepted as a

common practice in the Cayman Islands, and indeed the company has made no provisions in its articles of association to allow cumulative voting for such elections.

The Grand Court of the Cayman Islands may, on the application of shareholders holding not less than one fifth of our ordinary shares in issue, appoint an inspector to examine into our affairs and to report thereon in a manner as the Grand Court shall direct.

Any shareholder may petition the Grand Court of the Cayman Islands, which may make a winding-up order, if the court is of the opinion that it is just and equitable that we should be wound up.

Claims against us by our shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by our memorandum and articles of association.

The Cayman Islands courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a representative action against, or derivative actions in our name to challenge (a) an act which is ultra vires or illegal, (b) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of us, and (c) an irregularity in the passing of a resolution which requires a qualified (or special) majority.

There are no preemption rights applicable to the issue of new ordinary shares under either Cayman Islands statute law or our memorandum and articles of association.

If we are to be liquidated, the liquidator may, with the approval of the shareholders, divide among the shareholders in cash or in kind the whole or any part of our assets, in a manner proportionate to their shareholdings, and may vest the whole or any part of such assets in trustees upon such trusts for the benefit of the shareholders as the liquidator, with the approval of the shareholders, thinks fit, provided that a shareholder shall not be compelled to accept any shares or other assets which would subject such shareholder to liability.

Except with respect to share capital, as described below, and the location of the registered office, alterations or amendments to our memorandum and articles of association may only be made by special resolution.

Subject to the Companies Law of the Cayman Islands, all or any of the special rights attached to any class, unless otherwise provided for by the terms of issue of the shares of that class, may be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. The provisions of our articles of association relating to general meetings shall apply mutatis mutandis to every such separate general meeting, but so that the quorum for the purposes of any such separate general meeting other than an adjourned meeting shall be a person or persons together holding, or represented by proxy, on the date of the relevant meeting not less than one-third in nominal value of the issued shares of that class, every holder of ordinary shares of the class shall be entitled on a poll to one vote for every such share held by such holder and that any holder of shares of that class present in person or by proxy may demand a poll.

The special rights conferred upon the holders of any class of shares shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.


†	consolidate and divide all or any of our share capital into shares of larger amount than our existing ordinary shares;

†	cancel any ordinary shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person, and diminish the amount of our share capital by the amount of the ordinary shares so cancelled, subject to the provisions of the Companies Law; and

†	sub-divide our ordinary shares or any of them into ordinary shares of smaller amount than is fixed by our memorandum of association, subject nevertheless to the Companies Law.

We may, by special resolution, subject to any conditions prescribed by the Companies Law, reduce our share capital, share premium account or any capital redemption reserve in any manner authorized by law.

An ordinary resolution is a resolution passed by a simple majority of the shareholders voting in person or by proxy at a general meeting. An ordinary resolution also includes a unanimous written resolution. A special resolution is a resolution passed by a majority of not less than two-thirds of the shareholders voting in person or by proxy at a general meeting, of which notice specifying the intention to propose the resolution as a special resolution has been duly given. A special resolution also includes a unanimous written resolution.

Subject to the restrictions of our articles of association, as applicable, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board.

Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share without assigning any reasons therefor.

If our directors refuse to register a transfer they shall, within two months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 45 days in any year.

We are empowered by the Companies Law and our articles of association to purchase our own ordinary shares, subject to certain restrictions, including that the manner of the purchase has first been authorized by us in a shareholders’ general meeting. Our directors may only exercise this power on our behalf, subject to the Companies Law, our memorandum and articles of association and to any applicable requirements imposed from time to time by the Nasdaq National Market, the Securities and Exchange Commission or by any other recognized stock exchange on which our securities are listed.

Subject to the Companies Law and to our articles of association, in general meeting we may declare dividends in any currency, but no dividends shall exceed the amount recommended by our board of directors. No dividend may be declared or paid other than out of our profits and reserves lawfully available for distribution, including share premium.

Unless and to the extent that the rights attached to any ordinary shares or the terms of issue thereof otherwise provide, with respect to any shares not fully paid throughout the period in respect of which the dividend is paid, all dividends shall be apportioned and paid pro rata according to the amounts paid up on the ordinary shares during any portion or portions of the period in respect of which the dividend is paid. For these purposes no amount paid up on an ordinary share in advance of calls shall be treated as paid up on the ordinary share.

Our board of directors may from time to time pay to our shareholders such interim dividends as appear to the directors to be justified by our profits. Our directors may also pay semi-annually or at other intervals to be selected by them at a fixed rate if they are of the opinion that the profits available for distribution justify the payment. The board may also declare and pay special dividends as they think fit.

Our board of directors may retain any dividends or other monies payable on or in respect of an ordinary share upon which we have a lien, and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists. Our board of directors may also deduct from any dividend or other monies payable to any shareholder all sums of money, if any, presently payable by him or her to us on account of calls, installments or otherwise.

Whenever our board of directors or we in general meeting have resolved that a dividend be paid or declared on our share capital, the board of directors may further resolve: (a) that such dividend be satisfied wholly or in part in the form of an allotment of ordinary shares credited as fully paid up on the basis that the ordinary shares so allotted are to be of the same class as the class already held by the allottee, provided that those of our shareholders entitled thereto will be entitled to elect to receive such dividend, or part thereof, in cash in lieu of such allotment; or (b) that those of our shareholders entitled to such dividend will be entitled to elect to receive an allotment of ordinary shares credited as fully paid up in lieu of the whole or such part of the dividend as our board of directors may think fit on the basis that the ordinary shares so allotted are to be of the same class as the class already held by the allottee. We may upon the recommendation of our board of directors by ordinary resolution resolve in respect of any one particular dividend that notwithstanding the foregoing a dividend may be satisfied wholly in the form of an allotment of ordinary shares credited as fully paid without offering any right to our shareholders to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, interest or other sum payable in cash to a holder of ordinary shares may be paid by check or warrant sent through the post addressed to the registered address of the shareholder entitled, or in the case of joint holders, to the registered address of the person whose name stands first in our register of shareholders in respect of the joint holding to such person and to such address as the holder or joint holders may in writing direct. Every check 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 our register of shareholders in respect of such ordinary shares, and shall be sent at his or their risk and the payment of any such check or warrant by the bank on which it is drawn shall operate as a good discharge to us in respect of the dividend and/or bonus represented thereby, notwithstanding that it may subsequently appear that the same has been stolen or that any endorsement thereon has been forged.

Any dividend unclaimed for six years from the date of declaration of such dividend may be forfeited by the board of directors and shall revert to us.

Our board of directors may, with the sanction of the shareholders 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 ordinary shares, debentures or warrants to subscribe securities of any other company, and where any difficulty arises in regard to such distribution our directors may settle it as they think expedient, and in particular may disregard fractional entitlements, round the same up or down or provide that the same shall accrue to our benefit, and may fix the value for distribution of such specific assets and may determine that cash payments shall be made to any of our shareholders 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 our board of directors.

We are entitled to sell any ordinary share of a shareholder who is untraceable, provided that:


(i)	all checks or warrants, not being less than three in number, for any sums payable in cash to the holder of such ordinary shares have remained uncashed for a period of 12 years;

(ii)	we have not during that time or before the expiry of the three-month period referred to paragraph (iv) below received any indication of the whereabouts or existence of the shareholder or person entitled to such ordinary shares by death, bankruptcy or operation of law;

(iii)	during the 12-year period, at least three dividends in respect of the ordinary shares in question have become payable and no dividend during that period has been claimed by the shareholder; and

(iv)	upon expiration of the 12-year period, we have caused an advertisement to be published in newspapers (or, by electronic communication in the manner in which notices may be served by us by electronic means as provided in our articles of association), giving notice of its intention to sell these ordinary shares, and a period of three months has elapsed since such advertisement.

The net proceeds of any such sale shall belong to us and when we receive these net proceeds we shall become indebted to the former shareholder for an amount equal to such net proceeds.

The Companies Law is modeled after that of England but does not follow recent United Kingdom statutory enactments and differs from laws applicable to United States 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.

Cayman Islands law does not provide for mergers as that expression is understood under United States corporate law, therefore, Cayman Islands law may not afford shareholders with the same or comparable protections or rights as the mergers and acquisition rights of shareholders of U.S. companies. 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 ought not to 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.

When a take-over offer is made and accepted by holders of 90% of the shares within four months, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands, but this is unlikely to succeed unless there is evidence of fraud, bad faith or collusion. We have not issued preferred shares or adopted other “poison pill” measures that could be used to prevent a takeover attempt as is commonly adopted by U.S. companies. Although neither our articles of association nor Cayman Islands law prevent us from adopting measures that could be used to prevent a takeover attempt, we do not have any intention to adopt such measures at this point in time. If we did adopt such measures, however, shareholders might be prevented from realizing a potential premium on their shares as a result of a takeover attempt.

Cayman Islands law does not require that shareholders approve sales of all or substantially all of a company’s assets as is commonly adopted by U.S. companies.

If the arrangement and reconstruction is thus approved, the dissenting shareholder 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.

Our Cayman Islands counsel is not aware of any reported class action having been brought in a Cayman Islands court. 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 be obtained; or

†	those who control the company are perpetrating a “fraud on the minority.”

Cayman Islands law does not limit the extent to which a company’s 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. Our articles of association provides for the indemnification of our directors, auditors and other officers against all losses or liabilities incurred or sustained by him or her as a director, auditor or other officer of our company in defending any proceedings, whether civil or criminal, in which judgment is given in his or her favor, or in which he or she is acquitted.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been advised that in the opinion of the Securities Exchange Commission such indemnification is against public policy as expressed in the Securities Act and therefore is unenforceable.

We are managed by a board of directors which currently consists of 5 members. All of our directors in any term are subject to retirement from office at the next annual general meeting. Retiring directors are eligible for re-election. There are no membership qualifications for directors. There are no share ownership qualifications for directors. The compensation committee under our board will determine the remuneration to be paid to the directors.

Meetings of our board of directors may be convened at any time deemed necessary by any members of our board of directors. Advance notice of a meeting is not required if all our directors are present or represented at the meeting concerned and consent to the holding of such meeting.

A meeting of our board of directors shall be competent to make lawful and binding decisions if any two members of our board of directors are present or represented. At any meeting of our directors, each director, be it by his or her presence or by his or her alternate, is entitled to one vote. A director may vote in respect of any contract or transaction in which he is interested, provided, however, that he or she shall disclose the nature of such interest at or prior to its consideration and any vote on that matter.

The directors may exercise all the corporate powers to borrow money or issue debt and to mortgage our properties. Questions arising at a meeting of our board of directors are required to be decided by simple majority votes of the members of our board of directors present or represented at the meeting. In the case of a tie vote, the chairman of the meeting shall have a second or deciding vote. Our board of directors may also pass resolutions without a meeting by unanimous written consent.

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.

Holders of our ordinary 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.”

Our Audit, Nominations and Compensation Committees are comprised solely of independent directors. See “Management—Board practice” for a description of these committees.

Citibank, N.A. has agreed to act as the depositary bank for the American Depositary Shares. Citibank’s depositary offices are located at 111 Wall Street, New York, New York 10043. American Depositary Shares are frequently referred to as “ADSs” and represent ownership interests in securities that are on deposit with the depositary bank. ADSs may be represented by certificates that are commonly known as “American Depositary Receipts” or “ADRs.” The depositary bank typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Citibank, N.A., Hong Kong branch.

We have appointed Citibank as the depositary bank pursuant to a deposit agreement. A copy of the deposit agreement is on file with the Securities and Exchange Commission under cover of a registration statement on Form F-6. You may obtain a copy of the deposit agreement from the Securities and Exchange Commission’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 or from the Securities and Exchange Commission’s web site at www.sec.gov. Please refer to Registration Number 333- when retrieving such copy.

We are providing you with a summary description of all of the material terms of the ADSs and of your material rights as an owner of ADSs. Please remember that, although this description covers the material terms of the ADSs, summaries by their nature lack the precision of the information summarized and that a holder’s rights and obligations as an owner of ADSs will be determined by reference to the terms of the deposit agreement and not by this summary. We urge you to review the deposit agreement in its entirety.

Each ADS represents the right to receive ordinary shares on deposit with the custodian. An ADS will also represent the right to receive any other property received by the depositary bank or the custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because of legal restrictions or practical considerations.

If you become an owner of ADSs, you will become a party to the deposit agreement and therefore will be bound to its terms and, if applicable, to the terms of the ADR that represents your ADSs. The deposit agreement and the ADR specify our rights and obligations as well as your rights and obligations as an owner of ADSs and those of the depositary bank. As an ADS holder you appoint the depositary bank to act on your behalf in certain circumstances. The deposit agreement and the ADRs are governed by New York law. However, our obligations to the holders of ordinary shares will continue to be governed by the laws of the Cayman Islands, which may be different from the laws in the United States.

As an owner of ADSs, you may hold your ADSs either by means of an ADR registered in your name, through a brokerage or safekeeping account, or through an account established by the depositary bank in your name reflecting the registration of uncertificated ADSs directly on the books of the depositary bank (commonly referred to as the “direct registration system” or “DRS”). The direct registration system reflects the uncertificated (book-entry) registration of ownership of ADSs by the depositary bank. Under the direct registration system, ownership of ADSs is evidenced by periodic statements issued by the depositary bank to the holders of the ADSs. The direct registration system includes automated transfers between the depositary bank and The Depository Trust Company (“DTC”), the central book-entry clearing and settlement system for equity securities in the United States. If you decide to hold your ADSs through your brokerage or safekeeping account, you must rely on the procedures of your broker or bank to assert your rights as an ADS owner. Please consult with your broker or bank to determine what those procedures are. This summary description assumes you have

opted to own the ADSs directly by means of an ADS registered in your name and, as such, we will refer to you as the “holder.” When we refer to “you,” we assume the reader owns ADSs and will own ADSs at the relevant time.

As a holder, you generally have the right to receive the distributions we make on the securities deposited with the custodian. Your receipt of these distributions may be limited, however, by practical considerations and legal limitations. These practical considerations and legal limitations include situations such as where the value of ordinary shares or rights to be distributed are too low to justify the expense of making the distribution, as well as the inability to distribute rights or other securities to holders of ADSs in a jurisdiction where such distribution would require registration of the securities to be distributed. Holders will receive such distributions under the terms of the deposit agreement in proportion to the number of ADSs held as of a specified record date.

Whenever we make a cash distribution for the securities on deposit with the custodian, we will deposit the funds with the custodian. Upon receipt of such notice and confirmation of the deposit of the requisite funds, the depositary bank will arrange for the funds to be converted into U.S. dollars and for the distribution of the U.S. dollars to the holders, subject to any restrictions imposed by the laws and regulations of the Cayman Islands.

The conversion into U.S. dollars will take place only if practicable and if the U.S. dollars are transferable to the United States. The amounts distributed to holders will be net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. The depositary will apply the same method for distributing the proceeds of the sale of any property, such as undistributed rights, held by the custodian in respect of securities on deposit.

Whenever we make a free distribution of ordinary shares for the securities on deposit with the custodian, we will deposit the applicable number of ordinary shares with the custodian. Upon receipt of notice of such deposit, the depositary bank will either distribute to holders new ADSs representing the ordinary shares deposited or modify the ADS-to-ordinary shares ratio, in which case each ADS you hold will represent rights and interests in the additional ordinary shares so deposited. Only whole new ADSs will be distributed. Fractional entitlements will be sold and the proceeds of such sale will be distributed as in the case of a cash distribution.

The distribution of new ADSs or the modification of the ADS-to-ordinary shares ratio upon a distribution of ordinary shares will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes or governmental charges, the depositary bank may sell all or a portion of the new ordinary shares so distributed.

No such distribution of new ADSs will be made if it would violate a law (e.g., the U.S. securities laws) or if it is not operationally practicable. If the depositary bank does not distribute new ADSs as described above, it may sell the ordinary shares received upon the terms described in the deposit agreement and will distribute the proceeds of the sale as in the case of a distribution of cash.

registration under the United States Securities Act of 1933, as amended, or the Securities Act, or other applicable law is required, the depositary bank will not offer you the rights unless a registration statement covering the distribution of the rights and the underlying securities to all our ADS holders is effective. We are under no obligation to file a registration statement for any of these rights or underlying securities or to endeavor to cause a registration statement to be declared effective.

The depositary bank will establish procedures to distribute rights to purchase additional ADSs to holders and to enable such holders to exercise such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if we provide all of the documentation contemplated in the deposit agreement, such as opinions to address the lawfulness of the transaction. You may have to pay fees, expenses, taxes and other governmental charges to subscribe for the new ADSs upon the exercise of your rights. The depositary bank is not obligated to establish procedures to facilitate the distribution and exercise by holders of rights to purchase new ordinary shares other than in the form of ADSs.


†	We do not timely request that the rights be distributed to you or we request that the rights not be distributed to you;

†	We fail to deliver satisfactory documentation to the depositary bank; or

†	The depositary bank determines that it is not reasonably practicable to distribute the rights.

The depositary bank will sell the rights that are not exercised or not distributed if such sale is lawful and reasonably practicable. The proceeds of such sale will be distributed to holders as in the case of a cash distribution. If the depositary bank is unable to sell the rights, it will allow the rights to lapse.

Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior notice thereof to the depositary bank and will indicate whether we wish the elective distribution to be made available to you. In such case, we will assist the depositary bank in determining whether such distribution is lawful and reasonably practicable.

The depositary bank will make the election available to you only if it is reasonably practicable and if we have provided all of the documentation contemplated in the deposit agreement. In such case, the depositary bank will establish procedures to enable you to elect to receive either cash or additional ADSs, in each case as described in the deposit agreement.

If the election is not made available to you, you will receive either cash or additional ADSs, depending on what a holder of our ordinary shares would receive upon failing to make an election, as more fully described in the deposit agreement.

Whenever we intend to distribute property other than cash, ordinary shares or rights to purchase additional ordinary shares, we will notify the depositary bank in advance and will indicate whether we wish such distribution to be made to you. If so, we will assist the depositary bank in determining whether such distribution to holders is lawful and reasonably practicable.

If it is reasonably practicable to distribute such property to you and if we provide all of the documentation contemplated in the deposit agreement, the depositary bank will distribute the property to the holders in the manner it deems practicable.

The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes and governmental charges, the depositary bank may sell all or a portion of the property received.

The depositary bank will not distribute the property to you and will sell the property if:


†	We do not request that the property be distributed to you or if we request that the property not be distributed to you;

†	We do not deliver satisfactory documentation to the depositary bank; or

†	The depositary bank determines that all or a portion of the distribution to you is not reasonably practicable.

The proceeds of such a sale will be distributed to holders as in the case of a cash distribution.

Whenever we decide to redeem any of the securities on deposit with the custodian, we will notify the depositary bank. If it is reasonably practicable and if we provide all of the documentation contemplated in the deposit agreement, the depositary bank will distribute the property to you in a manner it deems practicable. The custodian will be instructed to surrender the ordinary shares being redeemed against payment of the applicable redemption price. The depositary bank will convert the redemption funds received into U.S. dollars upon the terms of the deposit agreement and will establish procedures to enable you to receive the net proceeds from the redemption upon surrender of your ADSs to the depositary bank. You may have to pay fees, expenses, taxes and other governmental charges upon the redemption of your ADSs. If less than all ADSs are being redeemed, the ADSs to be retired will be selected by lot or on a pro rata basis, as the depositary bank may determine.

We will give the depositary bank notice in English of any shareholders meeting or any action by shareholders with respect to dividends, redemptions, distributions or offering of rights of deposited securities. We will also give the depositary bank other notices, reports and communications made generally available to our stockholders and our annual reports in English.

At our request, the depositary bank will distribute such notices, reports and other communications to all holders of ADSs by mail, or if designated by the holder of the ADS as an acceptable means of notification, by means of electronic transmission. The depositary bank will make available a copy of any of these notices, reports or communications that we deliver to it for inspection by the holders of the ADSs at the depositary bank’s principal office, at the office of the custodian and at other designated transfer offices.

The ordinary shares held on deposit for your ADSs may change from time to time. For example, there may be a change in nominal or par value, a split-up, cancellation, consolidation or reclassification of such ordinary shares or a recapitalization, reorganization, merger, consolidation or sale of assets.

If any such change were to occur, your ADSs would, to the extent permitted by law, represent the right to receive the property received or exchanged in respect of the ordinary shares held on deposit. The depositary bank may in such circumstances deliver new ADSs to you or call for the exchange of your existing ADSs for new ADSs. If the depositary bank may not lawfully distribute such property to you, the depositary bank may sell such property and distribute the net proceeds to you as in the case of a cash distribution.

The depositary bank may create ADSs on your behalf if you or your broker deposit ordinary shares with the custodian. The depositary bank will deliver these ADSs to the person you indicate only after you pay any applicable issuance fees and any charges and taxes payable for the transfer of the ordinary shares to the custodian. Your ability to deposit ordinary shares and receive ADSs may be limited by U.S. and Cayman Islands legal considerations applicable at the time of deposit.

The issuance of ADSs may be delayed until the depositary bank or the custodian receives confirmation that all required approvals have been given and that the ordinary shares have been duly transferred to the custodian. The depositary bank will only issue ADSs in whole numbers.

When you make a deposit of ordinary shares, you will be responsible for transferring good and valid title to the depositary bank. As such, you will be deemed to represent and warrant that:


†	The ordinary shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained;

†	All preemptive, and similar, rights, if any, with respect to such ordinary shares have been validly waived or exercised;

†	You are duly authorized to deposit the ordinary shares;

†	The ordinary shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, and are not, and the ADSs issuable upon such deposit will not be, “restricted securities,” as defined in the deposit agreement; and

†	The ordinary shares presented for deposit have not been stripped of any rights or entitlements.

If any of the representations or warranties are incorrect in any way, we and the depositary bank may, at your cost and expense, take any and all actions necessary to correct the consequences of the misrepresentations.

As an ADR holder, you will be entitled to transfer, combine or split up your ADRs and the ADSs evidenced thereby. For transfers of ADRs, you will have to surrender the ADRs to be transferred to the depositary bank and also must:


†	ensure that the surrendered ADR certificate is properly endorsed or otherwise in proper form for transfer;

†	provide such proof of identity and genuineness of signatures as the depositary bank deems appropriate;

†	provide any transfer stamps required by the State of New York or the United States; and

†	pay all applicable fees, charges, expenses, taxes and other government charges payable by ADR holders pursuant to the terms of the deposit agreement, upon the transfer of ADRs.

To have your ADRs either combined or split up, you must surrender the ADRs in question to the depositary bank with your request to have them combined or split up, and you must pay all applicable fees, charges and expenses payable by ADR holders, pursuant to the terms of the deposit agreement, upon a combination or split-up of ADRs.

As a holder, you will be entitled to present your ADSs to the depositary bank for cancellation and then receive the corresponding number of underlying ordinary shares at the custodian’s offices. Your ability to withdraw the ordinary shares may be limited by U.S. and Cayman Islands legal considerations applicable at the time of withdrawal. In order to withdraw the ordinary shares represented by your ADSs, you will be required to pay to the depositary the fees for cancellation of ADSs and any charges and taxes payable upon the transfer of the ordinary shares being withdrawn. You assume the risk for delivery of all funds and securities upon withdrawal. Once canceled, the ADSs will not have any rights under the deposit agreement.

If you hold an ADS registered in your name, the depositary bank may ask you to provide proof of identity and genuineness of any signature and such other documents as the depositary bank may deem appropriate before it will cancel your ADSs. The withdrawal of the ordinary shares represented by your ADSs may be delayed until the depositary bank receives satisfactory evidence of compliance with all applicable laws and regulations. The depositary bank will only accept ADSs for cancellation that represent a whole number of securities on deposit. If you surrender a number of ADSs for withdrawal representing other than a whole number of common shares, the depositary bank will either return the number of ADSs representing any remaining fractional common shares or sell the common shares represented by the ADSs you surrendered and remit the net proceeds of that sale to you as in the case of a distribution in cash.

You will have the right to withdraw the securities represented by your ADSs at any time except for:


†	Temporary delays that may arise because (i) the transfer books for the ordinary shares or ADSs are closed, or (ii) ordinary shares are immobilized on account of a shareholders’ meeting or a payment of dividends.

†	Obligations to pay fees, taxes and similar charges.

†	Restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit.

The deposit agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply with mandatory provisions of law.

Voting at our shareholders meetings is by show of hands unless a poll is demanded. A poll may be demanded by the chairman or any other shareholder present in person or by proxy holding at least 10% in nominal value of our total issued shares giving the right to vote at a meeting. In the event of voting by show of hands, each shareholder has one vote irrespective of the number of shares held by such person. In the event of poll voting, each shareholder has an amount of votes equal to the number of shares held as of the applicable record date.

As a holder, you generally have the right under the deposit agreement to instruct the depositary bank to exercise the voting rights for the ordinary shares represented by your ADSs. For a description of the voting rights of holders of ordinary shares, see “Description of share capital—Voting rights attaching to the ordinary shares.”

At our request, the depositary bank will distribute to you any notice of a shareholders’ meeting received from us together with information explaining how to instruct the depositary bank to exercise the voting rights of the securities represented by ADSs.

If the depositary bank timely receives voting instructions from a holder of ADSs, it will endeavor to vote the securities represented by the holder’s ADSs in accordance with such voting instructions. If the depositary bank timely receives voting instructions from a holder of ADSs, the depositary bank will cause the ordinary shares on deposit to be voted as follows: (a) in the event voting takes place at a shareholders’ meeting by show of hands, the depositary bank will instruct the custodian to vote all ordinary shares on deposit in accordance with the voting instructions received from a majority of the holders of ADSs who provided voting instructions; or (b) in the event voting takes place at a shareholders’ meeting by poll, the depositary bank will instruct the custodian to vote the ordinary shares on deposit in accordance with the voting instructions received from holders of ADSs. In the event of voting by poll, ordinary shares in respect of which no timely voting instructions have been received will not be voted (but all ordinary shares held on deposit will be represented at the meeting for quorum purposes if any timely voting instructions have been received from holders of ADSs).

We cannot assure you that you will receive voting materials in time to enable you to return voting instructions to the depositary bank in a timely manner. Securities for which no voting instructions have been received will not be voted.

The ability of the depositary bank to solicit the voting instructions of the holders of ADSs and carry out voting instructions provided by the ADS holders may be limited by


†	practical limitations, such as timing constraints due to time zone differences,

†	legal limitations, for example, limitations on the solicitation of votes in respect of mergers and acquisitions under the Securities Act of 1933, as amended, and

†	the terms of the deposited securities, such as provisions allowing voting by show of hands.

As an ADS holder, you will be required to pay the following service fees to the depositary bank:

As an ADS holder you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges such as:


†	Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares, i.e., upon deposit and withdrawal of ordinary shares.

†	Expenses incurred for converting foreign currency into U.S. dollars.


†	Fees and expenses incurred by the depositary in compliance with exchange controls or other regulatory requirements.

†	Expenses for cable, telex and fax transmissions and for delivery of securities.

†	Taxes and duties upon the transfer of securities, i.e., when ordinary shares are deposited or withdrawn from deposit.

†	Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.

We have agreed to pay certain other charges and expenses of the depositary bank. Note that the fees and charges you may be required to pay may vary over time and may be changed by agreement between us and the depositary bank. You will receive prior notice of such changes. The depositary bank has the right to collect fees by offsetting them against the payment of cash distributions and cash and stock dividends and offsetting the fees and charges against cash paid in lieu of issuance of fractional shares of deposited securities.

We may agree with the depositary bank to modify the deposit agreement at any time without your consent. We undertake to give holders 30 days’ prior notice of any modifications that would materially prejudice any of their substantial rights under the deposit agreement. We will not consider to be materially prejudicial to your substantial rights any modifications or supplements that are reasonably necessary for the ADSs to be registered under the Securities Act or to be eligible for book-entry settlement, in each case without imposing or increasing the fees and charges you are required to pay. In addition, we may not be able to provide you with prior notice of any modifications or supplements that are required to accommodate compliance with applicable provisions of law. For a description of the general procedures for such a notice, see “— Notices and reports.”

You will be bound by the modifications to the deposit agreement if you continue to hold your ADSs after the modifications to the deposit agreement become effective. The deposit agreement cannot be amended to prevent you from withdrawing the ordinary shares represented by your ADSs except to comply with applicable law.

We have the right to direct the depositary bank to terminate the deposit agreement. Similarly, the depositary bank may in certain circumstances on its own initiative terminate the deposit agreement. In either case, the depositary bank must give notice to the holders at least 30 days before termination. For a description of the general procedures for such a notice, see “—Notices and reports.”


†	*For a period of six months after termination,* you will be able to request the cancellation of your ADSs and the withdrawal of the ordinary shares represented by your ADSs and the delivery of all other property held by the depositary bank in respect of those ordinary shares on the same terms as prior to the termination. During this six-month period, the depositary bank will continue to collect all distributions received on the ordinary shares on deposit, i.e., dividends, but will not distribute any property to you until you request the cancellation of your ADSs.

†	*After the expiration of this six-month period,* the depositary bank may sell the securities held on deposit. The depositary bank will hold the proceeds from such sale and any other funds then held for the holders of ADSs in a non-interest bearing account. At that point, the depositary bank will have no further obligations to holders other than to account for the funds then held for the holders of ADSs still outstanding.

The depositary bank will maintain a list of ADS record holders and any reports and communications, including proxy soliciting materials, received from us which are received by the depositary bank or the custodian or made generally available to the holders of the deposited securities, and the registrar shall keep books for the registration of ADSs at its office. You may inspect such books and records at the depositary bank’s offices during regular business hours solely for the purpose of communicating with other holders in the interest of business matters relating to the ADSs and the deposit agreement.

The registrar will maintain in The City of New York facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADSs. These facilities may be closed from time to time, to the extent not prohibited by law.

The deposit agreement limits our obligations and the depositary bank’s obligations to you. Please note the following:


†	We and the depositary bank are obligated only to take the actions specifically stated in the deposit agreement without negligence or bad faith.

†	The depositary bank disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the effect of any vote, provided it acts in good faith and in accordance with the terms of the deposit agreement. Citibank will solicit, receive and carry out voting instructions in accordance with the terms and conditions of the deposit agreement. The validity of the vote, once transmitted by the depositary to us, may be questioned under Cayman law as may be the manner in which the voting instructions were collected. Citibank as depositary will not have any liability if on account of an action in the Cayman Islands a vote which was solicited from ADR holders and transmitted to us in compliance with the terms of the deposit agreement may be invalidated or disregarded in the Cayman Islands.

†	The depositary bank disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of any document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks associated with investing in ordinary shares, for the validity or worth of the ordinary shares, for any tax consequences that result from the ownership of ADSs, for the creditworthiness of any third party, for allowing any rights to lapse under the terms of the deposit agreement, for the timeliness of any of our notices or for our failure to give notice.

†	We and the depositary bank will not be obligated to perform any act that is inconsistent with the terms of the deposit agreement.

†	We and the depositary bank disclaim any liability if we are prevented or forbidden from acting on account of any law or regulation, any provision of our articles of association, any provision of any securities on deposit or by reason of any act of God or war or other circumstances beyond our control.

†	We and the depositary bank disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for in the deposit agreement or in our articles of association or in any provisions of securities on deposit.

†	We and the depositary bank further disclaim any liability for any action or inaction in reliance on the advice or information received from legal counsel, accountants, any person presenting ordinary shares for deposit, any holder of ADSs or authorized representatives thereof, or any other person believed by either of us in good faith to be competent to give such advice or information.


†	We and the depositary bank also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other benefit which is made available to holders of ordinary shares but is not, under the terms of the deposit agreement, made available to you.

†	We and the depositary bank may rely without any liability upon any written notice, request or other document believed to be genuine and to have been signed or presented by the proper parties.

†	We and the depositary bank also disclaim liability for any consequential or punitive damages for any breach of the terms of the deposit agreement.

The depositary bank may, in certain circumstances, to the extent permitted by applicable laws and regulations, issue ADSs before receiving a deposit of ordinary shares or release ordinary shares before receiving ADSs for cancellation. These transactions are commonly referred to as “pre-release transactions.” The deposit agreement limits the aggregate size of pre-release transactions and imposes a number of conditions on such transactions, i.e., the need to receive collateral, the type of collateral required, the representations required from brokers, etc. The depositary bank may retain the compensation received from the pre-release transactions.

You will be responsible for the taxes and other governmental charges payable on your ADSs and the securities represented by your ADSs. We, the depositary bank and the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all property on deposit to pay the taxes and governmental charges payable by holders. You will be liable for any deficiency if the sale proceeds do not cover the taxes that are due on your ADSs and the securities represented by your ADSs.

The depositary bank may refuse to issue ADSs, to deliver, transfer, split and combine ADRs or to release securities on deposit until all taxes and charges are paid by you. The depositary bank and the custodian may take reasonable administrative actions to obtain tax refunds and reduced tax withholding for any distributions on your behalf. However, you may be required to provide to the depositary bank and to the custodian proof of taxpayer status and residence and such other information as the depositary bank and the custodian may require to fulfill legal obligations. You are required to indemnify us, the depositary bank and the custodian for any claims with respect to taxes based on any tax benefit obtained for you.

The depositary bank will arrange for the conversion of all foreign currency received into U.S. dollars if such conversion is practical, and it will distribute the U.S. dollars in accordance with the terms of the deposit agreement. You may be required to pay fees and expenses incurred in converting foreign currency, such as fees and expenses incurred in complying with currency exchange controls and other governmental requirements.

If the conversion of foreign currency is not practical or lawful, or if any required approvals are denied or not obtainable at a reasonable cost or within a reasonable period, the depositary bank may take the following actions in its discretion:


†	Convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion and distribution is lawful and practical.

†	Distribute the foreign currency to holders for whom the distribution is lawful and practical.


†	Hold the foreign currency without liability for interest for the applicable holders.

The depositary bank has agreed with the custodian that the custodian will receive and hold the deposited securities for the account of the depositary bank in accordance with the deposit agreement. If the custodian resigns or is discharged from its duties under the deposit agreement, the depositary bank will promptly appoint a successor custodian. The resigning or discharged custodian will deliver the deposited securities and related records to the custodian designated by the depositary bank. The depositary bank will immediately give you and us written notice of these changes. If the depositary bank resigns or is discharged from its duties under the deposit agreement, the custodian will continue to act as custodian and will be obligated to comply with the direction of the successor depositary.

The deposit agreement is governed by the laws of the State of New York. We and the depositary bank have agreed that the federal or state courts in The City of New York shall have jurisdiction to hear and determine any suit, action or proceeding and to settle any dispute between us that may arise out of or in connection with the deposit agreement. We also submit to the jurisdiction of these courts and we have appointed an agent for service of process in The City of New York.

Prior to this offering, there has been no market for our ADSs in the United States, and there can be no assurance that a significant public market for our ADSs will develop or be sustained after this offering. Future sales of substantial amounts of our ADSs in the public market following this offering or the perception that such future sales may occur could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through sale of our equity securities.

Upon completion of this offering, we will have outstanding ordinary shares, including represented by ADSs (assuming the underwriters do not exercise the over-allotment option). The ADSs sold in this offering will be freely tradable without restriction under the U.S. Securities Act of 1933, as amended, or the Securities Act, except for any ADSs purchased by our “affiliates” as that term is defined in Rule 144 under the Securities Act. Rule 144 defines an affiliate of a company as a person that, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, our company. The remaining ordinary shares held by our existing shareholders and any ADSs held by our affiliates are “restricted securities” as that term is defined in Rule 144 because they were issued in private transactions not involving a public offering. Restricted ordinary shares may be sold in the public market in the United States only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are summarized below. This prospectus may not be used in connection with any resale of our ADSs acquired in this offering by our affiliates.

In general, under Rule 144 as currently in effect, a person, or persons, including persons who may be deemed an affiliate of our company, whose ordinary shares must be aggregated and who has beneficially owned restricted ordinary shares for at least one year, would be entitled to sell, within any three-month period, a number of ordinary shares that does not exceed the greater of:


†	one percent of the then outstanding ordinary shares, which will equal approximately ordinary shares immediately after this offering, assuming the underwriters do not exercise the over-allotment option; or

†	the average weekly reported trading volume of our ordinary shares in the form of ADSs on Nasdaq during the four calendar weeks preceding a sale by such person.

Sales under Rule 144 are also subject to certain manner-of-sale provisions, notice requirements, and the availability of current public information about us.

Under Rule 144(k), a person who has beneficially held restricted ordinary shares for a minimum of two years and who is not, and for three months prior to the sale of those ordinary shares has not been, one of our affiliates is free to sell those ordinary shares immediately following this offering without complying with the volume, manner-of-sale, public notice and other limitations contained in Rule 144.

In general, under Rule 701, any of our employees, directors, officers, or consultants who purchase ordinary shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to sell these ordinary shares 180 days after the effective date of this offering in reliance on Rule 144. Rule 701 provides that affiliates may

sell their Rule 701 ordinary shares under Rule 144 without having to comply with the holding period and notice filing requirements of Rule 144, and that non-affiliates may sell those ordinary shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice filing requirements under Rule 144.

Under the terms of a shareholders agreement with our existing shareholders, at any time six months after the closing of a public offering of our ordinary shares with gross proceeds to us in excess of $12 million and a resulting market capitalization of at least $50 million, any shareholders holding 30% of registrable securities then outstanding may, on three occasions only, require us to register the public sale, all or portion of their registrable securities.

In addition, any holder of registrable securities may require us to effect a registration statement on Form F-3 (or an equivalent registration in a jurisdiction outside the United States) for a public offering of registrable securities provided that proposed aggregate price to the public would be at least $1 million.

In addition, each holder of registrable securities has “piggyback” registration rights, pursuant to which such holder may require us to register its ordinary shares when we register shares to be newly issued or to be sold by other shareholders.

The above registration rights are subject to certain conditions and limitations, including the right of the underwriters in any underwritten offering to limit the number of registrable securities to be registered for public sale.

Registrable securities are (1) any of our ordinary shares issued or issuable upon conversion of our Series A preferred shares or Series B preferred shares, (2) any of our ordinary shares issued as a share dividend or other distribution with respect to, or in exchange for or in replacement of, any Series A preferred shares or Series B preferred shares and (3) any other ordinary shares owned or acquired by the holders of our Series B preferred shares. Upon completion of the offering, of our ordinary shares, or approximately % of our outstanding share capital, will be registrable securities.

We are generally required to bear all of the registration expenses incurred in connection with registrations of registrable securities, except underwriting discounts and selling commissions.

Our officers, directors and shareholders have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of our ADSs or our ordinary shares or securities convertible into or exchangeable or exercisable for any of our ADSs or our ordinary shares, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our ADSs or our ordinary shares, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or to enter into any transaction, swap, hedge or other arrangement with respect to our ADSs or ordinary shares, without the prior written consent of UBS AG for a period of 180 days after the date of this prospectus (other than any ADSs sold by selling shareholders pursuant to the over-allotment option).

The following summary of the material Cayman Islands and United States federal income tax consequences of an investment in the ADSs is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in the ADSs, such as the tax consequences under state, local and other tax laws.

To the extent the following discussion relates to Cayman Islands law with respect to income tax consequences of an investment in our ADSs, it represents the opinion of Maples and Calder Asia.

The Cayman Islands currently have no exchange control restrictions and no income, corporate or capital gains tax, estate duty, inheritance tax, gift tax or withholding tax applicable to us or to any holder of ADSs. Accordingly, any payment of dividends or any other distribution made on the ordinary shares will not be subject to taxation in the Cayman Islands, no Cayman Islands withholding tax will be required on such payments to any shareholder and gains derived from the sale of ordinary shares will not be subject to Cayman Islands capital gains tax. The Cayman Islands are not party to any double taxation treaties.

We have received an undertaking from the Governor-in-Council of the Cayman Islands that, in accordance with section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, for a period of 20 years from the date of such undertaking (which was May 21, 2002), no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations will apply to us or our operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax will be payable (i) on or in respect of our shares, debentures or other obligations or (ii) by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by us.

This section describes the material United States federal income tax consequences of the acquisition, ownership and disposition of our ADSs. It applies to you only if you acquire your ADSs in this offering and you hold your ADSs as capital assets for tax purposes. This section is the opinion of Sullivan and Cromwell LLP. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:


†	a bank;

†	a dealer in securities or currencies;

†	a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings;

†	a tax-exempt organization;

†	an insurance company;

†	a person liable for alternative minimum tax;

†	a person that actually or constructively owns 10% or more of our voting stock;

†	a person that holds ADSs that are a hedge or that are hedged against currency risks or as part of a straddle or a conversion transaction; or


†	a U.S. holder (as defined below) whose functional currency is not the U.S. dollar.

This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. There is currently no comprehensive tax treaty between the United States and the Cayman Islands. In addition, this section is based in part upon the representations of the depositary bank and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.


†	a citizen or resident of the United States;

†	a domestic corporation;

†	an estate whose income is subject to United States federal income tax regardless of its source; or

†	a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.

A non-U.S. holder is a beneficial owner of ADSs that is not a United States person for United States federal income tax purposes.

You should consult your own tax advisor regarding the United States federal, state and local tax consequences of owning and disposing of the ADSs in your particular circumstances.

In general, and taking into account the earlier assumptions, for United States federal income tax purposes, if you hold ADSs, you will be treated as the owner of the shares represented by those ADSs. Exchange of shares for ADSs, and ADSs for shares, generally will not be subject to United States federal income tax.

U.S. Holders. Under the United States federal income tax laws, and subject to the PFIC rules discussed below, if you are a U.S. holder, the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) is subject to United States federal income taxation. If you are a non-corporate U.S. holder, dividends paid to you in taxable years beginning before January 1, 2009 that constitute qualified dividend income will be taxable to you at a maximum tax rate of 15% provided that you hold the ADSs for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. On February 19, 2004, the IRS announced that it will permit taxpayers to apply a proposed legislative change to the holding period requirement described in the preceding sentence as if such a change were already effective. The legislative “technical correction” would change the minimum required holding period, retroactive to January 1, 2003, to more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Dividends we pay with respect to the ADSs generally will be qualified dividend income provided that, in the year that you receive the dividend, the ADSs are readily tradable on an established securities market in the United States.

The dividend is taxable to you when the depositary bank receives the dividend, actually or constructively. The depositary will be in constructive receipt of the dividend when the dividend is made unqualifiedly subject to the demand of the depositary. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a

non-taxable return of capital to the extent of your basis in the ADSs and thereafter as capital gain. If the dividend is declared and paid in a foreign currency, the amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot foreign currency/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Therefore, since the value of the foreign currency may decrease before you actually convert the currency into U.S. dollars, you may actually be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will ultimately receive. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.

Dividends will be income from sources outside the United States, but generally will be passive income or financial services income, which is treated separately from other types of income for purposes of computing the foreign tax credit allowable to you.

Non-U.S. Holders. If you are a non-U.S. holder, dividends paid to you in respect of the ADSs will not be subject to United States federal income tax unless the dividends are effectively connected with your conduct of a trade or business within the United States, and the dividends are attributable to a permanent establishment that you maintain in the United States if that is required by an applicable income tax treaty as a condition for subjecting you to United States taxation on a net income basis. In such cases you will be taxed in the same manner as a U.S. holder. If you are a corporate non-U.S. holder, effectively connected dividends may, under certain circumstances, be subject to an additional branch profits tax at a 30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.

U.S. Holders. Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell or otherwise dispose of your ADSs, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your ADSs. Capital gain of a noncorporate U.S. holder that is recognized before January 1, 2009 is generally taxed at a maximum rate of 15% where the holder has a holding period greater than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. Your ability to deduct capital losses is subject to limitations.

Non-U.S. Holders. If you are a non-U.S. holder, you will not be subject to United States federal income tax on gain recognized on the sale or other disposition of your ADSs unless:


†	the gain is effectively connected with your conduct of a trade or business in the United States and the dividends are attributable to a permanent establishment that you maintain in the United States if that is required by an applicable income tax treaty as a condition for subjecting you to United States taxation on a net income basis; or

†	you are an individual, you are present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist.

If you are a corporate non-U.S. holder, effectively connected gains that you recognize, under certain circumstances, may also be subject to an additional branch profits tax at a 30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.

Although it is not entirely clear how the contractual arrangements that provide us with control over Beijing AirInbox will be treated for purposes of the PFIC rules, we believe that we should be treated as owning all the shares of Beijing AirInbox for U.S. tax purposes, and therefore, the ADSs should not be treated as stock of a PFIC for United States federal income tax purposes. Whether or not we are a PFIC must be determined on an annual basis and, accordingly, our status is subject to change.

In general, if you are a U.S. holder, we will be a PFIC with respect to you if for any taxable year in which you held your ADSs:


†	at least 75% of our gross income for the taxable year is passive income; or

†	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.

Passive income generally includes dividends, interest, royalties, rents (not including certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. If a foreign corporation owns directly or indirectly at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income.

We believe that more than 25% of our gross income is not passive income and that, based upon our earnings history and projected market capitalization, we possess sufficient active assets, including intangible assets, such that more than 50% of the value of our assets is attributable to assets that produce or are held for the production of active income.

If we are treated as a PFIC, and you are a U.S. holder that does not make a mark-to-market election, as described below, you will be subject to special rules with respect to:


†	any gain you realize on the sale or other disposition of your ordinary shares or ADSs; and

†	any excess distribution that we make to you (generally, any distributions to you during a single taxable year that are greater than 125% of the average annual distributions received by you in respect of the ordinary shares or ADSs during the three preceding taxable years or, if shorter, your holding period for the ordinary shares or ADSs).


†	the gain or excess distribution will be allocated ratably over your holding period for the ordinary shares or ADSs;

†	the amount allocated to the taxable year in which you realized the gain or excess distribution will be taxed as ordinary income;

†	the amount allocated to each prior year, with certain exceptions, will be taxed at the highest tax rate in effect for that year; and

†	the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year.

Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC.

If you own ADSs in a PFIC that are treated as marketable stock, you may make a mark-to-market election. If you make this election, you will not be subject to the PFIC rules described above. Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of

your ADSs at the end of the taxable year over your adjusted basis in your ADSs. These amounts of ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. You will also be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of your ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). Your basis in the ADSs will be adjusted to reflect any such income or loss amounts. Your gain, if any, recognized upon the sale of your ADSs will be taxed as ordinary income.

In addition, notwithstanding any election you make with regard to the ADSs, dividends that you receive from us will not constitute qualified dividend income to you if we are a PFIC either in the taxable year of the distribution or the preceding taxable year. Dividends that you receive that do not constitute qualified dividend income are not eligible for taxation at the 15% maximum rate applicable to qualified dividend income. Instead, you must include the gross amount of any such dividend paid by us out of our accumulated earnings and profits (as determined for United States federal income tax purposes) in your gross income, and it will be subject to tax at rates applicable to ordinary income.

If you own ADSs during any year that we are a PFIC, you must file Internal Revenue Service Form 8621.

If you are a noncorporate U.S. holder, information reporting requirements, on Internal Revenue Service Form 1099, generally will apply to:


†	dividend payments or other taxable distributions made to you within the United States, and

†	the payment of proceeds to you from the sale of ordinary shares or ADSs effected at a United States office of a broker.

Additionally, backup withholding may apply to such payments if you are a noncorporate U.S. holder that:


†	fails to provide an accurate taxpayer identification number,

†	is notified by the Internal Revenue Service that you have failed to report all interest and dividends required to be shown on your federal income tax returns, or

†	in certain circumstances, fails to comply with applicable certification requirements.

If you are a non-U.S. holder, you are generally exempt from backup withholding and information reporting requirements with respect to:


†	dividend payments made to you outside the United States by us or another non-United States payor and

†	other dividend payments and the payment of the proceeds from the sale of ordinary shares or ADSs effected at a United States office of a broker, as long as the income associated with such payments is otherwise exempt from United States federal income tax, and the payor or broker does not have actual knowledge or reason to know that you are a United States person and you have furnished the payor or broker:


	—	an Internal Revenue Service Form W-8BEN or an acceptable substitute form upon which you certify, under penalties of perjury, that you are a non-United States person, or

	—	other documentation upon which it may rely to treat the payments as made to a non-United States person in accordance with U.S. Treasury regulations, or

Payment of the proceeds from the sale of ADSs effected at a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, a sale of ADSs that is effected at a foreign office of a broker will be subject to information reporting and backup withholding if:


†	the proceeds are transferred to an account maintained by you in the United States,

†	the payment of proceeds or the confirmation of the sale is mailed to you at a United States address, or

†	the sale has some other specified connection with the United States as provided in U.S. Treasury regulations,

In addition, a sale of ADSs effected at a foreign office of a broker will be subject to information reporting if the broker is:


†	a United States person,

†	a controlled foreign corporation for United States tax purposes,

†	a foreign person 50% or more of whose gross income is effectively connected with the conduct of a United States trade or business for a specified three-year period, or

†	a foreign partnership, if at any time during its tax year:


	—	one or more of its partners are “U.S. persons”, as defined in U.S. Treasury regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership, or

	—	such foreign partnership is engaged in the conduct of a United States trade or business,

unless the broker does not have actual knowledge or reason to know that you are a United States person and the documentation requirements described above are met or you otherwise establish an exemption. Backup withholding will apply if the sale is subject to information reporting and the broker has actual knowledge that you are a United States person.

You generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed your income tax liability by filing a refund claim with the United States Internal Revenue Service.

Under the terms and subject to the conditions contained in an underwriting agreement dated , 2004, we and the selling shareholders have agreed to sell to the underwriters named below, for whom UBS AG, 52/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong, is acting as the representative, the following respective numbers of our ADSs:

The underwriting agreement provides that the underwriters are obligated to purchase all of the ADSs from us and the selling shareholders in this offering if any are purchased, other than those ADSs covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or this offering may be terminated.

All sales of our ADSs in the United States will be made by U.S. registered broker/ dealers. UBS AG is expected to make offers and sales in the United States through its registered broker-dealer affiliate, UBS Securities LLC.

We and the selling shareholders have granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional ADSs at the initial public offering price less the underwriting discounts and commissions.

The selling shareholders will enter into a custody agreement with us pursuant to which we will hold the ordinary shares represented by the ADSs being offered in this offering and pursuant to the over-allotment option and, upon the offering and the exercise of the over-allotment option, will deliver such ordinary shares to the depositary bank for issuance of ADSs.

The underwriters propose to offer the ADSs initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $ per ADS.

The underwriters and selling group members may allow a discount of $ per ADS on sales to other broker/ dealers. After the initial public offering, the underwriters may change the public offering price, concession and discount to broker/ dealers, and other selling terms.

The following table shows the per ADS and total underwriting discounts and commissions to be paid to the underwriters by us and the selling shareholders. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional ADSs.

We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the

Securities Act relating to, any of our ADSs or our ordinary shares or securities convertible into or exchangeable or exercisable for any of our ADSs or our ordinary shares or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of the representative for a period of 180 days after the date of this prospectus except issuances pursuant to the exercise of employee stock options outstanding on the date of this prospectus. Our officers, directors and shareholders have also agreed not to dispose of any of our ADSs or ordinary shares for a period of 180 days after the date of this prospectus.

The underwriters have reserved for sale at the initial public offering price up to ADSs, representing not more than 5% of the size of this offering, for our business associates, friends and family of employees and directors of our company, and other persons associated with us who have expressed an interest in purchasing our ADSs in this offering. The number of ADSs available for sale to the general public in this offering will be reduced to the extent these persons purchase the reserved ADSs. Any reserved ADSs not so purchased will be offered by the underwriters to the general public on the same terms as the other ADSs. Certain of these persons, including without limitation persons who invest more than $100,000, will be required, as a condition to their purchase of such reserved ADSs, to agree in writing not to offer, sell, or otherwise dispose of their ADSs for a period of 180 days after the date of this offering.

We and the selling shareholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect.

We have applied to have our ADSs quoted on the Nasdaq National Market under the symbol “KONG.”

Before this offering, there has been no public market for our ordinary shares or ADSs. The public offering price will be determined through negotiations among us and the representative. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are:


†	the valuation multiples of publicly traded companies that the representative believes to be comparable to us,

†	our financial information,

†	the history of, and the prospects for, our company and the industry in which we compete,

†	an assessment of our management, our past and present operations, and the prospects for, and timing of, our future revenues,

†	the present state of our development, and

†	the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

In connection with this offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions, penalty bids and passive market making in accordance with Regulation M under the Exchange Act.


†	Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

†	Over-allotment involves sales by the underwriters of our ADSs in excess of the number of our ADSs the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short


	position, the number of our ADSs over-allotted by the underwriters is not greater than the number of our ADSs that they may purchase in the over-allotment option. In a naked short position, the number of our ADSs involved is greater than the number of our ADSs in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing in the open market.

†	Syndicate covering transactions involve purchases of our ADSs in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of our ADSs to close out the short position, the underwriters will consider, among other things, the price of our ADSs available for purchase in the open market as compared to the price at which they may purchase our ADSs through the over-allotment option. If the underwriters sell more of our ADSs than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying our ADSs in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of our ADSs in the open market after pricing that could adversely affect investors who purchase in this offering.

†	Penalty bids permit the representative to reclaim a selling concession from a syndicate member when our ADSs originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

†	In passive market making, market makers in our ADSs who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of our ADSs until the time, if any, at which a stabilizing bid is made.

These stabilizing transactions, syndicate covering transactions, penalty bids and passive market making may have the effect of raising or maintaining the market price of our ADSs or preventing or retarding a decline in the market price of our ADSs. As a result, the price of our ADSs may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.

A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering. The representative may agree to allocate a number of our ADSs to underwriters and selling group members for sale to their online brokerage account holders.

United Kingdom. Each underwriter acknowledges that 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 has represented and agreed that (i) it has not offered or sold and, prior to the expiry of a period of six months from the completion of the global offering, will not offer or sell any ADSs or ordinary shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses, or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 (the “FSMA”) with respect to anything done by it in relation to any ADSs or ordinary shares in, from or otherwise involving the United Kingdom; and (iii) it only has communicated or caused to be communicated and only will communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any ADSs or ordinary shares in circumstances in which section 21(1) of the FSMA does not apply to us.

France. Each underwriter has represented and agreed that (i) neither this prospectus nor any offering material relating to ADSs or ordinary shares has been or will be submitted to the “Commission des Opérations de Bourse” for approval (“Visa”) in France; and (ii) it has not offered or sold and will not offer or sell any ADSs or ordinary shares or distribute or cause to be distributed any copies of this prospectus or any offering material relating to the ADSs or ordinary shares, 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 ‘Decret’ 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 d’investisseurs,”), in each case acting for their account, all as defined in, and in accordance with, Article L. 411-l and L. 411-2 of the Monetary and Financial Code and “Décret” no. 98-880 dated October 1, 1998.

Germany. Each underwriter has represented and agreed that (i) this prospectus is not a Securities Selling Prospectus (Verkaufsprospekt) within the meaning of the German Securities Prospectus Act (Verkaufsprospektgesetz) of September 9, 1998, as amended, and has not been filed with and approved by the German Federal Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) or any other German governmental authority; and (ii) it has not offered or sold and will not offer or sell any ADSs or ordinary shares 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 paragraph 2 numbers 1, 2 and 3 of the German Securities Prospectus Act and by doing so has not taken, and will not take, any steps which would constitute a public offering of the ADSs or ordinary shares in Germany.

Italy. The offering of the ADSs or ordinary shares has not been registered with the Commissione Nazionale per le Società e la Borsa or “CONSOB”, in accordance with Italian securities legislation. Accordingly, each underwriter has represented and agreed that (i) sales of the ADSs or Ordinary Shares in the Republic of Italy shall be effected in accordance with all Italian securities, tax and other applicable laws and regulations; and (ii) it has not offered, sold or delivered, and will not offer, sell or deliver, any ADSs or ordinary shares or distribute copies of this prospectus or any other document relating to the ADSs or ordinary shares in the Republic of Italy unless such offer, sale or delivery of ADSs or ordinary shares or distribution of copies of this prospectus or other documents relating to the ADSs or ordinary shares 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 Societa di Intermediazione Mobiliare or SIM), management companies (societa 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 part. Any offer, sale or delivery of the ADSs or ordinary shares 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 regulations and possible requirements or limitations which may be imposed by the Italian competent authorities.

The Netherlands. Each underwriter has represented and agreed that it has not offered, distributed, sold, transferred or delivered, and will not offer, distribute, sell, transfer or deliver, any ADSs or ordinary shares, 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.

Belgium. Neither this prospectus nor any offering material relating to the ADSs or ordinary shares has been or will be submitted to the “Commission Bancaire et Financière/Commissie voor het Banken Financiewezen” for review or approval. Therefore, this prospectus will not constitute a prospectus under Belgium law. Accordingly, each underwriter has represented and agreed that neither this prospectus nor any offering material relating to the ADSs or ordinary shares 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 7 July 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 14 July 1991 on commercial practices and the information and protection of consumers.

Ireland. Each underwriter has represented and agreed that (i) otherwise than in circumstances which are not deemed to be an offer to the public by virtue of the provisions 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 or ordinary shares, 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 form of application for ADSs or ordinary shares; and (ii) it has not made and will not make any offer of ADSs or ordinary shares 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.

Switzerland. Each underwriter has acknowledged that (i) this prospectus does not constitute a prospectus within the meaning of Article 652a and Art. 1156 of the Swiss Code of Obligations (Schweizerisches Obligationenrecht); and (ii) none of this offering, the ADSs and ordinary shares has been or will be approved by any Swiss regulatory authority.

Luxembourg. Each underwriter represents, warrants and agrees that it may not offer the ADSs or ordinary shares 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.

Hong Kong. Each underwriter has represented and agreed that (i) it has not offered or sold, and will not offer or sell, in Hong Kong, by means of any document, any ADSs or ordinary shares 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 (Chapter 32 of the laws of Hong Kong); and (ii) except as permitted under the securities laws of Hong Kong, it has not issued, and will not issue, in Hong Kong any document, invitation or advertisement relating to the ADSs or ordinary shares other than with respect to ADSs or ordinary shares which are intended to be disposed of to persons outside Hong Kong or only to persons whose business involves the acquisition, disposal or holding of securities, whether as principal or agent.

Japan. Neither the ADSs nor the ordinary shares have 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 or ordinary shares. Accordingly, each underwriter represents and agrees that it has not, directly or indirectly, offered or 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 herein 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) pursuant to an exemption from the registration requirements of the SEL 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 has represented and agreed that no advertisement may be made offering or calling attention to an offer or intended offer of the ADSs or ordinary shares to the public in Singapore. It will not offer or sell ADSs or ordinary shares, nor will it make ADSs or ordinary shares 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 or ordinary shares, 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, Chapter 289, 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.

People’s Republic of China. Each underwriter represents and agrees that it has not and will not circulate or distribute this prospectus in the People’s Republic of China 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 or ordinary shares to any resident of the People’s Republic of China except pursuant to applicable laws and regulations of the People’s Republic of China. For the purposes of this paragraph, the People’s Republic of China excludes Hong Kong, Macau and Taiwan.

The validity of the ADSs under New York law will be passed upon for us by Sullivan & Cromwell LLP. Certain legal matters relating to the offering as to United States federal and New York law will be passed upon for the underwriters by Morrison & Foerster LLP. Certain legal matters relating to the offering as to PRC law will be passed upon for us by Llinks Law Office and for the underwriters by Haiwen & Partners. Certain legal matters relating to the offering as to Cayman Islands law will be passed upon for us by Maples and Calder Asia.

The consolidated financial statements as of December 31, 2002 and 2003 and for the period from May 6, 2002 to December 31, 2002 and for the year ended December 31, 2003, included in this prospectus have been audited by Deloitte Touche Tohmatsu Certified Public Accountants Limited, independent auditor, 26/F, Wing On Center, 111 Connaught Road, Central, Hong Kong, as stated in their reports appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in auditing and accounting.

The following table sets forth the main estimated expenses in connection with this offering, other than the underwriting discounts and commissions, which we will be required to pay:

All amounts are estimated, except the U.S. Securities and Exchange Commission registration fee, the Nasdaq listing fee and the NASD filing fee.

We have filed with the U.S. Securities and Exchange Commission, or the Commission, a registration statement on Form F-1 (No. 333- ) under the Securities Act, with respect to the ADSs. This prospectus does not contain all of the information in the registration statements and their exhibits. We have omitted certain portions of these registration statements from this prospectus in accordance with the rules and regulations of the Commission.

You may read and copy this information at the Commission’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 or from the Commission’s web site at www.sec.gov. You can also request copies of the documents we file with the Commission, upon payment of a duplicating fee, by writing to the Public Reference Section of the Commission. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. You may also inspect these reports and other information at the offices of the Nasdaq National Market, Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.

Upon completion of the offering, we will become subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, applicable to a foreign private issuer. In accordance with these requirements, 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 Commission. These reports and other information can be read and copied at the public reference room at the Commission or from the Commission’s web site at www.sec.gov. You can also obtain copies, upon payment of a prescribed fee, of such material from the public reference room and the regional offices, or by calling or writing to the Commission. As a foreign private issuer, we will not be subject to the proxy rules of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and our officers and directors will not be subject to the insider short-swing profit disclosure and recovery requirements of Section 16 of the Exchange Act.

We will furnish to the depositary bank annual reports prepared in accordance with applicable law. Our annual reports will contain audited consolidated financial statements following the end of each fiscal year, and we intend to make available reports containing unaudited summary consolidated financial information. We will also furnish to the depositary bank all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary bank will make such notices, reports and communications available to the holders of ADSs at our request.

We are an exempted limited liability company incorporated under the laws of the Cayman Islands. An exempted company under Cayman Islands law is a company that conducts its business outside of the Cayman Islands, is exempted 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 any future taxation. 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, some 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 CT Corporation System at 111 Eighth Avenue, New York, New York 10011, 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 Llinks 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 judgements 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.

In making an investment decision relating to our ADSs, 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 our 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 any sale of our ADSs.

To the Board of Directors and Shareholders of
KongZhong Corporation (formerly Communication Over The Air Inc.):

We have audited the accompanying consolidated balance sheets of KongZhong Corporation (formerly Communication Over The Air Inc.) and its subsidiaries (the “Company”) as of December 31, 2002 and 2003 and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for the period from May 6, 2002 to December 31, 2002 and the year ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2003 and the results of its operations and its cash flows for the above stated periods in conformity with accounting principles generally accepted in the United States of America.

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated statements of shareholders’ equity and comprehensive income (loss)



	Series A convertible
	preferred shares				Ordinary shares				Additional			Deferred
									paid-in			stock
	Shares		Amount		Shares		Amount		capital			compensation



			(In U.S. dollars, except share data)
Issuance of common shares to founders		—	$	—		469,000,000		$235	$	—		$	—
Issuance of Series A convertible preferred shares		231,000,000		115		—		—		549,896			—
Stock options issued to consultants		—		—		—		—		1,946			—
Foreign currency translation adjustments		—		—		—		—		—			—
Net loss		—		—		—		—		—			—

Balance as of December 31, 2002		231,000,000		115		469,000,000		235		551,842			—
Stock options issued to consultants		—		—		—		—		63,121			—
Deferred stock- based compensation		—		—		—		—		211,072			(211,072	)
Amortization of deferred stock compensation		—		—		—		—		—			21,986
Foreign currency translation adjustments		—		—		—		—		—			—
Net income		—		—		—		—		—			—

Balance as of December 31, 2003		231,000,000		115		469,000,000		235		826,035			(189,086	)
Reversal of deferred stock compensation for employee terminations (unaudited)		—		—		—		—		(10,848	)		10,848
Deferred stock- based compensation (unaudited)		—		—		—		—		2,205,660			(2,205,660	)
Amortization of deferred stock compensation (unaudited)		—		—		—		—		—			80,738
Foreign currency translation adjustments (unaudited)		—		—		—		—		—			—
Net income (unaudited)		—		—		—		—		—			—

Balance as of March 31, 2004 (unaudited)		231,000,000	$	115		469,000,000		$235	$	3,020,847		$	(2,303,160	)

[Continued from above table, first column(s) repeated]


	Accumulated			Retained
	other			earnings			Total
	comprehensive			(Accumulated			shareholders’			Comprehensive
	loss			deficit)			equity			income (loss)



	(In U.S. dollars, except share data)
Issuance of common shares to founders	$	—		$	—		$	235		$	—
Issuance of Series A convertible preferred shares		—			—			550,011			—
Stock options issued to consultants		—			—			1,946			—
Foreign currency translation adjustments		(2,046	)		—			(2,046	)		(2,046	)
Net loss		—			(493,874	)		(493,874	)		(493,874	)

Balance as of December 31, 2002		(2,046	)		(493,874	)		56,272		$	(495,920	)

Stock options issued to consultants		—			—			63,121		$	—
Deferred stock- based compensation		—			—			—			—
Amortization of deferred stock compensation		—			—			21,986			—
Foreign currency translation adjustments		615			—			615			615
Net income		—			2,408,136			2,408,136			2,408,136

Balance as of December 31, 2003		(1,431	)		1,914,262			2,550,130		$	2,408,751

Reversal of deferred stock compensation for employee terminations (unaudited)		—			—			—		$	—
Deferred stock- based compensation (unaudited)		—			—			—			—
Amortization of deferred stock compensation (unaudited)		—			—			80,738			—
Foreign currency translation adjustments (unaudited)		(123	)		—			(123	)		(123	)
Net income (unaudited)		—			3,142,117			3,142,117			3,142,117

Balance as of March 31, 2004 (unaudited)	$	(1,554	)	$	5,056,379		$	5,772,862		$	3,141,994

The accompanying notes are an integral part of these consolidated financial statements.

KongZhong Corporation (formerly Communication Over The Air Inc.) (“KongZhong”) was incorporated under the laws of the Cayman Islands on May 6, 2002. KongZhong established a wholly foreign owned enterprise, LOGO

(“KongZhong Beijing”), on July 29, 2002 under the laws of the People’s Republic of China (the “PRC”) and it has an operating period of 30 years which commenced in July 2002. The Company and its consolidated entities (the “Company”) provide wireless interactive entertainment, media and community services to mobile phone users in the PRC and is specialized in the development, marketing and distribution of consumer wireless value-added services.

PRC regulations prohibit direct foreign ownership of business entities providing value-added telecommunications services in the PRC where certain licenses are required for the provision of such services. To comply with these regulations the Company conducts substantially all of its activities through LOGO

(“Beijing AirInbox”), a variable interest entity established on April 4, 2002 with an initial operating period of 30 years. Beijing AirInbox provides wireless value-added services to China’s cell phone users in the form of SMS, WAP, MMS, Java^TM IVR and CRBT and is legally owned directly by three PRC citizens (the “Registered Shareholders”). Upon establishment, Yunfan Zhou, the Company’s Chief Executive Officer, Songlin Yang, the uncle of Nick Yang, the Company’s President, and Leilei Wang, held 35%, 35% and 30%, respectively of Beijing AirInbox’s total outstanding shares. In September 2003, Leilei Wang transferred his 30% equity interest in Beijing AirInbox to Yunfan Zhou and Zhen Huang, the wife of Nick Yang, in portions of 15% each. In April 2004, the registered capital of Beijing AirInbox has been increased from RMB 2 million to RMB 10 million. The increased registered capital was contributed from Songlin Yang and Yang Cha, a PRC citizen and employee of the Company, for $0.4 million (RMB 3.5 million) and $0.5 million (RMB 4.5 million), respectively.

In March 2004, the Company established another variable interest entity named Beijing Boya Wuji Technologies Co. Ltd. (“Beijing Boya Wuji”) with an operating period of 20 years. Beijing Boya Wuji will provide wireless value-added services to China’s cell phone users in the form of SMS, WAP, MMS, Java^TM IVR and CRBT and a license has been obtained from the PRC government in April 2004. Beijing Boya Wuji is legally owned directly by two PRC citizens (the “Registered Shareholders of Beijing Boya Wuji”). Upon establishment of Beijing Boya Wuji, Yunfan Zhou and Zhen Huang held 50% and 50% respectively of Beijing Boya Wuji. The investment by these two individuals has been done through their personal funds with no loans provided by the Company. Accordingly, the investment amount of $120,815 has been included as a minority interest.

KongZhong and KongZhong Beijing have entered into various operating agreements with Beijing AirInbox and Beijing Boya Wuji, including Exclusive Technical and Consulting Services Agreements. Under these agreements, Beijing AirInbox and Beijing Boya Wuji have the exclusive right to use certain

Beijing Boya Wuji are required to pay the Company licensing and service fees for the use of each domain name and trademark and the technical and consulting services received. The Company is entitled to receive service fees in an amount up to all of the net income of Beijing AirInbox and Beijing Boya Wuji.

In addition, the Company has extended interest-free loans to the Registered Shareholders ($241,546 had been loaned as of December 31, 2002 and 2003 and as of March 31, 2004 (unaudited)) to finance their investments in Beijing AirInbox. In April 2004, Yang Cha and Songlin Yang drew down the loans for the amount of $0.5 million and $0.4 million, respectively for investment into Beijing AirInbox as contribution to the capital increase in Beijing AirInbox by Yang Cha and Songlin Yang. Principal terms of these loan agreements provide that (i) proceeds from the loans are to be used solely for the investments in Beijing AirInbox, (ii) the loans can only be repaid to the Company by transferring the shares of Beijing AirInbox to the Company, (iii) the shares of Beijing AirInbox cannot be transferred without the approval of the Company, (iv) the Company has the right to appoint all directors and senior management personnel of Beijing AirInbox, and (v) all shareholder rights including voting rights and rights to dividends are assigned to KongZhong Beijing. In addition, the Company has the right to require the transfer of the shares of Beijing AirInbox to the Company or any party designated by the Company, at any time, for the amount of the loan outstanding. Since the Company consolidates Beijing AirInbox, the loans to the Registered Shareholders and Yang Cha are treated as investments in Beijing AirInbox and are eliminated upon consolidation for all periods presented.

The Company is the primary beneficiary of Beijing AirInbox because the Company hold all of the variable interests in Beijing AirInbox either directly or through related parties. The only variable interests in Beijing AirInbox not directly held by KongZhong Beijing are the shares which are held by Yunfan Zhou (10%), Songling Yang (42%), Zhen Huang (3%) and Yang Cha (45%). Each of these individuals is a related party of the Company as described in FIN 46 (revised) either because they are management (Yunfan Zhou), a member of the immediate family of management (Zhen Huang), or acting as a de facto agent of the Company (all). The de facto agent relationship is established through the loan agreement, under which the individuals assign all of their rights as shareholders to the Company. Because there are no unrelated variable interests in Beijing AirInbox, the Company is the primary beneficiary.

The Company is the primary beneficiary of Beijing Boya Wuji because the Company holds all of its variable interests in Beijing Boya Wuji through related parties. The only variable interests in Beijing Boya Wuji not directly held by KongZhong Beijing are the shares which are held by Yunfan Zhou (50%) and Zhen Huang (50%). Each of these individuals is a related party of the Company as described in FIN 46 (revised) either because they are management (Yunfan Zhou), a member of the immediate family of management (Zhen Huang), or acting as de facto agent of the Company (all). The de facto agent relationship is established through the pledge agreement under which the individuals assign all of their rights as shareholders to the Company. Because there are no unrelated variable interests in Beijing Boya Wuji, the Company is the primary beneficiary.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation (“FIN”) No. 46, which requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have 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. FIN 46 was effective for all new variable interest entities created or acquired after December 15, 2003. In December 2003, the FASB issued FIN 46 (revised) which provides for the deferral of the implementation date to the end of the first reporting period after March 15, 2004 unless the Company has a special purpose entity, in which case the provisions must be applied for fiscal years ending December 31, 2003. However, the Company has

elected to retroactively apply FIN 46 and consolidate its variable interest entities, Beijing AirInbox and Beijing Boya Wuji from its inception.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include useful lives for plant and equipment, accruals for revenue adjustments, cost of revenues, other liabilities and stock compensation expense.

The Company participates in a dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations, or cash flows: changes in the overall demand for entertainment-oriented wireless value-added services; advances and trends in new technologies and industry standards; changes in key suppliers; changes in certain strategic relationships or customer relationships; regulatory or other factors; risks associated with the ability to maintain strategic relationships with the mobile operators; and risks associated with the Company’s ability to attract and retain employees necessary to support its growth.

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and

their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the fair value of the assets.

The Company’s revenues are primarily derived from entertainment-oriented wireless value-added services. Wireless value-added services revenues are derived from providing personalized interactive entertainment, media and community (including ring back services and downloadable ringtones, icons and screen savers) services, to mobile phone customers of China Mobile Communications Corporation and its various subsidiaries (“China Mobile” or the “Mobile Operator”). Fees, established by an arrangement with China Mobile and indicated in the message received on the mobile phone, for these services are charged on a transaction basis or on a monthly subscription basis, and vary according to the type of services delivered. The Company recognizes all revenues in the period in which the services are performed.

The Company contracts with the Mobile Operator for the transmission of wireless value-added services as well as for billing and collection services. The Mobile Operator provides the Company with a monthly statement that represents the principal evidence that service has been delivered and triggers revenue recognition for a substantial portion of the Company’s revenue. In certain instances, when a statement is not received within a reasonable period of time, the Company is required to make an estimate of the revenues and cost of revenues earned during the period covered by the statement based on internally generated information, historical experience and/or other assumptions that are believed to be reasonable under the circumstances.

The Company measures its revenues based on the total amount paid by its customers, for which the Mobile Operator bills and collects on the Company’s behalf. Accordingly, the 15% service fee paid to the Mobile Operator is included in the cost of revenues. In addition, the Mobile Operator charges the Company transmission charges based on a per message fee which varies depending on the volume of messages sent in the relevant month, multiplied by the excess of messages sent over messages received. These transmission charges are likewise retained by the Mobile Operator, and are reflected as costs of revenues in the financial statements.

The Company evaluates the criteria outlined in Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as Principal Versus Net as an Agent,” in determining whether it is appropriate to record the gross amount of revenues and related costs or the net amount earned after deducting service fees and transmission charges paid to the Mobile Operator. The Company records the gross amounts billed to its customers as it is the primary obligor in these transactions as it has latitude in establishing prices, it is involved in the determination of the service specifications and it has the right to select suppliers.

The functional currency of the Company is Renminbi (“RMB”). Transactions denominated in currencies other than RMB are translated into RMB at the exchange rates quoted by the People’s Bank of China (the “PBOC”) prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into RMB using the applicable exchange rates quoted by the PBOC at the balance sheet dates. The resulting exchange differences are included in the statement of operations.

The consolidated financial statements of the Company are translated into the reporting currency, the United States Dollar, using exchange rates in effect at each year end for assets and liabilities and average exchange rates during each reporting year for the consolidated statements of operations.

Translation adjustments resulting from translation of these consolidated financial statements are reflected as accumulated other comprehensive loss in shareholders’ equity.

Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amount in the financial statements, net operating loss carryforwards and credits by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

Financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and other liabilities approximate their fair values due to their short-term maturities.

The Company expenses advertising costs as incurred. Total advertising expenses were $26,620, $52,922 and $2,125 for the period from May 6, 2002 to December 31, 2002, the year ended December 31, 2003 and the three months ended March 31, 2004 (unaudited), respectively and have been included as part of sales and marketing expenses.

The Company grants stock options to its employees and certain non-employees. The Company records a compensation charge for the excess of the fair value of the stock at the grant date or any other measurement date over the amount an employee must pay to acquire the stock. The compensation expense is recognized over the applicable service period, which is usually the vesting period. The Company accounts for stock-based awards to non-employees by recording a charge for the services rendered by the non-employees using the Black-Scholes option pricing model.

Had compensation cost for options granted to employees under the Company’s stock option plan (the “Plan”) been determined based on the fair value at the grant dates, the Company’s pro forma net income (loss) would have been as follows:

The fair value of each option grant and share granted is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants during the applicable period.

Basic net income (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. Diluted net income (loss) per ordinary share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares. Ordinary share equivalents are excluded from the computation of the diluted net loss per share in periods when their effect would be anti-dilutive.

covered by the statement include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closings, or other exit or disposal activity. SFAS No. 146 replaces the previous accounting guidance provided by the Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002 and adoption of this statement did not have a material impact on the Company’s financial position, results of operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation— Transition and Disclosure”. SFAS No. 148 amends FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. Statement 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS No. 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS No. 123 or the intrinsic value method of APB Opinion No. 25. As allowed by SFAS No. 123, the Company has elected to continue to utilize the accounting method prescribed by APB Opinion No. 25 and has adopted the disclosure requirements of SFAS No. 148 as of December 31, 2002.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. The Statement establishes standards for how an issuer classifies and measures certain financial instruments. This Statement 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. The Statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity be classified as liabilities (or assets in some circumstances) in statements of positions or consolidated balance sheets, as appropriate. The financial instruments within the scope of this Statement are: (i) mandatorily redeemable shares that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embody an obligation that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares (excluding certain financial instruments indexed partly to the issuer’s equity shares and partly, but not predominantly, to something else). This Statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The Statement also requires disclosures about alternative ways of settling the instruments and about the capital structure of entities all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position, cash flows or results of operations.

In November 2002, the FASB issued FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This interpretation requires certain disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN No. 45 are effective for interim and

annual periods ending after December 15, 2002 and have been adopted in the financial statements. The initial recognition and initial measurement requirements of FIN No. 45 are effective prospectively for guarantees issued or modified after December 31, 2002. The adoption of the recognition and initial measurement requirements of FIN No. 45 did not have a material impact on the Company’s financial position, cash flows or results of operations.

The interim financial information as of March 31, 2004 and for the three months ended March 31, 2004 is unaudited and has been prepared on the same basis as the audited financial statements. In the opinion of management, such unaudited financial information includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the interim information. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.

Pro forma basic and diluted net income (loss) per ordinary share is computed by dividing net income (loss) attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding for the period plus the weighted average number of preferred shares outstanding for the period plus the number of ordinary shares resulting from the assumed conversion upon the closing of the planned initial public offering of outstanding convertible preferred shares.

The Company is a tax exempted company incorporated in the Cayman Islands. The subsidiaries incorporated in the PRC are governed by the Income Tax Law of the PRC Concerning Foreign Investment and Foreign Enterprises and various local income tax laws (the “Income Tax Law”).

Pursuant to the PRC Income Tax Law, the foreign investment enterprises are subject to income tax at a statutory rate of 33% (30% of state income tax plus 3% local income tax) on PRC taxable income. However, preferential tax treatment of KongZhong Beijing and Beijing AirInbox as “high technology” companies has been agreed with the relevant tax authorities. KongZhong Beijing is entitled to a preferential tax rate of 15% and is entitled to a three-year exemption from income tax commencing in 2003, after taking into account any tax losses brought from prior years, followed by a 50% reduction in tax rates for the succeeding three years, in accordance with the Income Tax Law of the PRC. Beijing AirInbox is also entitled to a two-year exemption from income tax commencing 2003.

The Company did not have any timing differences relating to deferred tax liabilities as of December 31, 2002 and 2003 and as of March 31, 2004 (unaudited).

A full valuation has been established because the Company believes that it is more likely than not that its deferred taxes assets will not be realized. The tax losses carried forward as of December 31, 2003 and March 31, 2004 (unaudited) were approximately $1,073,600 and $550,000 and will expire by 2008 and 2009 respectively.


(1)	231,000,000 shares of Series A convertible preferred shares for cash proceeds of $550,011.

(2)	350,000,000 shares of Series B redeemable convertible preferred shares for cash proceeds of $2,970,025 net of share issuance costs of $30,000.

The significant terms of the above Series A convertible preferred shares and Series B redeemable convertible preferred shares (“convertible preferred shares”) are as follow:

Each convertible preferred share is convertible into one ordinary share at a conversion price of $0.002381 and $0.0085715 for Series A convertible preferred shares and Series B redeemable convertible preferred shares, respectively, at the option of the holder at any time after the date of issuance of such shares, or is automatically converted at the consummation of the Company’s sale of ordinary shares in an underwritten initial public offering which results in gross proceeds to the Company in excess of $12,000,000 and a resulting market capitalization of at least $50,000,000. The conversion rate is subject to adjustment for dilution, including but not limited to stock splits, in accordance with the conversion provisions in the Company’s Articles of Association.

The holders of Series B redeemable convertible preferred shares are entitled to receive non-cumulative dividends equal to $0.0004285 per share prior to payment of any dividends with respect to the ordinary shares and Series A convertible preferred shares. Such dividends shall be payable when and if declared by the Board of Directors. From inception of the Company through December 31, 2003, no dividends have been declared.

In the event of any liquidation, dissolution or winding up of the Company, as defined, the holders of Series A convertible preferred shares and Series B redeemable convertible preferred shares shall receive $0.002381 and $0.012857 per share, respectively, plus all accrued but unpaid dividends for Series B redeemable convertible shares and Series A convertible preferred shares. The holders of Series A convertible preferred shares would only receive their liquidation preference after payment has been made to the holders of Series B redeemable convertible preferred shares in full. Such amounts will be adjusted for any stock dividends, stock splits or combinations. Subsequently, the remaining liquidation proceeds shall be distributed pro rata amongst all the shareholders, including Series A convertible preferred shareholders and Series B redeemable convertible preferred shareholders, in accordance with each shareholder’s respective shareholding percentage and with each preferred share participating as if converted into ordinary shares.

The holders of Series B redeemable convertible preferred shares are entitled to redeem all of the outstanding Series B redeemable convertible shares on or after October 1, 2007. The redemption price for Series B redeemable convertible shares is $0.0085715 per share plus all the declared but unpaid dividends for Series B redeemable convertible shares and proportionally adjusted for any stock dividends, stock splits or combinations. If on the redemption day, the number of Series B redeemable convertible preferred shares that may then be legally redeemed by the Company is less than the number of such Series B redeemable convertible preferred shares to be redeemed, then the number of Series B redeemable convertible preferred shares then redeemed shall be based ratably on all such shares for which redemption was requested, and the remaining shares to be redeemed shall be carried forward and redeemed as soon as the Company has legally available funds to do so.

The Company’s employee stock option plan (the “Plan”) allow the Company to offer a variety of incentive awards to employees, consultants or external service advisors of the Company. Options to purchase 70,000,000 ordinary shares are authorized under the Plan. Under the terms of the Plan, options are generally granted at prices equal to the fair market value as determined by the Board of Directors and expire 10 years from the date of grant and vest over 4 years. As of December 31, 2003, options to purchase 49,720,000 shares of ordinary shares were outstanding. As of December 31, 2003, options to purchase 20,280,000 ordinary shares were available for future grants.

Subsequent to the dates of grant, the Company has obtained a valuation analysis performed by an independent appraiser to reassess the determination of the fair market value of the Company’s ordinary shares. The valuation analysis utilizes generally accepted valuation methodologies such as the income and market approach and discounted cash flow approach to value the Company’s business. Management has concluded that the market value of the ordinary shares was in excess of the exercise

price on the measurement date and recorded a stock compensation expense for the difference between the market value of the ordinary shares and the exercise price of the employee stock options for the stock options granted in August 2003. Accordingly, the Company recorded stock compensation expense of $Nil and $21,986 for the period from May 6, 2002 to December 31, 2002 and the year ended December 31, 2003 and $80,738 for the three months ended March 31, 2004 (unaudited), respectively.

In February 2004, the Company granted 36,760,000 ordinary share options to new and existing employees. In addition, the Board of Directors approved a resolution to increase the number of options authorized under the Plan to 105,000,000. As of March 31, 2004 (unaudited), options to purchase 86,120,000 ordinary shares were outstanding and 18,880,000 ordinary shares were available for future grants.

The weighted average per share fair value of options as of the grant date was as follows:

The following table summarizes information with respect to stock options outstanding at March 31, 2004 (unaudited):

The Company granted 1,600,000 and 1,000,000 options to purchase ordinary shares to its external consultants in exchange for certain services in 2002 and 2003, respectively. The Company recorded compensation expense of $1,946 and $63,121 for the period from May 6, 2002 to December 31, 2002 and the year ended December 31, 2003 and $Nil for the three months ended March 31, 2004 (unaudited), respectively, estimated using the Black-Scholes option pricing model as such method provides a more accurate estimate of the fair value of services received by the external consultants. The following assumptions were used in the option pricing model:

The Company is engaged in providing value-added services such as games and interactive entertainment, media and community services, media, and various other related products to mobile phone users. The Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. The Company believes it operates in one segment, and all financial segment information can be found in the consolidated financial statements.

The Company derives revenues principally from providing wireless interactive entertainment, media and community services. These services are delivered through 2.5G technology platforms including wireless access protocol (“WAP”), multimedia messaging services (“MMS”) and Java^TM and 2G technology platforms, including short messaging services (“SMS”), interactive voice response (“IVR”) and color ring back tone (“CRBT”). Revenues for the period from May 6, 2002 to December 31, 2002, the year ended December 31, 2003 and for the three months ended March 31, 2004 (unaudited) are as follows:

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated:

For 2002, the Company had the following securities outstanding which could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per share in 2002 as their effects would have been antidilutive:

Common stock equivalents are calculated using the treasury stock method. Under the treasury stock method, the proceeds from the assumed conversion of options are used to repurchase outstanding ordinary stock using a yearly average market price.

short messages as well as for billing and collection services. If the strategic relationship with this operator in the PRC is terminated or scaled-back, or if the phone operator alters the arrangement, the Company’s wireless value-added service business would be adversely affected.

Revenue collected through China Mobile for the period from May 6, 2002 to December 31, 2002 and year ended December 31, 2003 are approximately $200,000 and $7,807,000 representing 100% and 100% of revenues, $7,148,000 (unaudited) representing 100% and approximately 100% of revenue for the three months ended March 31, 2004 (unaudited), respectively.

Amounts due from China Mobile as of December 31, 2002 and December 31, 2003 amounted to approximately $132,000 and $1,704,000, representing 100% and 100% of accounts receivable, and approximately $3,269,000, representing approximately 100% of accounts receivable as of March 31, 2004 (unaudited).

The Company depends on the billing system of China Mobile to charge the mobile phone users through mobile phone bills and collect payments from users. The Company generally does not require collateral for its accounts receivable. The Company has not experienced any significant credit losses for any periods presented.

Full time employees of the Company in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the Company accrue for these benefits based on certain percentages of the employees’ salaries. The total provision for such employee benefit was $41,625 and $267,578 for the period from May 6, 2002 to December 31, 2002 and the year ended December 31, 2003, and $95,727 for the three months ended March 31, 2004 (unaudited), respectively.

The Company is required to make contributions to the plan out of the amounts accrued for medical and pension benefits to relevant local labor bureaus. The contributions for the period from May 6, 2002 to December 31, 2002 and the year ended December 31, 2003 amounted to $6,203 and $142,431, and $72,755 for the three months ended March 31, 2004 (unaudited), respectively. The local labor bureaus are responsible for the medical benefits and pension liability to be paid to these employees. The Company has no further commitments beyond its monthly contribution.

Pursuant to the laws applicable to the PRC’s Foreign Investment Enterprises, the Company’s subsidiary in the PRC must make appropriations from after-tax profit to non-distributable reserve funds as determined by the Board of Directors of the Company. These reserve funds include a (i) general reserve, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires annual appropriations of 10% of after-tax profit (as determined under PRC GAAP at each year-end); the other fund appropriations are at the Company’s discretion. These reserve funds can only be used for specific purposes of enterprise expansion and staff welfare and bonus and are not distributable as cash dividends. Appropriations to the staff welfare and bonus fund will be charged to general and administrative expenses.

ended December 31, 2003 were $42,567 and $276,386, and $106,329 for the three months ended March 31, 2004 (unaudited), respectively.

Future minimum lease payments under non-cancelable operating leases agreements were as follows:

In April 2003, the Company entered into agreements with third parties under which the third party companies agreed to provide facility services to the Company which expire in 2004. The service fee for the year ended December 31, 2003 was $144,710 and $64,804 for the three months ended March 31, 2004 (unaudited), respectively. As at December 31, 2003, the facility service fee committed for 2004 is $76,576.

The Company has incurred consultancy fees of $75,000 and $105,000 to a shareholder and a then shareholder for the period from May 6, 2000 to December 31, 2002 and the year ended December 31, 2003 and $Nil for the three months ended March 31, 2004 (unaudited), respectively. Payable to such shareholder was $5,000 and $90,000 outstanding as of December 31, 2002 and 2003 and $Nil as of March 31, 2004 (unaudited), respectively.


(a)	On March 1, 2004, the Company approved a resolution to change its name from Communication Over The Air Inc. to KongZhong Corporation.

(b)	On March 18, 2004, shareholders of the Company approved a 20-for-1 split of the Company’s shares, with immediate effect. The 20-for-1 share split of the Company’s shares has been retroactively applied to all periods presented.

Through and including , 2004 (the 25th day after the commencement of this offering), federal securities law may require all dealers selling our ADSs, whether or not participating in this offering, to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Cayman Islands law does not limit the extent to which a company’s 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, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our articles of association provide for indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such, except if they acted in a willfully negligent manner or defaulted in any action against them.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, we have been informed that in the opinion of the United States Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended (the “Securities Act”) and is therefore unenforceable as a matter of U.S. law.

During the past two years, the registrant has issued and sold the securities listed below without registering the securities under the United States Securities Act of 1933, as amended, or 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 S under the Securities Act or pursuant to Section 4(2) of the Securities Act regarding transactions not involving a public offering. We based this determination on our own due diligence and, in the case of the sale of the Series B preferred shares, on written representations of the purchasers.

(1) In May 2002, KongZhong Corporation (formerly known as Communication Over The Air Inc.) issued and sold, for an aggregate purchase price of $234.5 in cash, (A) 11,725,000 ordinary shares, par value $0.00001 per share, at a price of $0.00001 per share to Yunfan Zhou, the registrant’s chief executive officer, which shares were later transferred to Mobileren Inc., an entity solely owned by Yunfan Zhou, and (B) 11,725,000 ordinary shares, par value $0.00001 per share, at a price of $0.00001 per share to Nick Yang, the registrant’s president.

(2) In September 2002, the registrant issued and sold, for an aggregate purchase price of $550,000 in cash, (A) 3,150,000 Series A preferred shares, par value $0.00001 per share, at a price of $0.04762 per share to Mobileren Inc., which later transferred 500,000 shares to CENO Investment Limited, (B) 3,150,000 Series A preferred shares, par value $0.00001 per share, at a price of $0.04762 per share to Nick Yang, who later transferred 500,000 shares to CENO Investment Limited, and (C) 5,250,000 Series A preferred shares, par value $0.00001 per share, at a price of $0.04762 per share to Wirelessrock Inc., which shares were later transferred to eGarden I, Calver Investments Limited and Liang Hong, respectively. The shares held by Liang Hong were later transferred to Yin Alice Chau.

(3) In October 2002, the registrant issued and sold Series B preferred shares, par value $0.00001 per share, at a price of 0.17143 per share, to each of the following shareholders in the following numbers, for an aggregate purchase price of $3.0 million in cash, (A) 7,000,000 shares to Global Lead Technology Limited; (B) 4,494,000 shares to Draper Fisher Jurvetson ePlanet Ventures L.P.; (C) 93,334 shares to Draper Fisher Jurvetson ePlanet Partners Fund, LLC; (D) 79,333 shares to Draper Fisher Jurvetson ePlanet Ventures GmbH KG & Co.; (E) 4,083,333 shares to Chinney Development Company Limited, which later transferred these shares to Lucky Dragon Holdings Group Ltd., one of

its subsidiaries; (F) 1,575,000 shares to eGarden I; and (G) 175,000 shares to eGarden Ventures (HK) Ltd.

The purchase price for the ordinary shares issued to Yunfan Zhou and Nick Yang is the par value of such ordinary shares. The purchase price for the Series A preferred shares was determined based on arms-length negotiations between the holders of our Series A preferred shares and us. The purchase price for the Series B preferred shares was determined based on arms-length negotiations between the independent venture capital investors and us.

In addition, pursuant to the 2002 Plan, as amended, we have granted an aggregate of 86,120,000 options which are outstanding as of March 31, 2004, as adjusted by cancellation following initial grants and the share split which occurred on March 18, 2004. All of our options have been granted in reliance on Regulation S under the Securities Act. Below is a summary of the options that we have granted under the 2002 Plan.


†	35,420,000 incentive share options, which began to vest periodically from July 1, 2003, were originally granted to certain of our employees on June 6, 2002 at an exercise price of $0.0025 per share;

†	1,600,000 non-qualified options, which vested on July 1, 2002, were granted to our external advisor, Yang Cha, on June 6, 2002 at an exercise price of $0.0025 per share;

†	11,160,000 incentive share options, which began to vest periodically from December 15, 2003, were granted to certain of our employees on December 1, 2002, at an exercise price of $0.01 per share, of which 4,240,000 options were subsequently cancelled and 6,920,000 were outstanding as of March 31, 2004;

†	5,000,000 incentive share options, which began to vest periodically from August 1, 2003, were granted to certain of our employees on August 1, 2003, at an exercise price of $0.05 per share, of which 500,000 options were subsequently cancelled and 4,500,000 were outstanding as of March 31, 2004;

†	1,000,000 non-qualified options, which vested on August 1, 2003, were granted to our consultant, Extra Bright Limited, a business advisory company, on August 1, 2003, at an exercise price of $0.05 per share;

†	36,760,000 incentive share options, which began to vest periodically from February 18, 2005, have been granted to certain of our employees on February 18, 2004, at an exercise price of $0.25 per share, pursuant to a resolution of our board of directors on February 18, 2004, of which 80,000 options were subsequently cancelled and 36,680,000 were outstanding as of March 31, 2004.

(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.


		(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 pursuant to Rule 424 (b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of 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.

		(3) At such time, if any, as all applicable Cayman Islands laws and regulations shall not prohibit the same, and to the extent Section 14 of the Securities Act as defined so requires, our board of directors shall propose an amendment to the articles of association which would permit shareholders to adjudicate disputes arising between our shareholders, our directors, supervisors or officers by means of judicial proceedings.

(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.

Pursuant to the requirements of the Securities Act of 1933, 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, on June 4, 2004.


	By:	/s/ Yunfan Zhou



	Name: Yunfan Zhou
	Title: Chairman and Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Yunfan Zhou and Richard Wei, and each of them, his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitutions, 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 of 1933, as amended, 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.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons on June 4, 2004 in the capacities indicated.

Pursuant to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of KongZhong Corporation, has signed this Registration Statement or amendment thereto in the city of Los Angeles, state of California, on June 4, 2004.

* To be filed by amendment. EX-3.1 2 u98939exv3w1.txt EX-3.1 AMENDED & RESTATED ARTICLES OF ASSOCIATION EXHIBIT 3.1 THE COMPANIES LAW (2003 REVISION) OF THE CAYMAN ISLANDS COMPANY LIMITED BY SHARES AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION OF KONGZHONG CORPORATION ADOPTED BY SPECIAL RESOLUTION PASSED ON [ ] June, 2004 1. The name of the Company is KONGZHONG CORPORATION. 2. The Registered Office of the Company shall be at the offices of M&C Corporate Services Limited, P.O. Box 309GT, 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$500,000 divided into 1,000,000,000,000 ordinary shares of a nominal or par value of US$0.0000005 each. The Company insofar as permitted by law 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 KONGZHONG CORPORATION ADOPTED BY SPECIAL RESOLUTION PASSED ON [ ] June, 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" shall mean an American depositary share, evidenced by an American depositary receipt, if applicable, issued by Citibank N.A. as depositary and representing an ownership interest in the shares. "APPLICABLE LAWS" shall mean the Companies Law and all other applicable laws and regulations, including without limitation, for so long as the ADSs of the Company are quoted on Nasdaq, the rules or regulations issued by Nasdaq, and the relevant laws and regulations of the United States in force from time to time. "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 100(e) - (i). "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 as defined in Article 80. "THE CHAIRMAN" shall mean the Chairman presiding at any meeting of members or of the Board. "COMPANIES LAW" means 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. "COMPANY" means KongZhong Corporation. "COMPENSATION COMMITTEE" means the compensation committee established pursuant to Article 100(j). "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. - 2 - "DIRECTORS" means the directors for the time being of the Company. "DIVIDEND" includes interim bonuses and distributions permitted by the Companies Law to be catogorised as 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, and none of the following persons shall be considered an Independent Director: (a) a Director who is, or at any time during the past three years was, employed by the Company or by any parent or subsidiary of the Company; (b) a Director who accepted or who has a Family Member who accepted any payments from the Company or any parent or subsidiary of the Company in excess of US$60,000 during the current fiscal year or any of the past three fiscal years, other than compensation for board or board committee service, payments arising solely from investments in the Company's securities, compensation paid to a Family Member who is a non-executive employee of the Company or a parent or subsidiary of the Company, benefits under a tax-qualified retirement plan, or loans permitted under 13(k) of the U.S. Securities Act of 1933; (c) a Director who is a Family Member of an individual who is, or at any time during the past three years was employed by the Company or by any parent or subsidiary of the Company as an executive officer; (d) a Director who is, or who has a Family Member who is, a partner in, or a controlling shareholder of an executive officer of, any organization to which the Company made, or from which the Company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient's consolidated gross revenues for that year, or US$200,000, whichever is more other than the following: (i) payments arising solely from investments in the Company's securities; or (ii) payments under non-discretionary charitable matching programs; (e) a Director who is, or has a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the listed Company serve on the compensation committee of such other entity; or (f) A Director who is, or has a Family Member who is, a current partner of the Company's outside auditor, or was a partner or employee of the Company's - 3 - outside auditor who worked on the Company's audit at any time, during the past three years. "MEMBER" shall bear the same meaning as in the Companies 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. "NOMINATIONS COMMITTEE" shall mean the nominations committee established pursuant to Article 100(k). "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 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. "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 Companies 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; and (d) any member of the immediate family of the foregoing persons. For purposes of this definition, a person's immediate family shall include such person's spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law. "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. - 4 - "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 Companies 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" has the same meaning as in the Companies Law, and includes a unanimous written resolution. "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. 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. 2. The business of the Company may be commenced as soon after incorporation as the Directors shall see fit. 3. The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company including the expenses of registration. SHARE CAPITAL 4. The authorised share capital of the Company is US$500,000 divided into 1,000,000,000,000 ordinary shares of a nominal or par value of US$0.0000005 each. - 5 - ISSUE OF SHARES 5. Subject to the relevant provisions, if any, in the Memorandum and these Articles and to any direction that may be given by the Company in general meeting and without prejudice to any special rights previously conferred on the holders of existing Shares, the Directors may allot, issue, grant options over or otherwise dispose of Shares of the Company (including fractions of a Share) with or without preferred, deferred or other special rights or restrictions, whether 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. The Company shall not issue Shares in bearer form. REGISTER OF MEMBERS AND SHARE CERTIFICATES 6. 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. 7. 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 the Companies Law. 8. 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. 9. 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. 10. 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 Companies Law. 11. 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). 12. 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 - 6 - 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. 13. 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. 14. 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. 15. 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. TRANSFER OF SHARES 16. The instrument of transfer of any Share shall be in writing in the usual or common form or any other form approved by our 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. 17. The Directors may in their absolute discretion decline to register any transfer of Shares without assigning any reason therefor. If the Directors refuse to register a transfer they shall notify the transferee within two months of such refusal. 18. 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. REDEEMABLE SHARES 19. (a) Subject to the provisions of the Companies Law 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 Companies Law 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 and may make payment therefor in any manner authorised by the Companies Law, including out of capital. VARIATION OF RIGHTS OF SHARES 20. 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 - 7 - these Articles or the Companies 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. 21. 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. 22. 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. COMMISSION ON SALE OF SHARES 23. The Company may in so far as the Applicable Laws from time to time permit pay a commission to any person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any Shares of the Company. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up Shares or partly in one way and partly in the other. The Company may also on any issue of Shares pay such brokerage as may be lawful. NOTICES OF RECORD DATE 24. In the event that the Company shall propose at any time: (a) to declare any dividend or distribution upon its Shares, whether in cash, property, Shares or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (b) to offer for subscription pro rata to the holders of any class or series of its Shares any additional shares of Shares of any class or series or other rights; (c) to effect any reclassification or recapitalisation of its Shares outstanding involving a change in the Shares; or (d) to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up: (i) at least 20 days' prior written notice shall be given to Members of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Shares shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (c) and (d) above; and (ii) in the case of the matters referred to in (c) and (d) above, at least 20 days' prior written notice shall be given to Members of the date when the same shall take - 8 - place (and specifying the date on which the holders of Shares shall be entitled to exchange their Shares for securities or other property deliverable upon the occurrence of such event). NON-RECOGNITION OF TRUSTS 25. 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 Applicable Laws) any other rights in respect of any Share other than an absolute right to the entirety thereof in the registered holder. LIEN ON SHARES 26. 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. 27. 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. 28. 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. 29. 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 30. (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 - 9 - 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. 31. 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. 32. 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. 33. 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. 34. (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 35. (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. - 10 - (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. 36. 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. 37. 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. 38. 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 39. 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 40. 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. 41. (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 - 11 - 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. 42. 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 43. (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 Companies Law 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; - 12 - (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. 44. Subject to the provisions of the Companies Law, the Company may by resolution of the Directors change the location of its Registered Office. CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE 45. 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 but not to exceed in any case forty days. 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. 46. In lieu of or apart from closing the register of Members, the Directors may fix in advance a date as the record date for any such determination of Members entitled to notice of or to vote at a meeting of the Members and for the purpose of determining the Members entitled to receive payment of any dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination. 47. 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 48. All general meetings other than annual general meetings shall be called extraordinary general meetings. 49. (a) The Company shall, if required by the Applicable Laws, in each year hold a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as 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. (b) At these meetings the report of the Directors (if any) shall be presented. (c) The Company may hold an annual general meeting but shall not (unless required by the Applicable Laws) be obliged to hold an annual general meeting. - 13 - 50. (a) The Directors may call general meetings, and they shall on a Members requisition forthwith proceed to convene an extraordinary general meeting of the Company. (b) A Members requisition is a requisition of Members of the Company holding at the date of deposit of the requisition not less than 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. (c) The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more requisitionists. (d) If the Directors do not within twenty-one days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three months after the expiration of the second said twenty-one days. (e) A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors. NOTICE OF GENERAL MEETINGS 51. At least twenty (but not more than sixty) days' notice shall be given for any 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 the place, the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this regulation has been given and whether or not the provisions of Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed: (a) in the case of an annual general meeting by all the Members (or their proxies) entitled to attend and vote thereat; and (b) in the case of an extraordinary general meeting by a majority in number of the Members (or their proxies) having a right to attend and vote at the meeting, being a majority together holding not less than ninety-five per cent in par value of the Shares giving that right. 52. 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. PROCEEDINGS AT GENERAL MEETINGS 53. For all purposes the quorum for a general meeting shall be two Members present in person or by proxy or corporate representative provided always that if the Company has only one member of record the quorum shall be that one member present in person or by proxy; provided, however, that in no case shall such quorum be less than 33 1/3% of the outstanding voting shares in the capital of the Company. No business (except the appointment of a - 14 - Chairman of the meeting) shall be transacted at any general meeting unless the requisite quorum shall be present at the commencement of the business. 54. 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. 55. 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. 56. If a quorum is not present within half an hour from the time appointed for the meeting or if during such a meeting a quorum ceases to be present, 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, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the Members present shall be a quorum. 57. 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 fifteen 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. 58. 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. 59. 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. 60. 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. 61. 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. - 15 - 62. The demand for a poll may be withdrawn. 63. 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. 64. In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman shall be entitled to a second or casting vote. 65. A poll demanded on the election of a Chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the Chairman of the 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. 65A. A resolution in writing (in one or more counterparts), including a special resolution, signed by all members for the time being entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly appointed representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. Any such resolution shall be deemed to have been passed at a meeting held on the date on which it was signed by the last member to sign. VOTES OF MEMBERS 66. 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. 67. 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. 68. A Member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, 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. 69. 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. 70. 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. 71. On a poll or on a show of hands votes may be given either personally or by proxy. - 16 - PROXIES 72. 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. 73. 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. 74. 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. 75. 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. 76. 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. - 17 - 77. 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 78. 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 79. 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 80. (a) There shall be a Board of Directors (the "BOARD") consisting of not more than eleven (11) persons, including at least two (2) Independent Directors. The two (2) Independent Directors shall be nominated by the Nominations Committee and approved by the vote of holders of a majority of the Shares. (b) For as long as the ADSs are listed on Nasdaq, the Independent Directors shall meet at least twice per year and no other Directors shall be present at such meetings. 81. Each Director shall hold office until the expiration of his term and until his successor shall have been elected and qualified. 82. Subject to Article 100(k), any Directors not elected in the manner provided in Article 80 shall be elected by the Members at a general meeting. Newly created directorships resulting from any increase in the authorised number of Directors or any vacancies in the Board resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the Directors then in office even though less than a quorum, or by a sole remaining director, and not by the Members. In the event of any increase or decrease in the authorised number of Directors, each Director then serving as such shall nevertheless continue as a Director until the expiration of his or her current term or his or her death, retirement, removal or resignation. In the event of a vacancy in the Board, the remaining Directors, except as otherwise provided by the Companies Law, may exercise the powers of the full Board until the vacancy is filled. Notwithstanding the foregoing, each - 18 - Director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent Director. 83. Subject to Article 100(j), 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. 84. Subject to Article 100(j), 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. 85. 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. 86. 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. 87. A shareholding qualification for Directors may not be fixed by the Company in general meeting. 88. 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 Companies 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 the Companies Law. ALTERNATE DIRECTORS 89. 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. - 19 - 90. 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. 91. 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. 92. 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. 93. 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 72 to 77 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 94. The business of the Company shall be managed by the Directors (or a sole Director if only one is appointed) who may pay all expenses incurred in promoting, registering and setting up the Company, and may exercise all such powers of the Company as are not, from time to time by the Companies Law, or by these Articles, or such regulations, being not inconsistent with the aforesaid, as may be prescribed by the Company in general meeting required to be exercised by the Company in general meeting, provided, however, that no regulations made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that regulation had not been made. 95. The Directors may from time to time and at any time by powers of attorney appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purpose and with such - 20 - 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 may contain such provisions for the protection and convenience of persons dealing with any such attorneys as the Directors may think fit and may also authorise any such attorney to delegate all or any of the powers, authorities and discretions vested in him. 96. 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. 97. 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. 98. 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. 99. 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 100. (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 - 21 - 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 the applicable rules of both the NASD Manual & Notices to Members, as amended from time to time. Unless otherwise permitted under the NASD Manual & Notices to Members, the Audit Committee shall have at least three members, comprised solely of Independent Directors who do not own or control 20% or more of any class of voting securities of the Company or such other Directors as allowed from time to time and satisfy the following qualifications: (i) each is able to read and understand fundamental financial statements, including the Company's balance sheet, income statement, and cash flow statement; and (ii) at least one of them has past employment experience in finance or accounting, requisite professional experience in accounting, or any other comparable experience or background which results in the individual Director's financial sophistication, including being or have been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. (f) The Company 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 specify the responsibilities of the Audit Committee which shall include responsibility for, among other things, ensuring its receipt from the outside auditors of the Company of a formal written statement delineating all relationships between the auditor and the Company, and the Audit Committee's responsibility for actively engaging in a dialogue with the auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the auditor take appropriate action to oversee the independence of the outside auditor. (g) Unless a Chairperson is elected by the Directors, the members of the Audit Committee may designate a chairperson by majority vote of the full Audit Committee membership. (h) The Audit Committee shall meet at least four times annually, or more frequently as circumstances dictate. (i) For so long as the ADSs of the Company are listed or quoted on Nasdaq, the Company shall conduct an appropriate review of all material Related Party Transactions on an ongoing basis and shall utilize the Audit Committee for the review and approval of potential conflicts of interest situations. (j) 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 - 22 - reviewing and approving the compensation structure for the Company's directors and officers. Unless otherwise permitted under the NASD Manual & Notices to Members, for so long as the ADSs of the Company are listed or quoted on Nasdaq, the Compensation Committee shall have at least three members, comprised solely of Independent Directors. The Compensation Committee shall evaluate the performance of the Company's senior executive officers and approve the compensation for such senior executive officers. (k) Without prejudice to the freedom of the Directors to establish any other committees, the Board may establish a 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. Unless otherwise permitted under the NASD Manual & Notices to Members, for so long as the ADSs of the Company are listed or quoted on Nasdaq, the Nomination Committee shall have at least three members, comprised solely of Independent Directors. The Company shall adopt a formal written nomination charter and assess the adequacy of such formal written charter on an annual basis. INTERESTED DIRECTORS 101. No Director or proposed Director shall be disqualified by his office from contracting with the Company either as vendor, purchaser or otherwise 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 avoided, 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 (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 by the Audit Committee. 102. Subject to any requirement under Applicable Laws, including disclosure requirements on Related Party Transactions, 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. - 23 - 103. 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. 104. No person shall be disqualified from the office of Director or alternate Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director or alternate Director shall be in any way interested be or be liable to be avoided, nor shall any Director or alternate Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or transaction by reason of such Director holding office or of the fiduciary relation thereby established; provided that such Related Party Transaction has been approved by the Audit Committee. MANAGING DIRECTORS 105. The Directors may, from time to time, appoint one or more of their body (but not an alternate Director) to the office of Managing Director for such term and at such remuneration (whether by way of salary, or commission, or participation in profits, or partly in one way and partly in another) as they may think fit, subject to Article 100(j), but his appointment shall be subject to determination ipso facto if he ceases for any cause to be a Director and no alternate Director appointed by him can act in his stead as a Director or Managing Director. 106. The Directors may entrust to and confer upon a Managing Director any of the powers exercisable by them upon such terms and conditions and with such restrictions as they may think fit and either collaterally with or to the exclusion of their own powers and may from time to time revoke, withdraw, alter or vary all or any of such powers. PROCEEDINGS OF DIRECTORS 107. 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. In case of an equality of votes, the Chairman shall have a second or casting vote. 107A. A meeting of the Board or any committee of the board may be held by means of a telephone or teleconferencing or any other telecommunications facility provided that all participants are thereby able to communicate contemporaneously by voice with all other participants and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. 108. A Director or alternate Director may, and the Secretary on the requisition of a Director or alternate Director shall, at any time summon a meeting of the Directors by at least two days' notice in writing to every Director and alternate Director 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, - 24 - however, if notice is given in person, by cable, telex or telecopy 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 provisions of Article 51 shall apply mutatis mutandis with respect to notices of meetings of Directors. 109. The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors and unless so fixed shall be two, a Director and his appointed alternate Director being considered only one person for this purpose, provided always that if there shall at any time be only a sole Director the quorum shall be one. 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. 110. 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 or of summoning a general meeting of the Company, but for no other purpose. 111. 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. 112. The Directors may delegate any of their powers to committees consisting of such member or members of the Board of Directors (including Alternate Directors in the absence of their appointors) as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors. 113. A committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members present, and in the case of an equality of votes the Chairman shall have a second or casting vote. 114. 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. 115. Members of the Board of Directors or of any committee thereof may participate in a meeting of the Board 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. 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 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. VACATION OF OFFICE OF DIRECTOR 116. The office of a Director shall be vacated: - 25 - (a) if he gives notice in writing to the Company that he resigns the office of Director; or (b) 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 (c) if he dies, becomes bankrupt or makes any arrangement or composition with his creditors generally; or (d) if he is found to be or becomes of unsound mind. APPOINTMENT AND REMOVAL OF DIRECTORS 117. The Directors of the Company may only be appointed as provided in Articles 80 and 82. 118. (a) The Company may by special resolution at any time remove any Director (including a Managing Director or other executive Director) before the expiration of his period of office notwithstanding anything in these Articles or in any agreement between the Company and such Director and may by ordinary resolution elect another person in his stead. Any person so elected shall hold office during such time only as the Director in whose place he is elected would have held the same if he had not been removed. (b) Nothing in this Article should be taken as depriving a Director removed under any provisions of this Article 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 as derogatory from any power to remove a Director which may exist apart from the provision of this Article. PRESUMPTION OF ASSENT 119. 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 120. (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 - 26 - 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 121. The Company may have a President, a Secretary or Secretary-Treasurer appointed by the Directors. The Directors may also from time to time appoint such other officers as they consider necessary, all for such terms, at such remuneration and to perform such duties, and subject to such provisions as to disqualification and removal as the Directors from time to time prescribe. DIVIDENDS, DISTRIBUTIONS AND RESERVE 122. Subject to the Companies 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. 123. 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. 124. 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 Companies Law. 125. 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. 126. 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. 127. 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 - 27 - 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. 128. 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 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 that any endorsement thereon has been forged. 129. 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. 130. 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. 131. No dividend or distribution shall bear interest against the Company. UNTRACEABLE MEMBERS 132. (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; - 28 - (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 has 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, 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. RECORD DATES 133. Notwithstanding any other provisions of these Articles of the Company or the Applicable Laws, the Board may fix any date as the record date for any dividend, distribution, allotment or issue and such record date may be on or at any time before or after any date on which such dividend, distribution, allotment or issue is declared, paid or made. CAPITALISATION 134. The Company may 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 - 29 - incidental thereto and any agreement made under such authority shall be effective and binding on all concerned. BOOKS OF ACCOUNT 135. 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. 136. 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 the Companies Law or authorised by the Directors or by the Company in general meeting. 137. 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 138. The Board shall make the requisite annual returns and any other requisite filings in accordance with the Applicable Laws. AUDIT 139. 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. 140. 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. 141. 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 - 30 - 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 142. Notices shall be in writing and may be given by the Company to any Member 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. 143. (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. (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. (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. 144. 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. 145. 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. - 31 - No other person shall be entitled to receive notices of general meetings. INFORMATION 146. 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. 147. 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 148. Subject to Article 127, 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 Companies 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. INDEMNITY 149. Every Director or officer of the Company shall be indemnified out of the assets of the Company against any liability incurred by him as a result of any act or failure to act in carrying out his functions other than such liability (if any) that he may incur by his own wilful neglect or default. No such Director or officer shall be liable to the Company for any loss or damage in carrying out his functions unless that liability arises through the wilful neglect or default of such Director or officer. FINANCIAL YEAR 150. Unless the Directors otherwise prescribe, the financial year of the Company shall end on 31st December in each year and shall begin on January 1st in each year. PENSION AND SHARE OPTION SCHEMES 151. (a) 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 - 32 - 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. (b) For so long as the ADSs of the Company are quoted or listed on Nasdaq, a sanction of an ordinary resolution by the Members 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 152. Subject to the Companies 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 153. If the Company is exempted as defined in the Companies Law, it shall, subject to the provisions of the Companies 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. EX-4.1 3 u98939exv4w1.txt EX-4.1 SPECIMEN OF SHARE CERTIFICATE EXHIBIT 4.1 KONGZHONG CORPORATION (Incorporated under the laws of the Cayman Islands) Number Shares US$500,000.00 Share Capital divided into 999,419,000,000 Ordinary Shares of a par value of US$0.0000005 each 231,000,000 Series A Preferred Shares of a par value of US$0.0000005 each and 350,000,000 Series B Preferred Shares of par value of US$0.0000005 each THIS IS TO CERTIFY THAT _____________________________________________________ is the registered holder of _________________________________________________ Shares in the above-named Company subject to the memorandum and articles of association thereof. GIVEN UNDER the common seal of the said Company on 2004. THE COMMON SEAL of the said Company was hereunto affixed in the presence of: CHAIRMAN _____________________________________ THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A SHAREHOLDERS AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE COMPANY, CERTAIN AFFILIATES OF THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY. TRANSFER I (the Transferor) for the value received DO HEREBY transfer to (the Transferee) the undertaking called shares standing in my name in the To hold the same unto the Transferee Dated Signed by the Transferor in the presence of: _______________________________ __________________________________ Witness Transferor EX-4.4 4 u98939exv4w4.txt EX-4.4 SHAREHOLDERS AGREEMENT EXHIBIT 4.4 SHAREHOLDERS AGREEMENT THIS SHAREHOLDERS AGREEMENT (this "AGREEMENT") is made and entered into as of September 12, 2002 by and among Communication Over The Air Inc., a Cayman Islands company (the "COMPANY"), Wirelessrock Inc., a company organized under the laws of the British Virgin Islands, Mobileren Inc., a company organized under the laws of the British Virgin Islands (the "BVI SHAREHOLDER"), Yunfan Zhou and Nick Yang, each a direct or indirect shareholder of the Company (Mobileren Inc., together with Yunfan Zhou, and Nick Yang are collectively referred to as the "FOUNDERS" and each a "FOUNDER"), KongZhong Beijing Information Technologies Co., Ltd., a wholly foreign-owned enterprise organized under the laws of the PRC (the "PRC SUBSIDIARY"), Beijing AirInbox Information Technologies Co., Ltd., a limited liability company organized under the laws of the PRC (the "PRC AFFILIATE" and together with the PRC Subsidiary, the "PRC COMPANIES"), and each of the persons listed on Exhibit A hereto (the "INVESTORS" and each, an "INVESTOR"). RECITALS A. Each Investor has agreed to purchase from the Company, and the Company has agreed to sell to such Investor, certain Series B preferred shares, par value US$0.00001 per share (the "SERIES B SHARES"), on the terms and conditions set forth in that certain Series B Preferred Share Purchase Agreement dated as of September 12, 2002 (the "PURCHASE AGREEMENT") by and among the Company, the PRC Companies, Messrs. Yunfan Zhou and Nick Yang and the Investors. B. The Purchase Agreement provides that the execution and delivery of this Agreement by the parties hereto shall be a condition precedent to the consummation of the transactions contemplated under thereunder. NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto further agree as follows: 1. INFORMATION RIGHTS; BOARD REPRESENTATION. 1.1 Information and Inspection Rights. The Company covenants and agrees that, commencing on the date of this Agreement, for so long as an Investor holds any Series B Shares or any ordinary shares, par value US$0.00001 per share, of the Company (the "ORDINARY SHARES"), the Company will deliver to the Investor: (a) audited annual consolidated financial statements within ninety (90) days after the end of each fiscal year, audited by a reputable international accounting firm approved by the Investors; (b) unaudited quarterly consolidated financial statements within forty-five (45) days of the end of each fiscal quarter; (c) unaudited monthly consolidated financial statements within thirty (30) days of the end of each month; (d) an annual consolidated budget for the following fiscal year within thirty (30) days prior to the end of each fiscal year; (e) copies of all documents or other information sent to any shareholder and (f) upon the written request by the Investor, such other information as the Investor shall reasonably request (the "INFORMATION RIGHTS"). All financial statements to be provided to the Investor pursuant to this Section 1.1 shall include a balance sheet, an income statement and a statement of cash flows and shall be prepared in conformance with U.S. Generally Accepted Accounting Principles ("GAAP"). The Company further covenants and agrees that, commencing on the date of this Agreement, for so long as an Investor holds any Series B Shares or Ordinary Shares, the Investor shall have standard inspection rights of the facilities, records and books of the Company and the PRC Companies, including, without limitation, discussing the business, operations and conditions of the Company, the PRC Affiliate, the PRC Subsidiary and any other subsidiaries with its directors. officers, employees, accounts, legal counsel and investment bankers (the "INSPECTION RIGHTS"). These Information Rights and Inspection Rights shall terminate upon consummation of the an underwritten public offering of the Ordinary Shares of the Company in the United States, that has been registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), with gross proceeds to the Company in excess of US$12,000,000 and a resulting pre-offering marketing capitalization of the Company of at least US$50,000,000, or in a similar public offering of the Ordinary Shares of the Company in another jurisdiction which results in the Ordinary Shares trading publicly on a recognized regional or national securities exchange; provided that such offering satisfies the foregoing gross proceeds and offering price requirements (a "QUALIFIED PUBLIC OFFERING"). 1.2 Board Representation; Observer. (a) The Company's Amended and Restated Memorandum and Articles of Association (the "MEMORANDUM AND ARTICLES") shall provide that the Company's Board of Directors (the "BOARD") shall consist of five (5) members, which number of members shall not be changed except pursuant to an amendment to the Memorandum and Articles. As long as Global Lead Technology Limited and its affiliates (collectively, "CHINA ASSETS") hold at least seventy percent (70%) of the Series B Shares issued to China Assets under the Purchase Agreement, China Assets shall be entitled to appoint one director. As long as Draper Fisher Jurvetson ePlanet Ventures L.P., Draper Fisher Jurvetson ePlanet Partners Fund, LLC or Draper Fisher Jurvetson ePlanet Ventures GmbH KG & Co. and their affiliates (collectively, "DFJ") holds at least seventy percent (70%) of the Series B Shares issued to DFJ under the Purchase Agreement, DFJ shall be entitled to appoint one director. Directors appointed by China Assets and DFJ shall be appointed to any committees of the Board. Any director appointed by the Investors shall be entitled to appoint any alternate to serve in his stead at any Board meeting and such alternative shall be permitted to attend all Board meetings in a non-voting observer capacity. (b) The Board shall establish an audit committee (the "AUDIT COMMITTEE") vested with oversight functions for financial and accounting matters of the Company, including without limitation the preparation of budgets and internal auditing. The director appointed by China Assets shall serve as the Chairman of the Audit Committee. (c) The Board shall establish a Compensation committee (the "COMPENSATION COMMITTEE") vested with oversight functions for compensation matters of the Company, including without limitation establishing compensation levels and the administration of the Company's employee equity incentive plans. The director appointed by China Assets shall serve as the Chairman of the Compensation Committee. 1.3 The Subsidiaries. The Articles of Association of the PRC Subsidiary shall provide that all corporate powers and management control of the PRC Subsidiary shall reside with the investor or shareholder of the PRC Subsidiary. 2 2. REGISTRATION RIGHTS. 2.1 Applicability of Rights. The holders of Series B Shares shall be entitled to the following rights with respect to any potential public offering of the Series B Shares or the Company's Ordinary Shares in the United States and shall be entitled to reasonably analogous or equivalent rights with respect to any other offering of shares in any other jurisdiction pursuant to which the Company undertakes to publicly offer or list such securities for trading on a recognized securities exchange. 2.2 Definitions. For purposes of this Section 2: (a) Registration. The terms "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 effectiveness of such registration statement. (b) Registrable Securities. The term "REGISTRABLE SECURITIES" means Series B Registrable Securities (as defined below) and Series A Registrable Securities (as defined below). "SERIES B REGISTRABLE SECURITIES" means (1) any Ordinary Shares of the Company issued or to be issued pursuant to conversion of any shares of Series B Shares issued (A) under the Purchase Agreement, and (B) pursuant to the Right of Participation (defined in Section 3 hereof), (2) any Ordinary Shares of the Company issued (or issuable upon the conversion or exercise of any warrant, right or other security which is issued) as a dividend or other distribution with respect to, or in exchange for or in replacement of, any Series B Shares described in clause (1) above, and (3) any other Ordinary Shares of the Company owned or hereafter acquired by an Investor. "SERIES A REGISTRABLE SECURITIES" means (1) any Ordinary Shares of the Company issued or to be issued pursuant to conversion of any shares of Series A Shares (A) outstanding as of the date of this Agreement, and (B) issued pursuant to the Right of Participation (defined in Section 3 hereof), and (2) any Ordinary Shares of the Company issued (or issuable upon the conversion or exercise of any warrant, right or other security which is issued) as a dividend or other distribution with respect to, or in exchange for or in replacement of, any Series A Shares described in clause (1) above. Notwithstanding the foregoing, "REGISTRABLE SECURITIES" shall exclude any Registrable Securities sold by a person in a transaction in which rights under this Section 2 are not assigned in accordance with this Agreement or any Registrable Securities sold in a public offering, whether sold pursuant to Rule 144 promulgated under the Securities Act, or in a registered offering, or otherwise. (c) Registrable Securities Then Outstanding. The number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean the number of Ordinary Shares of the Company that are Registrable Securities and are then issued and outstanding, issuable upon conversion of Series B Shares then issued and outstanding or issuable upon conversion or exercise of any warrant, right or other security then outstanding. (d) Holder. For purposes of this Section 2, the term "HOLDER" means any person owning or having the rights to acquire Registrable Securities or any 3 permitted assignee of record of such Registrable Securities to whom rights under this Section 2 have been duly assigned in accordance with this Agreement. (e) Form S-3 and Form F-3. The terms "FORM S-3" and "FORM F-3" means such respective form under the Securities Act as is in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (f) SEC. The term "SEC" or "COMMISSION" means the U.S. Securities and Exchange Commission. 2.3. Demand Registration. (a) Request by Holders. If the Company shall at any time after the earlier of (i) three (3) years after the date of this Agreement or (ii) six (6) months following a Qualified Public Offering receive a written request from the Holders of at least thirty percent (30%) of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities pursuant to this Section 2.3, then the Company shall, within ten (10) business days of the receipt of such written request, give written notice of such request ("REQUEST NOTICE") to all Holders, and use its best efforts to effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered and included in such registration by written notice given by such Holders to the Company within twenty (20) days after receipt of the Request Notice, subject only to the limitations of this Section 2.3; provided that the Company shall not be obligated to effect any such registration if the Company has, within the six (6) month period preceding the date of such request, already effected a registration under the Securities Act pursuant to this Section 2.3 or Section 2.5 or in which the Holders had an opportunity to participate pursuant to the provisions of Section 2.4, other than a registration from which the Registrable Securities of the Holders have been excluded (with respect to all or any portion of the Registrable Securities the Holders requested be included in such registration) pursuant to the provisions of Section 2.4(a). (b) Underwriting. If the Holders initiating the registration request under this Section 2.3 (the "INITIATING HOLDERS") intend to distribute the Registrable Securities covered by their request by means of an underwriting, then they shall so advise the Company as a part of their request made pursuant to this Section 2.3 and the Company shall include such information in the Request Notice. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting by the Holders of a majority of the Registrable Securities being registered and reasonably acceptable to the Company. Notwithstanding any other provision of this Section 2.3, if the underwriter(s) advise(s) the Company in writing that marketing factors require a limitation of the number of securities to be underwritten then the Company shall so advise all Holders of Registrable Securities which would otherwise be registered and underwritten pursuant hereto, 4 and the number of Registrable Securities that may be included in the underwriting shall be reduced as required by the underwriter(s) and allocated, first, to each of the Holders requesting inclusion of their Series B Registrable Securities in such registration statement on a pro rata basis based on the total number of Series B Registrable Securities held by each such Holder requesting registration (including the Initiating Holders) and, second, to each of the Holders requesting inclusion of their Series A Registrable Securities in such registration statement on a pro rata basis based on the total number of Series A Registrable Securities held by each such Holder requesting registration (including the Initiating Holders); provided, however, that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other securities are first entirely excluded from the underwriting and registration including, without limitation, all shares that are not Registrable Securities and are held by any other person, including, without limitation, any person who is an employee, officer or director of the Company or any subsidiary of the Company; provided further, that (i) at least twenty-five percent (25%) of shares of the Registrable Securities requested by the Holders to be included in such underwriting and registration shall be so included and (ii) Holders of Series A Registrable Securities shall be entitled to be allocated at least one-seventh (1/7) of the total number of Registrable Securities to be included in such underwriting and registration. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter(s), delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. (c) Maximum Number of Demand Registrations. The Company shall not be obligated to effect more than three (3) such registrations pursuant to this Section 2.3. (d) Deferral. Notwithstanding the foregoing, if the Company shall furnish to Holders requesting registration pursuant to this Section 2.3, a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board, it would be materially detrimental to the Company and its shareholders for such registration statement to be filed, then the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve (12) month period. (e) Expenses. All expenses incurred in connection with any registration pursuant to this Section 2.3, including without limitation all U.S. federal, "blue sky" and all foreign registration, filing and qualification fees, printer's and accounting fees, and fees and disbursements of counsel for the Company and of counsel for the Holders (but excluding underwriters' discounts and commissions relating to shares sold by the Holders), shall be borne by the Company. Each Holder participating in a registration pursuant to this Section 2.3 shall bear such Holder's proportionate share (based on the total number of shares sold in such registration other than for the account of the Company) of all discounts, and commissions or other amounts payable to underwriter(s) or brokers, in connection with such offering by the Holders. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to this Section 2.3 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered, unless the Holders of a majority of the Registrable 5 Securities then outstanding agree that such registration constitutes the use by the Holders of one (1) demand registration pursuant to this Section 2.3 (in which case such registration shall also constitute the use by all Holders of Registrable Securities of one (1) such demand registration); provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company not known to the Holders at the time of their request for such registration and have withdrawn their request for registration with reasonable promptness after learning of such material adverse change, then the Holders shall not be required to pay any of such expenses and such registration shall not constitute the use of a demand registration pursuant to this Section 2.3. 2.4 Piggyback Registrations. The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any registration under Section 2.3 or Section 2.5 of this Agreement or to any employee benefit plan or a corporate reorganization) and shall afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall within twenty (20) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (a) Underwriting. If a registration statement under which the Company gives notice under this Section 2.4 is for an underwritten offering, then the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder's Registrable Securities to be included in a registration pursuant to this Section 2.4 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Agreement, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting shall be allocated, first, to the Company, second, to each of the Holders requesting inclusion of their Series B Registrable Securities in such registration statement on a pro rata basis based on the total number of shares of Series B Registrable Securities then held by each such Holder, and third, to each of the Holders requesting inclusion of their Series A Registrable Securities in such registration statement on a pro rata basis based on the total number of shares of Series A Registrable Securities then held by each such Holder, and fourth, to holders of other securities 6 of the Company; provided, however, that the right of the underwriter(s) to exclude shares (including Registrable Securities) from the registration and underwriting as described above shall be restricted so that (i) the number of Registrable Securities included in any such registration is not reduced below twenty-five percent (25%) of the aggregate number of shares of Registrable Securities for which inclusion has been requested; (ii) all shares that are not Registrable Securities and are held by any other person, including, without limitation, any person who is an employee, officer or director of the Company (or any subsidiary of the Company) shall first be excluded from such registration and underwriting before any Registrable Securities are so excluded, and (iii) Holders of Series A Registrable Securities shall be entitled to be allocated at least one-seventh (1/7) of the total number of Registrable Securities to be included in such underwriting and registration; unless such offering is a Qualified Public Offering in which case all the Registrable Securities may be excluded if the underwriters make the determination described above and no other shareholder's securities are included. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice tin the Company and the underwriter(s), delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. (b) Expenses. All expenses incurred in connection with a registration pursuant to this Section 2.4 (excluding underwriters' and brokers' discounts and commissions relating to shares sold by the Holders), including, without limitation all U.S. federal, "blue sky" and all foreign registration, filing and qualification fees, printers' and accounting fees, and fees and disbursements of counsel for the Company and of counsel for the Holders, shall be borne by the Company. (c) Not Demand Registration. Registration pursuant to this Section 2.4 shall not be deemed to be a demand registration as described in Section 2.3 above. Except as otherwise provided herein, there shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 2.4. 2.5 Form S-3 or Form F-3 Registration. In case the Company shall at any time after the first anniversary of the date hereof receive from any Holder or Holders of a majority of all Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 or Form F-3 (or an equivalent registration in a jurisdiction outside of the United States) and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, then the Company will: (a) Notice. Promptly give written notice of the proposed registration and the Holder's or Holders' request therefor, and any related qualification or compliance, to all other Holders of Registrable Securities; and (b) Registration. As soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after the Company provides the notice 7 contemplated by Section 2.5(a); provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.5: (1) if Form S-3 or Form F-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than US$500,000; (3) if the Company shall furnish to the Holders a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be materially detrimental to the Company and its shareholders for such Form S-3 or Form F-3 Registration (or equivalent registration in a jurisdiction outside of the United States) to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 or Form F-3 registration statement (or equivalent registration statement in a jurisdiction outside of the United States) no more than once during any twelve (12) month period for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.5; (4) if the Company has, within the six (6) month period preceding the date of such request, already effected a registration under the Securities Act other than a registration from which the Registrable Securities of Holders have been excluded (with respect to all or any portion of the Registrable Securities the Holders requested be included in such registration) pursuant to the provisions of Section 2.4(a); or (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Expenses. The Company shall pay all expenses incurred in connection with each registration requested pursuant to this Section 2.5, (excluding underwriters' or brokers' discounts and commissions relating to shares sold by the Holders), including without limitation all U.S. federal, "blue sky" and all foreign registration, filing and qualification fees, printers' and accounting fees, and fees and disbursements of counsel for the Company and of counsel for the Holders. (e) Not Demand Registration. Form S-3 or Form F-3 registrations (or equivalent registrations outside of the United States) shall not be deemed to be demand registrations as described in Section 2.3 above. Except as otherwise provided herein, there shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 2.5. 2.6 Obligations of the Company. Whenever required to effect the registration of any Registrable Securities under this Agreement the Company shall, as expeditiously as reasonably possible: 8 (a) Registration Statement. Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, provided, however, that the Company shall not be required to keep any such registration statement effective for more than ninety (90) days. (b) Amendments and Supplements. Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (c) Prospectuses. Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration. (d) Blue Sky. Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) Underwriting. In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notification. Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Opinion and Comfort Letter. Furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriter(s) for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a "comfort" letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an 9 underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 2.7 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to Sections 2.3, 2.4 or 2.5 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by then and the intended method of disposition of such securities as shall be required to timely effect the Registration of their Registrable Securities. 2.8 Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 2.3, 2.4 or 2.5: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, its partners, officers, directors, legal counsel, any underwriter (as determined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended, (the "1934 ACT"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "VIOLATION"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the 1934 Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the 1934 Act or any federal or state securities law in connection with the offering covered by such registration statement; and the Company will reimburse each such Holder, its partner, officer, director, legal counsel, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 2.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter or controlling person of such Holder. 10 (b) Notice. Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of liability to the indemnified party under this Section 2.8 to the extent the indemnifying party is prejudiced as a result thereof, but the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.8. (c) Contribution. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any indemnified party makes a claim for indemnification pursuant to this Section 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified party in circumstances for which indemnification is provided under this Section 2.8; then, and in each such case, the indemnified party and the indemnifying party will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that a Holder (together with its related persons) is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and the Company and other selling Holders are responsible for the remaining portion; provided, however, that, in any such case: (A) no Holder will be required to contribute any amount in excess of the net proceeds to such Holder from the sale of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. (e) Survival. The obligations of the Company and Holders under this Section 2.8 shall survive the completion of any offering of Registrable Securities in a registration statement, regardless of the expiration of any statutes of limitation or extensions of such statutes. 2.9 Termination of the Company's Obligations. The Company shall have no obligations pursuant to Sections 2.3, 2.4 and 2.5 with respect to any Registrable Securities 11 proposed to be sold by a Holder in a registration pursuant to Section 2.3, 2.4 or 2.5 more than seven (7) years after the Closing, or, if, in the opinion of counsel to the Company, all such Registrable Securities proposed to be sold by a Holder may then be sold without registration in any ninety (90) day period pursuant to Rule 144 promulgated under the Securities Act. 2.10 No Registration Rights to Third Parties. Without the prior written consent of the Holders of a majority in interest of the Registrable Securities then outstanding, the Company covenants and agrees that it shall not grant, or cause or permit to be created, for the benefit of any person or entity any registration rights of any kind (whether similar to the demand, "piggyback" or Form S-3 or Form F-3 registration rights described in this Section 2, or otherwise) relating to any securities of the Company which are senior to, or on a parity with, those granted to the Holders of Registrable Securities. 2.11 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the Registrable Securities to the public without registration or pursuant to a registration on Form S-3 or F-3, after such time as a public market exists for the Ordinary Shares, the Company agrees to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; (b) Use reasonable, diligent efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the 1934 Act (at any time after it has become subject to such reporting requirements); and (c) So long as a Holder owns any Registrable Securities, to furnish to such Holder forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the Company's initial public offering), the Securities Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or its qualification as a registrant whose securities may be resold pursuant to Form S-3 or F-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents of the Company as a Holder may reasonably request in availing itself of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to Form S-3 or F-3. 2.12 Market Stand-Off. Each Founder and each Holder agrees that, so long as it holds any voting securities of the Company, upon request by the Company or the underwriters managing the initial public offering of the Company's securities, it will not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those permitted to be included in the registration and other transfers to affiliates permitted by law) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time not exceeding 180 days from the effective date of the registration statement covering such initial public offering or the pricing date of such offering as may be requested by the underwriters. The foregoing 12 provision of this Section 2.12 shall not apply to the sale of any securities of the Company to an underwriter pursuant to any underwriting agreement, and shall only be applicable to the Holders if all officers, directors and holders of three percent (3%) or more of the Company's outstanding share capital enter into similar agreements, and if the Company or any underwriter releases any officer, director or holder of three percent (3%) or more of the Company's outstanding share capital from his or her sale restrictions so undertaken, then each Holder shall be notified prior to such release and shall itself be simultaneously released to the same proportional extent. The Company shall require all future acquirers of the Company's securities holding at least three percent (3%) of the then outstanding share capital of the Company to execute prior to a Qualified Public Offering a market stand-off agreement containing substantially similar provisions as those contained in this Section 2.12. 3. RIGHT OF PARTICIPATION. 3.1 General. An Investor and any holder of Series A Shares to which rights under this Section 3 have been duly assigned in accordance with Section 5 (such Investor and each such assignee being hereinafter referred to as a "PARTICIPATION RIGHTS HOLDER") shall have the right of first refusal to purchase such Participation Rights Holder's Pro Rata Share (as defined below), of all (or any part) of any New Securities (as defined in Section 3.3) that the Company may from time to time issue after the date of this Agreement (the "RIGHT OF PARTICIPATION"). 3.2 Pro Rata Share. A Participation Rights Holder's "PRO RATA SHARE" for purposes of the Right of Participation is the ratio of (a) the number of Ordinary Shares (calculated on a fully-diluted and as-converted basis) held by such Participation Rights Holder, to (b) the total number of Ordinary Shares (calculated on a fully-diluted and as-converted basis) then outstanding (immediately prior to the issuance of New Securities giving rise to the Right of Participation). 3.3 New Securities. "NEW SECURITIES" shall mean any Ordinary Shares, Series A Shares, Series B Shares, any other shares of the Company designated as "Preferred Shares," or other voting shares of the Company, whether now authorized or not, and rights, options or warrants to purchase such Ordinary Shares, Series A Shares, Series B Shares, Preferred Shares, and securities of any type whatsoever that are, or may become, convertible or exchangeable into such Ordinary Shares, Series A Shares, Series B Shares, Preferred Shares, or other voting shares, provided, however, that the term "New Securities" shall not include: (a) up to 5,250,000 shares of the Company's Ordinary Shares (and/or options or warrants therefor) issued to employees, officers, directors, contractors, advisors or consultants of the Company pursuant to incentive agreements or incentive plans approved by the Finance Committee of the Board; (b) any shares of Series B Shares issued under the Purchase Agreement, as such agreement may be amended; (c) any securities issued in connection with any share split, share dividend or other similar event in which all Participation Rights Holders are entitled to participate on a pro rata basis; 13 (d) any securities issued upon the exercise, conversion or exchange of any outstanding security if such outstanding security constituted a New Security; (e) any securities issued pursuant to a Qualified Public Offering; or (f) any securities issued pursuant to (i) the acquisition of another corporation or entity by the Company by consolidation, merger, purchase of assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, all or substantially all assets of such other corporation or entity or fifty percent (50%) or more of the equity ownership or voting power of such other corporation or entity, or (ii) a merger, consolidation or other third party business combination of the Company with or into any other business entity in which the shareholders of the Company immediately after such merger, consolidation or other business combination hold shares representing less than a majority of the voting power of the outstanding share capital of the surviving business entity. 3.4 Procedures. (a) First Participation Notice. In the event that the Company proposes to undertake an issuance of New Securities (in a single transaction or a series of related transactions), it shall give to each Participation Rights Holder written notice of its intention to issue New Securities (the "FIRST PARTICIPATION NOTICE"), describing the amount and the type of New Securities and the price and the general terms upon which the Company proposes to issue such New Securities. Each Participation Rights Holder shall have ten (10) business days from the date of receipt of any such First Participation Notice to agree in writing to purchase such Participation Rights Holder's Pro Rata Share of such New Securities for the price and upon the terms and conditions specified in the First Participation Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased (not to exceed such Participation Rights Holder's Pro Rata Share). If any Participation Rights Holder fails to so agree in writing within such ten (10) business day period to purchase such Participation Rights Holder's full Pro Rata Share of an offering of New Securities, then such Participation Rights Holder shall forfeit the right hereunder to purchase that part of its Pro Rata Share of such New Securities that it did not agree to purchase. (b) Second Participation Notice; Oversubscription. If any Participating Rights Holder fails to exercise its Right of Participation in accordance with subsection (a) above, the Company shall promptly give notice (the "SECOND PARTICIPATION NOTICE") to other Participating Rights Holders who exercised their Right of Participation (the "RIGHT PARTICIPANTS") in accordance with subsection (a) above. Each Right Participant shall have five (5) business days from the date of the Second Participation Notice (the "SECOND PARTICIPATION PERIOD") to notify the Company of its desire to purchase more than its Pro Rata Share of the New Securities, stating the number of the additional New Securities it proposes to buy (the "ADDITIONAL NUMBER"). Such notice may be made by telephone if confirmed in writing within in two (2) business days. If, as a result thereof, such oversubscription exceeds the total number of the remaining New Securities available for purchase, each oversubscribing Right Participant will be cut back by the Company with respect to its oversubscription to that number of remaining New Securities equal to the lesser of (x) the Additional Number and (y) the product obtained by multiplying (i) the number of the 14 remaining New Securities available for subscription by (ii) a fraction the numerator of which is the number of Ordinary Shares (calculated on an as-converted basis) held by such oversubscribing Right Participant and the denominator of which is the total number of Ordinary Shares (calculated on an as-converted basis) held by all the oversubscribing Right Participants. Each Right Participant shall be obligated to buy such number of New Securities as determined by the Company pursuant to this Section 3.4 and the Company shall so notify the Right Participants within fifteen (15) business days following the date of the Second Participation Notice. 3.5 Failure to Exercise. Upon the expiration of the Second Participation Period, or in the event no Participation Rights Holder exercises the Right of Participation, after ten (10) days following the issuance of the First Participation Notice, the Company shall have 120 days thereafter to sell the New Securities described in the First Participation Notice (with respect to which the Right of Participation hereunder were not exercised) at the same or higher price and upon non-price terms not materially more favorable to the purchasers thereof than specified in the First Participation Notice. In the event that the Company has not issued and sold such New Securities within such 120 day period, then the Company shall not thereafter issue or sell any New Securities without again first offering such New Securities to the Participation Rights Holders pursuant to this Section 3. 3.6 Termination. The Right of Participation for each Participation Rights Holder shall not terminate so long as any Investor and its Affiliates (as defined in Rule 144 under the Securities Act) collectively hold any Series A Shares, Series B Shares or Ordinary Shares; provided, however, that the Right of Participation shall terminate upon a Qualified Public Offering. 4. TRANSFER RESTRICTIONS. 4.1 Certain Definitions. For purposes of this Section 4, "ORDINARY SHARES" means (i) the Company's outstanding Ordinary Shares, (ii) the Ordinary Shares issued or issuable upon conversion of the Company's outstanding preferred shares, (iii) the Ordinary Shares issuable upon exercise of outstanding options or warrants and (iv) the Ordinary Shares issuable upon conversion of any outstanding convertible securities; "RESTRICTED SHARES" means the Company's Ordinary Shares and/or Series A Shares now owned or subsequently acquired by any Founder; "SERIES B HOLDER" means a holder of any Series B Shares. 4.2 Sale by Founder; Notice of Sale. Subject to Section 4.6 of this Agreement, if a Founder (the "SELLING SHAREHOLDER") proposes to sell or transfer any Restricted Shares held by it, then the Selling Shareholder shall promptly give written notice (the "TRANSFER NOTICE") to each Series B Holder prior to such sale or transfer. The Notice shall describe in reasonable detail the proposed sale or transfer including, without limitation, the number of Restricted Shares to be sold or transferred (the "OFFERED SHARES"), the nature of such sale or transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee. 4.3 Right of First Refusal. Each Series B Holder will have the right, exercisable upon written notice (the "FIRST REFUSAL NOTICE") to the Selling Shareholder, the Company and each other Series B Holder within thirty (30) days after receipt of the Transfer 15 Notice (the "FIRST REFUSAL PERIOD") of its election to exercise its right of first refusal hereunder. The First Refusal Notice shall set forth the number of Offered Shares that such Series B Holder wishes to purchase, which amount shall not exceed the First Refusal Allotment (as defined below) of such Series B Holder. Such right of first refusal may be exercised as follows: (a) First Refusal Allotment. Each Series B Holder shall have the right to purchase that number of the Offered Shares (the "FIRST REFUSAL ALLOTMENT") equivalent to the product obtained by multiplying the aggregate number of the Offered Shares by a fraction, the numerator of which is the number of Ordinary Shares held by such Series B Holder at the time of the transaction and the denominator of which is the total number of Ordinary Shares owned by all the Series B Holders at the time of the transaction. Any Series B Holder will not have a right to purchase any of the Offered Shares unless it exercises its right of first refusal within the First Refusal Period to purchase up to all of its First Refusal Allotment of the Offered Shares. To the extent that any Series B Holder does not exercise its right of first refusal to the full extent of its First Refusal Allotment, the Selling Shareholder and the Series B Holders shall, within ten (10) days after the end of the First Refusal Period, make such adjustments to the First Refusal Allotment of each exercising Series B Holder so that any remaining Offered Shares may be allocated to those Series B Holders exercising their rights of first refusal on a pro rata basis. (b) Expiration Notice. Within ten (10) days after expiration of the First Refusal Period the Company will give written notice (the "FIRST REFUSAL EXPIRATION NOTICE") to the Selling Shareholder specifying either (i) that all of the Offered Shares was subscribed by the Series B Holders exercising their rights of first refusal or (ii) that the Series B Holders have not subscribed all of the Offered Shares in which case the First Refusal Expiration Notice will specify the Co-Sale Pro Rata Portion (as defined below) of the remaining Offered Shares for the purpose of their co-sale right described in Section 4.4 below. (c) Purchase Price. The purchase price for the Offered Shares to be purchased by the Series B Holders exercising their right of first refusal will be the price set forth in the Transfer Notice, but will be payable as set forth in this Section 4.3(c). If the purchase price in the Transfer Notice includes consideration other than cash, the cash equivalent value of the non-cash consideration will be determined by the Board in good faith, which determination will be binding upon the Company, the Series B Holders, and the Selling Shareholder, absent fraud or error. (d) Payment. Payment of the purchase price for the Offered Shares purchased by the Series B Holders shall be made within ten (10) days following the date of the First Refusal Expiration Notice. Payment of the purchase price will be made by wire transfer or check as directed by the Selling Shareholder. (e) Rights as a Founder or Series B Holder. If any Series B Holder exercises its right of first refusal to purchase the Offered Shares, then, upon the date the notice of such exercise is given by such Series B Holder, the Selling Shareholder will have no further rights as a holder of such Offered Shares except the right to receive payment for such Offered Shares from such Series B Holder in accordance with the terms of this Agreement, and the Selling Shareholder will forthwith cause all certificate(s) evidencing such Offered Shares to be surrendered to the Company for transfer to such Series B Holder. 16 (f) Application of Co-Sale Right. If the Series B Holders have not elected to purchase all of the Offered Shares, then the sale of the remaining Offered Shares will become subject to the co-sale right set forth in Section 4.4 below. 4.4 Co-Sale Right. To the extent that the Series B Holders have not exercised their right of first refusal with respect to all the Offered Shares, each Series B Holder shall have the right, exercisable upon written notice (the "CO-SALE NOTICE") to the Selling Shareholder, the Company and each other Series B Holder within thirty (30) days after receipt of the First Refusal Expiration Notice (the "CO-SALE RIGHT PERIOD"), to participate in such sale of the Restricted Shares on the same terms and conditions. The Co-Sale Notice shall set forth the number of Ordinary Shares (on an as-converted basis) that such participating Series B Holder wishes to include in such sale or transfer, which amount shall not exceed the Co-Sale Pro Rata Portion (as defined below) of such Series B Holder. To the extent one or more of the Series B Holders exercise such right of participation in accordance with the terms and conditions set forth below, the number of Restricted Shares that the Selling Shareholder may sell in the transaction shall be correspondingly reduced. The co-sale right of each Series B Holder shall be subject to the following terms and conditions: (a) Co-Sale Pro Rata Portion. Each Series B Holder may sell all or any part of that number of Ordinary Shares held by it that is equal to the product obtained by multiplying (x) the aggregate number of the Offered Shares subject to the co-sale right hereunder by (y) a fraction, the numerator of which is the number of Ordinary Shares (on an as-converted basis) owned by the Series B Holder at the time of the sale or transfer and the denominator of which is the combined number of Ordinary Shares (on an as-converted basis) at the time owned by all Series B Holders and fifty percent (50%) of the Ordinary Shares (on an as-converted basis) convertible from the Series A Shares held by the Founders ("CO-SALE PRO RATA PORTION"). To the extent that any Series B Holder does not participate in the sale to the full extent of its Co-Sale Pro Rata Portion, the Selling Shareholder and the participating Series B Holders shall, within ten (10) days after the end of such Co-Sale Right Period, make such adjustments to the Co-Sale Pro Rata Portion of each participating Series B Holder so that any remaining Offered Shares may be allocated to other participating Series B Holders on a pro rata basis. (b) Transferred Shares. Each participating Series B Holder shall effect its participation in the sale by promptly delivering to the Selling Shareholder for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent: (i) the number of Ordinary Shares which such Series B Holder elects to sell; (ii) that number of Series B Shares which is at such time convertible into the number of Ordinary Shares that such Series B Holder elects to sell; provided, however, that if the prospective purchaser objects to the delivery of Series B Shares in lieu of Ordinary Shares, such Series B Holder shall convert such Series B Shares into Ordinary Shares and deliver Ordinary Shares as provided in Subsection 4.4(b)(i) above. The Company agrees to make any such conversion concurrent with the actual transfer of such shares to the purchaser; or 17 (iii) a combination of the above. (c) Payment to Series B Holders. The share certificate or certificates that the participating Series B Holder delivers to the Selling Shareholder pursuant to Section 4.4(b) shall be transferred to the prospective purchaser in consummation of the sale of the Restricted Shares pursuant to the terms and conditions specified in the Transfer Notice, and the Selling Shareholder shall concurrently therewith remit to such Series B Holder that portion of the sale proceeds to which such Series B Holder is entitled by reason of its participation in such sale. To the extent that any prospective purchaser or purchasers prohibits such assignment or otherwise refuses to purchase shares or other securities from a Series B Holder exercising its co-sale right hereunder, the Selling Shareholder shall not sell to such prospective purchaser or purchasers any Restricted Shares unless and until, simultaneously with such sale, the Selling Shareholder shall purchase such shares or other securities from such Series B Holder. (d) Right to Transfer. To the extent the Series B Holders do not elect to purchase, or to participate in the sale of, the Restricted Shares subject to the Transfer Notice, the Selling Shareholder may, not later than ninety (90) days following delivery to the Company and each of the Series B Holders of the Transfer Notice, conclude a transfer of the Restricted Shares covered by the Transfer Notice and not elected to be purchased by the Series B Holders on terms and conditions not materially different from those described in the Transfer Notice. Any proposed transfer on terms and conditions materially different from those described in the Transfer Notice, as well as any subsequent proposed transfer of any Restricted Shares by the Selling Shareholder, shall again be subject to the right of first refusal and the co-sale rights of the Series B Holders and shall require compliance by the Selling Shareholder with the procedures described in Section 4.3 and Section 4.4 of this Agreement. 4.5 Exempt Transfers. Notwithstanding anything to the contrary herein and subject to Section 4.6(a) hereof, (i) the right of first refusal and co-sale rights of the Series B Holders shall not apply to any sale or transfer of the Restricted Shares to the Company pursuant to a repurchase right or right of first refusal held by the Company in the event of a termination of employment or consulting relationship, and (ii) the sale or transfer of up to 3,150,000 Series A Shares by the Founders in the aggregate shall not be subject to the co-sale rights of the Series B Holders. 4.6 Prohibited Transfers. (a) Notwithstanding anything to the contrary contained herein, none of the Founders shall, without the prior written consent of 66 2/3% in interest of the Ordinary Shares (on an as-converted basis) held by the Investors, directly or indirectly, sell, assign, transfer, pledge, hypothecate, mortgage, encumber or otherwise dispose through one or a series of transactions the Ordinary Shares now held by such Founder to any person (i) prior to the Qualified Public Offering or (ii) within 180 days following the closing of a Qualified Public Offering. (b) Any attempt by a Founder to transfer Restricted Shares in violation of Sections 4.3, 4.4 or 4.6(a) hereof shall be void and the Company agrees it will not effect such a transfer nor will it treat any alleged transferee as the holder of such shares 18 without the written consent of 66 2/3% in interest of the Ordinary Shares (on an as-converted basis) held by the Investors. 4.7 Restriction on Indirect Transfers. Notwithstanding anything to the contrary contained herein, without the prior written consent of 66 2/3% in interest of the Ordinary Shares (on an as-converted basis) held by the Investors, (i) prior to the Qualified Public Offering or (ii) within 180 days following the closing of a Qualified Public Offering: (a) (i) Yunfan Zhou shall not directly or indirectly, sell, assign, transfer, pledge, hypothecate, mortgage, encumber or otherwise dispose through one or a series of transactions any equity interest held by him in the BVI Shareholder to any person; and (ii) the BVI Shareholder shall not issue to any person any equity securities of the BVI Shareholder or any options or warrants for, or any other securities exchangeable for or convertible into, such equity securities of the BVI Shareholder. (b) Each of Yunfan Zhou and Nick Yang shall not, and shall not cause or permit any other person to, (i) directly or indirectly, sell, assign, transfer, pledge, hypothecate, mortgage, encumber or otherwise dispose through one or a series of transactions any equity interest held or controlled by him in the PRC Affiliate to any person, and (ii) cause or permit the PRC Affiliate to issue to any person any equity securities of the PRC Affiliate or any options or warrants for, or any other securities exchangeable for or convertible into, such equity securities of the PRC Affiliate. 4.8 BVI Shareholder. Yunfan Zhou shall deliver, or cause to be delivered, to the Investors a copy of the Register of Members of the BVI Shareholder certified by its agent in the British Virgin Islands as a true and complete copy at the Closing (as defined in the Purchase Agreement) and every six (6) months thereafter. 4.9 Legend. (a) Each certificate representing the Restricted Shares now or hereafter owned by a Founder or issued to any person in connection with a transfer in compliance with this Section 4 shall be endorsed with the following legend: "THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A SHAREHOLDERS AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE COMPANY, CERTAIN AFFILIATES OF THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY." (b) Each Founder agrees that the Company may instruct its transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in Section 4.9(a) above to enforce the provisions of this Agreement and the Company agrees to promptly do so. The legend shall be removed upon termination of the provisions of this Section 4. 19 4.10 Term. Except for Sections 4.6 and 4.7, the provisions under this Section 4 shall terminate upon the closing of a Qualified Public Offering. 5. ASSIGNMENT AND AMENDMENT. 5.1 Assignment. Notwithstanding anything herein to the contrary: (a) Information Rights; Board Representation. The rights of the Investors under Section 1.1 are transferable to any holder of Series B Shares; provided, however, that no party may be assigned any of the foregoing rights unless the Company is given written notice by the assigning party stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided further, that any such assignee shall receive such assigned rights subject to all the terms and conditions of this Agreement, including without limitation the provisions of this Section 5. The rights of the Investors to appoint directors under Section 1.2 shall not be transferable. (b) Registration Rights. The registration rights of the Holders under Section 2 hereof may be assigned to any Holder or to any person acquiring Registrable Securities in a Permitted Transfer (as defined below); provided, however, that no party may be assigned any of the foregoing rights unless the Company is given written notice by the assigning party stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided further, that any such assignee shall receive such assigned rights subject to all the terms and conditions of this Agreement, including without limitation the provisions of this Section 5. For purpose of this Section 5(b), a "PERMITTED TRANSFER" means a transfer by an Investor to (i) any of its affiliates, or (ii) any third party acquiring at least five percent (5%) of the Ordinary Shares held by such Investor (calculated on an as-converted basis), excluding any person who is engaged in substantially the same line(s) of business as is the Company or any of the PRC Companies. (c) Rights of Participation; Right of First Refusal; Co-Sale Rights. The rights of each Investor or each holder of Series B Shares under Sections 3 and 4 hereof are fully assignable in connection with a permitted transfer of shares of the Company by such Investor or holder of Series B Shares; provided, however, that no party may be assigned any of the foregoing rights unless the Company is given written notice by such Investor or holder of Series B Shares at the time of such assignment stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided further, that any such assignee shall receive such assigned rights subject to all the terms and conditions of this Agreement. 5.2 Amendment of Rights. Any provision in this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by the written consent of (i) as to the Company, only by the Company; (ii) as to the Investors, by persons or entities holding at least 66 2/3% of the Ordinary Shares (calculated on an as-converted basis) held by the Investors and their assignees pursuant to Section 5.1 hereof; provided, however, that any Investor may waive any of its rights hereunder without obtaining the consent of any other Investor; and (iii) as to the Founders, by persons holding a majority in interest of the Ordinary Shares and Series 20 A Shares, collectively, held by the Founders and their assignees pursuant to Section 5.1 hereof; provided, however, that any Founder may waive any of its rights hereunder without obtaining the consent of any other Founder. Any amendment or waiver effected in accordance with this Section 5.2 shall be binding upon the Company, each Investor, each Founder and their respective assigns. 6. CONFIDENTIALITY AND NON-DISCLOSURE. 6.1 Disclosure of Terms. The terms and conditions of this Agreement, the Purchase Agreement, the Restructuring Documents and any Ancillary Agreements (as defined in the Purchase Agreement), and all exhibits and schedules attached to such agreements (collectively, the "FINANCING TERMS"), including their existence, shall be considered confidential information and shall not be disclosed by any party hereto to any third party except in accordance with the provisions set forth below. 6.2 Press Releases. Any press release issued by the Company shall not disclose any of the Financing Terms and the final form of such press release shall be approved in advance in writing by the Investors. No other announcement regarding any of the Financing Terms in a press release, conference, advertisement, announcement, professional or trade publication, mass marketing materials or otherwise to the general public may be made without the Investors' prior written consent. 6.3 Permitted Disclosures. Notwithstanding the foregoing, (i) any party may disclose the existence of the financing (but not any of the Financing Terms) to any third party, and (ii) any party may disclose any of the Financing Terms to its current or bona fide prospective investors, employees, investment bankers, lenders, partners, accountants and attorneys, in each case only where such persons or entities are under appropriate nondisclosure obligations. 6.4 Legally Compelled Disclosure. In the event that any party is requested or becomes legally compelled (including without limitation, pursuant to securities laws and regulations) to disclose the existence of this Agreement and the Purchase Agreement, and exhibits and schedules attached to such agreements, or any of the Financing Terms hereof in contravention of the provisions of this Section 6, such party (the "DISCLOSING PARTY") shall provide the other parties (the "NON-DISCLOSING PARTIES") with prompt written notice of that fact and use all reasonable efforts to seek (with the cooperation and reasonable efforts of the other parties) a protective order, confidential treatment or other appropriate remedy. In such event, the Disclosing Party shall furnish only that portion of the information which is legally required and shall exercise reasonable efforts to keep confidential such information to the extent reasonably requested by any Non-Disclosing Party. 6.5 Other Information. The provisions of this Section 6 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by any of the parties hereto with respect to the transactions contemplated hereby. 6.6 Notices. All notices required under this section shall be made pursuant to Section 7.1 of this Agreement. 7. GENERAL PROVISIONS. 21 7.1 Notices. Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Agreement shall be in writing and shall be conclusively deemed to have been duly given (a) when hand delivered to the other party; (b) when sent by facsimile at the number set forth in Exhibit B hereto; (c) seven (7) business days after deposit in the mail as air mail or certified mail, receipt requested, postage prepaid and addressed to the other party as set forth in Exhibit B; or (d) three (3) business days after deposit with an international overnight delivery service, postage prepaid, addressed to the parties as set forth in Exhibit B with next business day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider. Each person making a communication hereunder by facsimile shall promptly confirm by telephone to the person to whom such communication was addressed each communication made by it by facsimile pursuant hereto but the absence of such confirmation shall not affect the validity of any such communication. A party may change or supplement the addresses given above, or designate additional addresses, for purposes of this Section 7.1 by giving the other party written notice of the new address in the manner set forth above. 7.2 Entire Agreement. This Agreement, the Purchase Agreement, the Restructuring Documents and any Ancillary Agreements, together with all the exhibits hereto and thereto, constitute and contain the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings, duties or obligations between the parties respecting the subject matter hereof. 7.3 Governing Law. This Agreement shall be governed by and construed exclusively in accordance the internal laws of the State of New York as applied to agreements entered into and to be performed entirely within such state, excluding that body of law relating to conflict of laws and choice of law. 7.4 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, then such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 7.5 Third Parties. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties hereto and their permitted successors and assigns any rights or remedies under or by reason of this Agreement. 7.6 Successors and Assigns. Subject to the provisions of Section 5.1, the provisions of this Agreement shall inure to the benefit of, and shall be binding upon, the successors and permitted assigns of the parties hereto. 7.7 Interpretation; Captions. This Agreement shall be construed according to its fair language. The rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in interpreting this Agreement. The captions to sections of this Agreement have been inserted for identification and reference purposes only and shall not be used to construe or interpret this Agreement. 22 7.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.9 Adjustments for Share Splits, etc. Wherever in this Agreement there is a reference to a specific number of shares of Series A Shares, Series B Shares or Ordinary Shares of the Company, then, upon the occurrence of any subdivision, combination or share dividend of the Series A Shares, Series B Shares or Ordinary Shares, the specific number of shares so referenced in this Agreement shall automatically be proportionally adjusted to reflect the effect on the outstanding shares of such class or series of shares by such subdivision, combination or share dividend (calculated on an as-converted basis). 7.10 Aggregation of Shares. All Series A Shares, Series B Shares or Ordinary Shares held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 7.11 Shareholders Agreement to Control. If and to the extent that there are inconsistencies between the provisions of this Agreement and those of the Memorandum and Articles, the terms of this Agreement shall control. The parties hereto agree to take all actions necessary or advisable, as promptly as practicable after the discovery of such inconsistency, to amend the Memorandum and Articles so as to eliminate such inconsistency. 7.12 Dispute Resolution. (a) Negotiation Between Parties; Mediations. The parties agree to negotiate in good faith to resolve any dispute between them regarding this Agreement. If the negotiations do not resolve the dispute to the reasonable satisfaction of all parties, then each party shall nominate a representative (who shall be a senior officer of the rank of Vice President or higher if such party is a business entity). These representatives shall, within thirty (30) days of a written request by any party to call such a meeting, meet in person and alone (except for one assistant for each party) and shall attempt in good faith to resolve the dispute. If the disputes cannot be resolved by such senior managers in such meeting, the parties agree that they shall, if requested in writing by either party, meet within thirty (30) days after such written notification for one day with an impartial mediator and consider dispute resolution alternatives other than formal arbitration. If an alternative method of dispute resolution is not agreed upon within thirty (30) days after the one day mediation, either party may begin formal arbitration proceedings to be conducted in accordance with subsection (b) below. This procedure shall be a prerequisite before taking any additional action hereunder. (b) Arbitration. In the event the parties are unable to settle a dispute between them regarding this Agreement in accordance with subsection (a) above, such dispute shall be referred to and finally settled by arbitration at Hong Kong International Arbitration Centre in accordance with the UNCITRAL Arbitration Rules (the "UNCITRAL RULES") in effect, which rules are deemed to be incorporated by reference into this subsection (b). The arbitration tribunal shall consist of three arbitrators to be appointed according to the UNCITRAL Rules. The language of the arbitration shall be English. 23 -- REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK -- 24 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. COMMUNICATION OVER THE AIR INC. By: /s/ Yunfan Zhou --------------------------------- Name: Yunfan Zhou Title: Chairman and CEO KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. By: /s/ Yunfan Zhou --------------------------------- Name: Yunfan Zhou Title: General Manager BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD. By: /s/ Yunfan Zhou --------------------------------- Name: Yunfan Zhou Title: General Manager MOBILEREN INC. By: /s/ Yunfan Zhou --------------------------------- Name: Yunfan Zhou Title: Director WIRELESSROCK INC. By: /s/ Wang Leilei --------------------------------- Name: Wang Leilei Title: Director /s/ Yunfan Zhou ----------------------------------- Yunfan Zhou /s/ Nick Yang ----------------------------------- Nick Yang IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. GLOBAL LEAD TECHNOLOGY LIMITED By: /s/ Lao Yuan-Yi --------------------------------- Name: Lao Yuan-Yi Title: DRAPER FISHER JURVETSON EPLANET VENTURES L.P. By: /s/ Asad Jamal --------------------------------- Name: Asad Jamal Title: Managing Director DRAPER FISHER JURVETSON EPLANET PARTNERS FUND, LLC By: /s/ Asad Jamal --------------------------------- Name: Asad Jamal Title: Managing Director DRAPER FISHER JURVETSON EPLANET VENTURES GMBH KG & CO. By: /s/ Asad Jamal --------------------------------- Name: Asad Jamal Title: Managing Director CHINNEY DEVELOPMENT COMPANY LIMITED By: /s/ Angus Lin --------------------------------- Name: Title: EGARDEN I By: /s/ John Zhao --------------------------------- Name: John Zhao Title: Managing Director EGARDEN VENTURES (HK), LTD. By: /s/ John Zhao --------------------------------- Name: John Zhao Title: Managing Director LIST OF EXHIBITS Exhibit A Schedule of Investors Exhibit B Notices EXHIBIT A SCHEDULE OF INVESTORS Global Lead Technology Limited Draper Fisher Jurvetson ePlanet Ventures L.P. Draper Fisher Jurvetson ePlanet Partners Fund, LLC Draper Fisher Jurvetson ePlanet Ventures GmbH KG & Co. Chinney Development Company Limited eGarden I eGarden Ventures (HK), Ltd. EXHIBIT B NOTICES If to the Company, the PRC Subsidiary or the PRC Affiliate: Room 809, 8th Floor, Tower A No. 2 Yuetan Street, Xicheng District Beijing, China Fax: 86-10-6201-6506 Attn: Yunfan Zhou If to the BVI Shareholder, Yunfan Zhou or Nick Yang: Room 809, 8th Floor, Tower A No. 2 Yuetan Street, Xicheng District Beijing, China Fax: 86-10-6201-6506 If to Wirelessrock Inc.: Room 1001, No.1 Building Xiao Yang Yi Bin Hutong, Dong Cheng District Beijing, China Fax: 86-10-85181160 Attn: Leilei Wang If to Global Lead Technology Limited: 19/F, Wing On House 71 Des Voeux Road Central Hong Kong Fax: +852-2526-8781 Attn: Andrew Lau If to Draper Fisher Jurvetson ePlanet Ventures L.P., Draper Fisher Jurvetson ePlanet Partners Fund, LLC or Draper Fisher Jurvetson ePlanet Ventures GmbH KG & Co.: #2113 Tower 1 China World Trade Center No. 1 Jianguomen Wai Da Jie Beijing, China Fax: +86-10-6505-9395 Attn: Fan Zhang If to Chinney Development Company Limited: 18th Floor, Hang Seng Building 77 Des Voeux Road Central Hong Kong Fax: (852) 2845 1629 Attn: LING Wai Hong, Angus If to eGarden I or eGarden Ventures (HK), Ltd.: Unit 412, New East Ocean Center 9 Science Museum Road, Tsim Sha Tsui Hong Kong Fax: +852-2312-1909 Attn: Alex Fang EX-5.2 5 u98939exv5w2.txt EX-5.2 OPINION OF LLINKS LAW OFFICE EXHIBIT 5.2 LEGAL OPINION 11TH MAY, 2004 KONGZHONG CORPORATION Suite 809, 8/F, Tower A, Yuetan Building No.2 Yuetan North Street Xicheng District, Beijing China 100045 RE: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD., BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD., AND BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. Dear Sirs, We are a firm of lawyers qualified to practice the law of the People's Republic of China (the "PRC"). We have acted as the PRC counsel to KongZhong Corporation (the "Company"), an exempted company established under the laws of Cayman Islands, and have been requested by the Company to give this letter of opinion, in connection with the offering by the Company of American Depositary Shares ("ADSs") as evidenced by American Depositary Receipts, each representing a certain number of ordinary shares, par value US$0.0000005 (the "Shares") of the Company (the "Offering") and the Company's proposed listing of its ADSs on the Nasdaq National Market. On or about the date hereof, the Company will confidentially submit a registration statement on Form F-1 (the "Registration Statement"), which will include a prospectus (the "Prospectus"), to the United States Securities and Exchange Commission (the "SEC"). I For the purposes of giving this opinion, we have examined such documents as we consider necessary, and have obtained the relevant confirmations from the Company, except where a statement is qualified as to knowledge or awareness (in which case we have with your consent made no or limited inquiry as specified below). In particular, we have examined, among other things, the documents listed in Exhibit "A" (the "Inter-company Agreements") of this opinion. We have been requested to give this opinion with regard to (i) the legality of the ownership structure of KongZhong Information Technologies (Beijing) Co., Ltd. ("KongZhong Beijing"), Beijing AirInbox Information Technologies Co., Ltd. ("Beijing AirInbox") and Beijing Boya Wuji Technologies Co., Ltd. ("Beijing Boya Wuji"), (ii) the validity and enforceability of Inter-company Agreements between the Company, KongZhong Beijing, Beijing AirInbox, Beijing Boya Wuji and the respective shareholders of Beijing AirInbox and Beijing Boya Wuji, and (iii) the legality of the business operations of the Company, KongZhong Beijing, Beijing AirInbox and Beijing Boya Wuji as described in the Prospectus, pursuant to the laws of the PRC in connection with the confidential filing by the Company of the Registration Statement with the SEC. 1 II. In our examination of the above documents and confirmations (the "Documents"), we have assumed that: 1. all signatures, seals and chops are genuine, that all documents submitted to us as originals are authentic and complete and that all documents submitted to us as copies are complete and conform to the originals and that such originals are themselves authentic; 2. all factual statements made in such documents are correct and complete; 3. each party to the Documents, which is incorporated outside of the PRC or who is not a PRC citizen, has the capacity, necessary power, authority and legal right to enter into the Documents, to which it is a party and the Documents have been duly authorized, executed and delivered by each of them; and; 4. in relation to those documents which are governed by foreign laws other than the PRC laws, such documents constitute valid and legally binding obligations of each party thereto under those foreign laws by which they are expressed to be governed, to the extent that they are parties to those documents.. III. As to facts material to the opinions, statements and assumptions expressed herein, we have, with your consent, relied upon oral or written statements and representations of officers and other representatives of the Company and others. The term "enforceable" as used herein means that the obligations assumed by the relevant party under those documents are of a type which the PRC courts enforce. It does not mean that these obligations will necessarily be enforced in all circumstances in accordance with its terms. IV. This legal opinion is confined to and given on the basis of the published and publicly available laws and regulations of the PRC (excluding the laws of the Hong Kong Special Administration Region, Macao Special Administration Region and Taiwan) effective as at the date hereof. We do not guarantee that any change in such laws or in their interpretation after the date hereof will not affect any of the opinions expressed below. We have not made any investigation or enquiry of, and we do not express or imply any opinion as to, the laws of any other jurisdiction (in particular, the laws of the State of New York, United States of America and the laws of Cayman Islands), and we have assumed that no such other laws would affect the opinions expressed below. V. Based on the foregoing and subject to other matters set forth herein, we are of the opinion that: 1. KongZhong Beijing is a company duly incorporated with limited liability and validly existing with legal person status and in good standing under the laws of the PRC. KongZhong Beijing is duly qualified to transact business within the approved business scope specified in its 2 business license. The articles of association of KongZhong Beijing comply with the requirements of applicable PRC laws and are in full force and effect. No steps have been or are being taken and no order or resolution has been made or passed to appoint a receiver, liquidator or similar officer of, or to wind up or dissolve, KongZhong Beijing. 2. All of the registered capital of KongZhong Beijing have been fully paid and are 100% owned directly by the Company, and to the best knowledge of us after due inquiry, free and clear of all liens, encumbrances or claims. The liability of the Company in respect of equity interests in KongZhong Beijing is limited to its investments therein. 3. Beijing AirInbox is a company duly incorporated with limited liability and validly existing with legal person status and in good standing under the laws of the PRC. Beijing AirInbox is duly qualified to transact business within the approved business scope specified in its business license, except as otherwise indicated in paragraph 9 of this legal opinion. The articles of association of Beijing AirInbox comply with the requirements of applicable PRC laws and are in full force and effect. No steps have been or are being taken and no order or resolution has been made or passed to appoint a receiver, liquidator or similar officer of, or to wind up or dissolve Beijing AirInbox. 4. All of the registered capital of Beijing AirInbox have been fully paid and are owned directly by Yunfan Zhou (10%), Songlin Yang (42%), Zhen Huang (3%), and Yang Cha (45%), and to the best knowledge of us after due inquiry, free and clear of all liens, encumbrances or claims, except for the pledge and the equity interests option created under the Inter-company Agreements. 5. Beijing Boya Wuji is a company duly incorporated with limited liability and validly existing under the laws of the PRC. Beijing Boya Wuji is duly qualified to transact business within the approved business scope specified in its business license, except as otherwise indicated in paragraph 10 of this legal opinion. The articles of association of Beijing Boya Wuji comply with the requirements of applicable PRC laws and are in full force and effect. No steps have been or are being taken and no order or resolution has been made or passed to appoint a receiver, liquidator or similar officer of, or to wind up or dissolve Beijing Boya Wuji. 6. All of the registered capital of Beijing Boya Wuji have been fully paid and are owned directly by Yunfan Zhou (50%) and Zhen Huang (50%), and to the best knowledge of us after due inquiry, free and clear of all liens, encumbrances or claims except for the pledge and the equity interests option created under the Inter-company Agreements. 7. All PRC governmental approvals, licenses, permits, consents, authorizations, clearances and qualifications ("Approvals") required for the establishment and maintenance of the enterprise legal person status of each of KongZhong Beijing, Beijing AirInbox and Beijing Boya Wuji 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, except as 3 otherwise indicated in paragraphs 9 and 10 of this legal opinion. Each of KongZhong Beijing, Beijing AirInbox and Beijing Boya Wuji respectively has complied with applicable registration and filing requirements under PRC laws for its establishment and maintenance of its status and existence as an enterprise legal person, except as otherwise indicated in paragraphs 9 and 10 of this legal opinion. 8. KongZhong Beijing has full power and authority and possesses all Approvals necessary to own, use, lease and operate its assets and conduct its business as presently conducted. 9. Beijing AirInbox has full power and authority and possesses all Approvals necessary to own, use, lease and operate its assets and conduct its business except for an inter-regional telecommunication value-added services license for which Beijing AirInbox is in the process of application with the Ministry of Information Industry. 10. Beijing Boya Wuji has been established and obtained the enterprise legal person status. Beijing Boya Wuji is in the process of applying for other Approvals necessary to own, use, lease and operate its assets and conduct its business, including but not limited to an inter-regional telecommunication value-added services license from the Ministry of Information Industry and an Internet culture operation permit from the Ministry of Culture. 11. Each of KongZhong Beijing, Beijing AirInbox and Beijing Boya Wuji (each a "PRC Entity") possesses all valid licenses in full force and effect or otherwise have the legal right to use, or can acquire on reasonable terms, all material licenses, inventions, copyrights, know-how, trademarks, service marks and trade names currently employed by them, and none of KongZhong Beijing, Beijing AirInbox and Beijing Boya Wuji has received any notice of infringement of or conflict with 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 a material adverse effect on the its business or operations. 12. Each PRC Entity has the corporate power to enter into and perform its obligations under each of the Inter-company Agreements to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of, and has authorized, executed and delivered, each of the Inter-company Agreements to which it is a party. Each of the Inter-company Agreements to which such PRC Entity is a party constitutes a valid and legally binding obligation of that PRC Entity in accordance with its terms, subject as to enforceability to bankruptcy, insolvency, reorganization, statute of limitations and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. To ensure the legality, validity, enforceability or admissibility in evidence of each of the Inter-company Agreements in the PRC, it is not necessary that any such document be filed or recorded with any court or other authority in the PRC or that any stamp or similar tax be paid on or in respect of any of the Inter-company Agreements, except that the Trademark License Agreements should be filed with the State Trademark Bureau. 4 13. Each of the shareholders of Beijing AirInbox has executed and delivered each of the Inter-company Agreements to which he or she is a party. Each of the Inter-company Agreements to which each of the shareholders of Beijing AirInbox is a party constitutes a valid and legally binding obligation of each of such shareholders in accordance with its terms, subject as to enforceability to bankruptcy, insolvency, reorganization, statute of limitations and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 14. Each of the shareholders of Beijing Boya Wuji has executed and delivered each of the Inter-company Agreements to which he or she is a party. Each of the Inter-company Agreements to which each of the Shareholders of Beijing Boya Wuji is a party constitutes a valid and legally binding obligation of each of such shareholders in accordance with its terms, subject as to enforceability to bankruptcy, insolvency, reorganization, statute of limitations and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 15. To the best knowledge of us, the execution and delivery by each PRC Entity of, and the performance by each PRC Entity of its obligations under, each of the Inter-company Agreements to which it is a party and the consummation by each PRC Entity of the transactions contemplated therein (a) will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any existing indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which each PRC Entity is a party or by which each PRC Entity is bound or to which any of the properties or assets of each PRC Entity is bound or to which any of the properties or assets of each PRC Entity is subject, except for such conflicts, breaches, violations or defaults which would not (A) individually or in aggregate, have a material adverse effect on the general affairs, management, shareholders' equity, results of operations or position, financial or otherwise, of each PRC Entity, or (B) affect the validity of, or have any material adverse effect on, the issue and sale of the ADSs or the other transactions contemplated in connection with the Offering; (b) will not result in any violation of the provisions of the articles of association or business license of each PRC Entity; and (c) will comply with and not result in any violation of any laws of the PRC. 16. The execution and delivery by each of the shareholders of, and the performance by each of the shareholders of Beijing AirInbox of his or her obligations under each of the Inter-company Agreements to which each of the shareholders of Beijing AirInbox is a party and the consummation by each of the shareholders of Beijing AirInbox of the transactions contemplated therein will not result in any violation of any laws of the PRC. 17. The execution and delivery by each of the shareholders of, and the performance by each of the shareholders of Beijing Boya Wuji of his or her obligations under each of the Inter-company Agreements to which each of the shareholders of Beijing Boya Wuji is a party and the consummation by each of the shareholders of Beijing Boya Wuji of the 5 transactions contemplated therein will not result in any violation of any laws of the PRC. 18. To the best of our knowledge after due inquiry, there are no legal, administrative, arbitration or other proceedings which has challenged the legality, effectiveness or validity of the Inter-company Agreements individually or taken as a whole and, no such proceedings are threatened or contemplated by any governmental or regulatory authority or any other person. To the best of our knowledge, none of KongZhong Beijing, Beijing AirInbox and Beijing Boya Wuji has received any oral or written notice or proceedings relating to the suspension, revocation or modification of any of its respective Approvals. 19. To the best knowledge of us after due inquiry, there is no material Chinese legal or governmental proceedings pending or threatened to which the Company, KongZhong Beijing, Beijing AirInbox or Beijing Boya Wuji is a party or to which any of the properties of the Company, KongZhong Beijing, Beijing AirInbox or Beijing Boya Wuji is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or of any statutes, regulation, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required. 20. To the best knowledge of us, KongZhong Beijing, Beijing AirInbox and Beijing Boya Wuji are not (a) in violation of their respective Articles of Association, business licenses and any other constitutional documents; or (b) in material default in the performance or observance of any material agreement known to us or by which any of their respective material properties may be bound. 21. None of KongZhong Beijing, Beijing AirInbox and Beijing Boya Wuji will have any material PRC tax liability as a consequence of the Offering that have not been disclosed in the Prospectus. 22. Based on our participation, review and reliance as described above, we advise you that no facts came to our attention that caused us to believe that, the Statements in the Prospectus under "Risk Factors--Risks Relating to Our Business-- PRC laws and regulations restrict foreign investment in China's telecommunications services industry, and substantial uncertainties exist with respect to the contractual arrangements with Beijing AirInbox and Beijing Boya Wuji due to uncertainties regarding the interpretation and application of current or future PRC laws and regulations", "Risk Factors--Risks Relating to Our Business-- Our contractual arrangements with Beijing AirInbox and Beijing Boya Wuji may not be as effective in providing operational control as direct ownership of this businesses", "Risk Factors--Risks Relating to Our Industry-- The laws and regulations governing the wireless value-added telecommunications and Internet industry in China are developing and subject to future changes. Substantial uncertainties exist as to the interpretation and implementation of those laws and regulations.", "Risk Factors--Risks Related to People's Republic of China", "Enforceability of Civil Liabilities" and "Regulation", insofar as they purport to describe the 6 provisions of PRC laws and documents referred to therein, at the respective time they became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 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," "Enforceability of Civil Liabilities," and " Regulations" in the Prospectus included in such Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the regulations promulgated thereunder. The primary purpose of our professional engagement was not to establish or confirm factual matters or financial or quantitative information. Therefore, we are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statements or the Prospectus, except to the extent expressly set forth in the numbered paragraph 22 of this opinion, and have not made an independent check or verification thereof except as aforesaid. However, in the course of acting as counsel to the Company in connection with the preparation of the Registration Statements and Prospectus, we reviewed the Registration Statements and the Prospectus, and participated in conferences and telephone conversations with officers and other representatives of the Company, the independent public accountants for the Company, representatives of and counsel to the underwriters, during which conferences and conversations the contents of the Registration Statements and the Prospectus and related matters were discussed. We also reviewed and relied upon certain corporate records and documents and oral and written statements of officers and other representatives of the Company and others as to the existence and consequence of certain factual and other matters. VI. This opinion is addressed to KongZhong Corporation solely for its benefit, and may be relied upon only by KongZhong Corporation. It may not be relied upon, quoted or referred to for any other purpose or by anyone else and may not be disclosed to any other person without our prior written consent. Yours faithfully, /s/ Llinks Law Office LLINKS LAW OFFICE 7 EXHIBIT A INTER-COMPANY AGREEMENTS 1. Loan Agreement among the Company, as the lender, and Yunfan Zhou, Songlin Yang and Zhen Huang, each as a borrower, dated March 31, 2004; 2. Loan Agreement among the Company, as the lender, and Yang Cha and Songlin Yang, each as a borrower, dated March 31, 2004; 3. Amended and Restated Option Agreement among KongZhong Beijing, Yang Cha, Songlin Yang, Yunfan Zhou and Zhen Huang, each as a shareholder of Beijing AirInbox dated May 10, 2004; 4. Option Agreement among KongZhong Beijing, Yunfan Zhou and Zhen Huang, each as a shareholder of Beijing Boya Wuji dated March 31, 2004; 5. Exclusive Technical Consulting and Services Agreement between KongZhong Beijing and Beijing AirInbox dated March 31, 2004; 6. Exclusive Technical Consulting and Services Agreement between KongZhong Beijing and Beijing Boya Wuji dated March 31, 2004; 7. Amended and Restated Equity Pledge Agreement among KongZhong Beijing, as the pledgee, and Yunfan Zhou, Songlin Yang, Zhen Huang and Yang Cha, each as a pledgor, dated May 10, 2004; 8. Equity Pledge Agreement among KongZhong Beijing, as the pledgee, and Yunfan Zhou and ZhenHuang, each as a pledgor, dated March 31, 2004; 9. Amended and Restated Trademark License Agreement between KongZhong Beijing and Beijing AirInbox dated May 10, 2004; 10. Amended and Restated Trademark License Agreement between KongZhong Beijing and Beijing Boya Wuji dated May 10, 2004; 11. Domain Name License Agreement between KongZhong Beijing and Beijing AirInbox dated March 31, 2004; 12. Domain Name License Agreement between KongZhong Beijing and Beijing Boya Wuji dated March 31, 2004; 13. Amended and Restated Business Operation Agreement among KongZhong Beijing, Beijing AirInbox, Yunfan Zhou, Songlin Yang, Zhen Huang and Yang Cha dated May 10, 8 2004; 14. Business Operation Agreement among KongZhong Beijing, Beijing Boya Wuji, Yunfan Zhou and Zhen Huang dated March 31, 2004; 15. Amended and Restated Power of Attorney issued by Yunfan Zhou in connection with Beijing AirInbox dated May 10, 2004; 16. Amended and Restated Power of Attorney issued by Songlin Yang in connection with Beijing AirInbox dated May 10, 2004; 17. Amended and Restated Power of Attorney issued by Zhen Huang in connection with Beijing AirInbox dated May 10, 2004; 18. Power of Attorney issued by Yang Cha in connection with Beijing AirInbox dated May 10, 2004; 19. Power of Attorney issued by Yunfan Zhou in connection with Beijing Boya Wuji dated March 31, 2004; and 20. Power of Attorney issued by Zhen Huang in connection with Beijing Boya Wuji dated March 31, 2004; and 21. Agreement among the Company, KongZhong Beijing, Beijing AirInbox, Yunfan Zhou, Songlin Yang and Zhen Huang in connection with the Inter-Company Agreements dated March 31, 2004. 9 EX-10.1 6 u98939exv10w1.txt EX-10.1 LOAN AGREEMENT MAR 31, 2004 S&C comments 5.10.2004 [Translation of Chinese original] EXHIBIT 10.1 LOAN AGREEMENT The Loan Agreement (the "Agreement") is entered into as of March 31, 2004 in Beijing by and between the following parties. KONGZHONG CORPORATION (the "Lender") Legal Representative: Yunfan Zhou And YUNFAN ZHOU, SONGLIN YANG, ZHEN HUANG (jointly called the "Borrower") WHEREAS, 1. The Lender and Yunfan Zhou has concluded a loan agreement on May 7, 2002,under which the lender supplies a loan in US dollars equal to 700,000RMB and Yunfan Zhou has drawn all of the loan which is still outstanding till now. Yunfan Zhou and the Lender has made supplements to the above said agreement on September 26,2003, under which, the lender provides another loan in US dollars equal to 300,000RMB, and Yunfan Zhou has drawn all of the loan which is still outstanding till now. 2. Songlin Yang and the Lender has concluded a loan agreement on May 7, 2002,under which the lender supplies a loan in US dollars equal to 700,000RMB and Songlin Yang has drawn all of the loan which is still outstanding till now. 3. Zhen Huang and the Lender has concluded agreement on September 26,2003, under which, the lender provides the loan in US dollars equal to 300,000RMB, and Zhen Huang has drawn all of the loan which is still outstanding till now. 4. Yunfan Zhou is a shareholder of Beijing AirInBox Information Technologies Co., Ltd owing 50% shares, Songlin Yang is a shareholder of Beijing AirInBox Information Technologies Co., Ltd owing 35% shares, and Zhen Huang is a shareholder of Beijing AirInBox Information Technologies Co., Ltd owing 15% shares. 5. The borrower is expecting financial support from the Lender. THEREFORE, THE PARTIES, THROUGH FRIENDLY NEGOTIATION BASED ON EQUAL AND MUTUAL BENEFIT, AGREE AS FOLLOWS IN ORDER TO CONFIRM THE PERFORMANCE OF THE ABOVE MENTIONED LOAN AGREEMENTS AND SO TO FURTHER REGULATE THE RIGHTS AND OBLIGATIONS OF THE PARTIES: 1 1. PURPOSE AND SUM OF THE LOAN 1.1 The Lender has provided Yunfan Zhou a loan with a principal in US dollars equal to RMB 1,000,000 (one million), provided Songlin Yang a loan with a principal in US dollars equal to RMB 700,000 (seven hundred thousand), provided Zhen Huang a loan with a principal in US dollars equal to RMB 300,000 (three hundred thousand) in accordance with the terms and conditions set forth in this Agreement (the principle sum involved in Agreement shall respectively refers to that of different borrowers). 1.2 The Borrower hereby confirms that they have drawn all the loans under the above 1.1 and they are still outstanding till now. 2. LOAN TERMS 2.1 The term for such loan will be ten (10) years, calculated from the date when the Borrower actually draws the loan. The term under this Agreement shall be automatically extended for another ten years except the written notice to the opposite is given by the Lender three months prior to the expiration of this Agreement. 2.2 The Borrower hereby agrees and warrants that such loan provided by the Lender shall be used only for the investment in the Beijing AirInBox Information Technologies Co., Ltd. Without the Lender's prior written consent, the Borrower shall not transfer or pledge its equity interest hereunder to any other third party. 2.3 The Lender and the Borrower jointly agree and confirm that the Borrower shall not repay the loan in advance except for Lender's requirement or the expiration of this agreement. The Borrower shall repay the loan only in the following way and amount: the Borrower shall repay the loan only by all the fund obtained by the Borrower from transferring all of the Borrower's equity in Beijing AirInBox Information Technologies Co., Ltd to KongZhong Information Technologies (Beijing) Co., Ltd or to any other third party designated by KongZhong Information Technology (Beijing) Co., Ltd. All of the Borrower's equity in Beijing AirInBox Information Technologies Co., Ltd is transferred as stipulated above and if all the fund thereof is repaid to the Lender by the Borrower, all the outstanding loan hereunder shall be regarded as repaid. 2.4 The Lender and the Borrower jointly agree and confirm that the Borrower shall immediately repay the loan in advance in case any one of the following occurs: 2.4.1 the Borrower dies or becomes a person with no or limited capacity for civil rights; 2.4.2 Yunfan Zhou and Nick Yang (the current president of KongZhong Corporation) quit or are dismissed from the Lender or the Lender's affiliated corporations (if Yunfan Zhou quits or is dismissed, the loan to be immediately repaid in advance shall refer to the 2 loan of himself; if Nick Yang quits or is dismissed, the loan to be immediately repaid in advance shall refer to the loan of Songlin Yang and Zhen Huang respectively); 2.4.3 The Borrower commits crime or is involved in crime; 2.4.4 Any third party claims debt of the Borrower exceeding RMB500,000 (five hundred thousand); 2.4.5 The foreign investors are approved to invest in value-added telecommunication business and such business has commenced to be examined and approved by relevant departments in charge according to laws in China. 3. REPRESENTATIONS AND WARRANTIES 3.1 The Borrower makes the following representations and warranties to the Lender, and confirm that the Lender execute and perform this agreement in reliance of such representations and warranties: 3.1.1 The Borrower has the full capacity for civil rights and has the power to enter into this Agreement; 3.1.2 The execution of this Agreement of the Borrower will not violate any law or binding obligations; 3.1.3 This Agreement shall constitute binding obligations of the Borrower; 3.1.4 The Borrower neither commits criminal behaviors nor is involved in criminal activity; 3.1.5 Except for the prior consent of the Lender, the Borrower shall not create any pledge over part or whole of the Borrower's shareholder's right in Beijing AirInBox Information Technologies Co., Ltd or any priority for any third party with the beneficiary neither the Lender nor its subsidiaries; 3.2 The Lender makes the following representations and warranties to the Borrower: 3.2.1 The Lender is a company registered and validly existing under the laws of Cayman Islands; 3.2.2 The execution and performance of this Agreement by the Lender is in compliance with the business scope of the Lender and the power of the Lender. The Lender has taken proper measures and has gained authorizations and approvals for the execution and performance of this Agreement from the third party and governmental departments in accordance with the limitations of the laws and contracts which are binding or bear influences over the Lender; 3 3.2.3 This Agreement shall constitute the legal, valid and binding obligations of the Lender, which is enforceable against the Lender in accordance with its terms upon its execution. 4. COMMITMENTS OF BORROWER 4.1 The Borrower, as the shareholder of Beijing AirInBox Information Technologies Co., Ltd, hereby undertakes to procure Beijing AirInBox Information Technologies Co., Ltd to observe the following terms with all efforts during the term of this Agreement: 4.1.1 It shall not modify in any way its articles of association or alter its shareholding structure without the prior written consent of the Lender; 4.1.2 It shall maintain the operation of its business according to normal financial and commercial codes and practices; 4.1.3 It shall not transfer or dispose of any material asset, or create any other security interest neither for the Lender nor for its subsidiaries over the same without the prior written consent of the Lender; 4.1.4 It shall not provide any warranty or assume any debt for any third party which is beyond its normal daily business scope without the prior written consent of the Lender; 4.1.5 It shall conduct all of its operations in the ordinary course of business and maintain its asset value; 4.1.6 It shall not enter into any material contracts without the prior written consent of the Lender, except those entered into in the ordinary course of business (for the purpose of this paragraph, any contract with a value exceeding RMB 100,000 shall be deemed to be a material contract); 4.1.7 It shall not extend any loan or credit to any party except for the prior written consent of The Lender; 4.1.8 It shall provide the information of its finance or business in time to the Lender as required by the Lender; 4.1.9 It shall insure the assurances in the amount as required by the Lender; 4.1.10 It shall not merge with or invest in any third party without the prior written consent of the Lender; 4.1.11 It shall notify the Lender immediately when any legal action, arbitration or administrative procedure relating to its assets, operations and incomes occurs or is likely to occur; 4 4.1.12 It shall not declare in any way any bonus or dividends for its shareholders without the prior written consent of the Lender; 4.2 The Borrower further commit to the Lender within the term of this Agreement as follows: 4.2.1 It shall take all the measures to guarantee and maintain its identification and status as a shareholder of Beijing AirInBox Information Technologies Co., Ltd; 4.2.2 it shall not transfer, dispose of any of its share rights in Beijing AirInBox Information Technologies Co., Ltd, or create any guarantee in any way; 4.2.3 it shall procure that the shareholders' meeting of Beijing AirInBox Information Technologies Co., Ltd shall not pass any decision about its merger with or investment in any third party without the prior written consent of the Lender; 4.2.4 It shall notify the Lender immediately when any legal action, arbitration or administrative procedure relating to its shareholder's right in Beijing AirInBox Information Technologies Co., Ltd, occurred, occurs or is likely to occur; 4.2.5 it shall not carry out any action bearing material influences on the assets, business, obligations or liabilities of Beijing AirInBox Information Technologies Co., Ltd without prior written consent of the Lender; 4.2.6 it shall immediately and unconditionally transfer all or part of it shares in Beijing AirInBox Information Technologies Co., Ltd to KongZhong Information Technology(Beijing) Co.,Ltd or any third party designated by KongZhong Information Technology(Beijing) Co.,Ltd in accordance with Chinese laws and procure all the other shareholders of Beijing AirInBox Information Technologies Co., Ltd waiver any prior right over purchasing such shares, as required by the KongZhong Information Technology(Beijing) Co.,Ltd; 4.2.7 it shall procure all the other shareholders of Beijing AirInBox Information Technologies Co., Ltd immediately and unconditionally transfer all or part of their shares in Beijing AirInBox Information Technologies Co., Ltd to KongZhong Information Technology(Beijing) Co.,Ltd or any third party designated by KongZhong Information Technology(Beijing) Co.,Ltd in accordance with Chinese laws, as required by the KongZhong Information Technology(Beijing) Co.,Ltd; 4.2.8 it shall strictly observe its commitments and guarantees under this Agreement and other related agreements. 5. DEFAULT 5 If the Borrower fails to perform its repayment obligation pursuant to this Agreement, an overdue interest at the rate of 0.01% per day upon the outstanding amount of the loan shall be payable to the Lender. 6. CONFIDENTIALITY 6.1 The Parties acknowledge and confirm to take all possible measures to keep confidential all the confidential materials and information (the Confidential Information) they get to know by this Agreement. The Parties shall not disclose, provide or transfer such Confidential Information to any third party without the prior written consent of the other Party. In case of the termination of this Agreement, the accepter of the Confidential Information shall give back or destroy all the files, materials or software as required by the provider, and delete any of the Confidential Information from any memory equipments and discontinue using such Confidential Information. 6.2 The Parties agree that this article shall survive the modification and termination of this Agreement. 7. NOTICES Unless a written notice of change of address is issued, all correspondence relating to this Agreement shall be delivered in person, or by registered or prepaid mail, or by recognized express services or facsimile to the addresses appointed by the other party from time to time. 8. GOVERNING LAW AND DISPUTE SETTLEMENT 8.1 This Agreement shall be governed by and construed in accordance with the laws of New York State. 8.2 All disputes arising from the interpretation and performance of this Agreement shall initially be resolved by amicable negotiations. If no settlement is concluded, either Party shall have right to submit the dispute to China International Economic and Trade Arbitration Commission (the "CIETAC") and the arbitration proceedings shall take place in Beijing in accordance with the current rules of CIETAC and in English. The arbitration award shall be final and binding upon all the Parties. 8.3 In case of any disputes arising out of the interpretation and performance of this Agreement or any pending arbitration of such dispute, each Party shall continue to perform their obligations under this Agreement, except for the matters involved in the disputes. 9 FORCE MAJEURE 9.1 Force Majeure refers to any accident which is beyond the Party's control and is inevitable with the reasonable care of the other Party who shall be influenced, including 6 but not limited to governmental activity, natural force, fire, explosion, storm, flood, earthquake, tide, lightening or war. However, the credit, capital or shortage of financing shall not be deemed as the matters beyond one Party's reasonable control. The Party influenced by the Force Majeure and seeking for exemption hereunder shall notify the other Party as soon as possible and inform the other Party of the measures to take in order to accomplish the performance of this Agreement. 9.2 In case the performance of this Agreement is delayed or cumbered by the above defined Force Majeure, the Party who is influenced by the Force Majeure shall not bear any liability within the scope of delay and cumbrance, and shall take all the proper measures to reduce or eliminate the influence of Force Majeure, and shall make efforts to renew the performance of its obligations hereunder which has been delayed or cumbered by the Force Majeure. Each Party shall try best to renew the performance of this Agreement once the Force Majeure is eliminated. 10 MISCELLANEOUS 10.1 Any modification, termination or waiver of this Agreement shall not take effect without the written consent of each party; 10.2 The Borrower shall not transfer its rights and obligations hereunder to any third party without the prior written consent of the Lender; 10.3 In case any terms and stipulations in this Agreement is regarded as illegal or cannot be performed in accordance with the applicable law, it shall be deemed to be deleted from this Agreement and lose its effect and this Agreement shall remain its effect and be treated as without it from the very beginning. Each Party shall replace the deleted stipulations with those lawful and effective ones, which are acceptable to Party A, through mutual negotiation. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed on their behalf by a duly authorized representative as of the Effective Date first written above. 7 (No text on this page) PARTY A: KONGZHONG CORPORATION Authorized Representative: /s/ Nick Yang ------------- PARTY B: YUNFAN ZHOU Signature: /s/ Yunfan Zhou PARTY C: SONGLIN YANG Signature: /s/ Songlin Yang PARTY D: ZHEN HUANG Signature: /s/ Zhen Huang 8 EX-10.2 7 u98939exv10w2.txt EX-10.2 LOAN AGREEMENT MAR 31, 2004 [Translation of Chinese original] EXHIBIT 10.2 LOAN AGREEMENT The Loan Agreement (the "Agreement") is entered into as of March 31, 2004 in Beijing by and between the following parties . KONGZHONG CORPORATION (the "Lender") Legal Representative: Yunfan Zhou And SONGLIN YANG, YANG CHA (jointly called the "Borrower") WHEREAS, 1. Yang Cha is desirous of subscribing in the aggregate RMB4,500,000 of the registered capital of Beijing AirInBox Information Technologies Co., Ltd. ("Beijing AirInBox") and Songlin Yang is desirous of subscribing in the aggregate RMB3,500,000 of the registered capital of Beijing AirInBox. 2. The borrowers are desirous of receiving financial support from the Lender. THEREFORE, the Parties, through friendly negotiation based on equal and mutual benefit, agree as follows: 1. PURPOSE AND SUM OF THE LOAN 1.1 Subject to the terms and conditions set forth in this Agreement, Lender agrees to lend to Yang Cha in the principal amount of up to RMB 4,500,000 and lend to Songlin Yang in the principal amount of up to RMB3,500,000 (the "Loans"), the loans shall be paid in the legal tender ("USD") of the United States of America. Subject to the conditions precedent set forth below, Lender shall transfer in one lump sum the balance of the principal amount a Borrower is entitled to under this Agreement within 7 days of receipt by Lender of a drawdown request delivered by such Borrower, Borrower shall confirm in writing the receipt of the payment immediately upon the Borrower's receipt of the payment. No principal shall be disbursed unless a drawdown request in writing is delivered with 180 days of the execution of this Agreement, Borrower shall confirm in writing the receipt of the payment immediately upon the Borrower's receipt of the payment. 2. LOAN TERMS 2.1 The term for such loan will be ten (10) years, calculated from the date when the 1 Borrower actually draws the loan. The term under this Agreement shall be automatically extended for another ten years except the written notice to the opposite is given by the Lender three months prior to the expiration of this Agreement. 2.2 The Borrower hereby agrees and warrants that such loan provided by the Lender shall be used only for the investment in the Beijing AirInBox Information Technologies Co.,Ltd. Without the Lender's prior written consent, the Borrower shall not transfer or pledge its equity interest hereunder to any other third party. 2.3 The Lender and the Borrower jointly agree and confirm that the Borrower shall not repay the loan in advance except for Lender's requirement or the expiration of this agreement. The Borrower shall repay the loan only in the following way and amount: the Borrower shall repay the loan only by all the fund obtained by the Borrower from transferring all of the Borrower's equity in Beijing AirInBox Information Technologies Co., Ltd to KongZhong Information Technology(Beijing) Co.,Ltd or to any other third party designated by KongZhong Information Technology (Beijing) Co.,Ltd. All of the Borrower's equity in Beijing AirInBox Information Technologies Co., Ltd is transferred as stipulated above and if all the fund thereof is repaid to the Lender by the Borrower, all the outstanding loan hereunder shall be regarded as repaid. 2.4 The Lender and the Borrower jointly agree and confirm that the Borrower shall immediately repay the loan in advance in case any one of the following occurs: 2.4.1 the Borrower dies or becomes a person with no or limited capacity for civil rights; 2.4.2 Nick Yang (the current president of KongZhong Corporation) or Yang Cha quit or are dismissed from the Lender or the Lender's affiliated corporations if Nick Yang quits or is dismissed, the loan to be immediately repaid in advance shall refer to the loan of Songlin Yang and (if Yang Cha quits or is dismissed, the loan to be immediately repaid in advance shall refer to the loan of himself;); 2.4.3 The Borrower commits crime or is involved in crime; 2.4.4 Any third party claims debt of the Borrower exceeding RMB500,000 (five hundred thousand); 2.4.5 The foreign investors are approved to invest in value-added telecommunication business and such business has commenced to be examined and approved by relevant departments in charge according to laws in China. 3. CONDITIONS PRECEDENT TO THE DISBURSMENT OF THE LOANS 3.1 Lender shall not be obliged to make any disbursement of the Loans unless all of the following conditions have been satisfied or written waiver to all the conditions that have not been satisfied has been obtained: 2 3.1.1 Borrower has deliver the written drawdown request pursuant to section 1.2 of this Agreement and the drawdown amount requested in the request does not exceed the available balance. 3.1.2 All the representations and warranties made by the Borrower are correct, accurate, complete and not misleading. 3.1.3 Borrower is not in breach of the covenants and undertakings made by such Borrower in Article 6 hereof. 4. REPRESENTATIONS AND WARRANTIES 4.1 The Borrower makes the following representations and warranties to the Lender, and confirm that the Lender execute and perform this agreement in reliance of such representations and warranties: 4.1.1 The Borrower has the full capacity for civil rights and has the power to enter into this Agreement; 4.1.2 The execution of this Agreement of the Borrower will not violate any law or binding obligations; 4.1.3 This Agreement shall constitute binding obligations of the Borrower; 4.1.4 The Borrower neither commits criminal behaviors nor is involved in criminal activity; 4.1.5 Except for the prior consent of the Lender, the Borrower shall not create any pledge over part or whole of the Borrower's shareholder's right in Beijing AirInBox Information Technologies Co., Ltd or any priority for any third party with the beneficiary neither the Lender nor its subsidiaries; 4.2 The Lender makes the following representations and warranties to the Borrower: 4.2.1 The Lender is a company registered and validly existing under the laws of Cayman Islands; 4.2.2 The execution and performance of this Agreement by the Lender is in compliance with the business scope of the Lender and the power of the Lender. The Lender has taken proper measures and has gained authorizations and approvals for the execution and performance of this Agreement from the third party and governmental departments in accordance with the limitations of the laws and contracts which are binding or bear influences over the Lender; 4.2.3 This Agreement shall constitute the legal, valid and binding obligations of the Lender, which is enforceable against the Lender in accordance with its terms upon its execution. 3 5. COMMITMENTS OF BORROWER 5.1 The Borrower, as the shareholder of Beijing AirInBox Information Technologies Co., Ltd, with respect to Yang Cha, once he becomes a shareholder of Beijing AirInBox Information Technologies Co., Ltd. pursuant to the applicable laws and regulations) hereby undertakes to cause Beijing AirInBox Information Technologies Co., Ltd to observe the following terms with all efforts during the term of this Agreement: 5.1.1 It shall not modify in any way its articles of association or alter its shareholding structure without the prior written consent of the Lender; 5.1.2 It shall maintain the operation of its business according to normal financial and commercial codes and practices; 5.1.3 It shall not transfer or dispose of any material asset, or create any other security interest neither for the Lender nor for its subsidiaries over the same without the prior written consent of the Lender; 5.1.4 It shall not provide any warranty or assume any debt for any third party which is beyond its normal daily business scope without the prior written consent of the Lender; 5.1.5 It shall conduct all of its operations in the ordinary course of business and maintain its asset value; 5.1.6 It shall not enter into any material contracts without the prior written consent of the Lender, except those entered into in the ordinary course of business (for the purpose of this paragraph, any contract with a value exceeding RMB 100,000 shall be deemed to be a material contract); 5.1.7 It shall not extend any loan or credit to any party except for the prior written consent of The Lender; 5.1.8 It shall provide the information of its finance or business in time to the Lender as required by the Lender; 5.1.9 It shall insure the assurances in the amount as required by the Lender; 5.1.10 It shall not merge with or invest in any third party without the prior written consent of the Lender; 5.1.11 It shall notify the Lender immediately when any legal action, arbitration or administrative procedure relating to its assets, operations and incomes occurs or is likely to occur; 5.1.12 It shall not declare in any way any bonus or dividends for its shareholders 4 without the prior written consent of the Lender; 5.2 The Borrowers further commit to the Lender within the term of this Agreement as follows: 5.2.1 It shall take all the measures to guarantee and maintain its identification and status as a shareholder of Beijing AirInBox Information Technologies Co., Ltd; 5.2.2 it shall not transfer, dispose of any of its share rights in Beijing AirInBox Information Technologies Co., Ltd, or create any guarantee in any way; 5.2.3 it shall procure that the shareholders' meeting of Beijing AirInBox Information Technologies Co., Ltd shall not pass any decision about its merger with or investment in any third party without the prior written consent of the Lender; 5.2.4 It shall notify the Lender immediately when any legal action, arbitration or administrative procedure relating to its shareholder's right in Beijing AirInBox Information Technologies Co., Ltd, occurred, occurs or is likely to occur; 5.2.5 it shall not carry out any action bearing material influences on the assets, business, obligations or liabilities of Beijing AirInBox Information Technologies Co., Ltd without prior written consent of the Lender; 5.2.6 it shall immediately and unconditionally transfer all or part of it shares in Beijing AirInBox Information Technologies Co., Ltd to KongZhong Information Technologies (Beijing) Co.,Ltd or any third party designated by KongZhong Information Technologies (Beijing) Co.,Ltd in accordance with Chinese laws and procure all the other shareholders of Beijing AirInBox Information Technologies Co., Ltd waiver any prior right over purchasing such shares, as required by the KongZhong Information Technologies (Beijing) Co.,Ltd; 5.2.7 it shall procure all the other shareholders of Beijing AirInBox Information Technologies Co., Ltd immediately and unconditionally transfer all or part of their shares in Beijing AirInBox Information Technologies Co., Ltd to KongZhong Information Technologies (Beijing) Co.,Ltd or any third party designated by KongZhong Information Technologies (Beijing) Co.,Ltd in accordance with Chinese laws, as required by the KongZhong Information Technologies (Beijing) Co.,Ltd; 5.2.8 it shall strictly observe its commitments and guarantees under this Agreement and other related agreements. 5.3 Each Borrower hereby covenants and undertakes that simultaneously with the accomplishment by the Borrower of shareholder status due to investment with the fund borrowed under this Agreement, the Borrower shall: 5.3.1 pledge all equity interest in Beijing AirInBox Information Technologies Co., 5 Ltd. the Borrower has procured after the execution of this Agreement for the benefit of KongZhong Information Technologies (Beijing) Co., Ltd. to guarantee the due payment of the service fees under the Exclusive Technology and Service Agreement and the licensing fees under the Domain Name Licensing Agreement and the Trademark Licensing Agreement, and enter into equity ledge agreement with KongZhong Information Technologies (Beijing) Co., Ltd. with terms and format identical to the document attached hereto as Appendix 1; 5.3.2 appoint and authorize individuals designated by KongZhong Information Technologies (Beijing) Co., Ltd. to exercise the rights and powers pertinent to the equity interest in Beijing AirInBox Information technologies Co., Ltd. held by the Borrower after the execution of this Agreement and sign and deliver a power of attorney identical to the form attached hereto as Appendix 2; 5.3.3 confirm and ratify in the capacity of a shareholder of Beijing AirInBox Information Technologies Co., Ltd. that the Borrower is bound by the Business Operation Agreement entered into by KongZhong Information Technologies (Beijing) Co., Ltd., Beijing AirInBox Information Technologies Co., Ltd., Yunfan Zhou, Songlin Yang and Zhen Huang on March 31, 2004 (attached hereto as Appendix 3); 5.3.4 confirm and agree that KongZhong Information Technologies Co., Ltd. shall have the right to acquire or to designate any third party of its choice to acquire from time to time at RMB 1 yuan for RMB 1 yuan of the registered capital of Beijing AirInBox Information Technologies Co., Ltd. part of all of the equity interest of Beijing AirInBox Information Technologies Co., Ltd. from the Borrower and enter into Share Option Agreement identical to the one entered into by KongZhong Information Technologies Co., Ltd., Yunfan Zhou, Songlin Yang and Zhen Huang on September 26, 2003 (attached hereto as Appendix 4). 6. DEFAULT If the Borrower fails to perform its repayment obligation pursuant to this Agreement, an overdue interest at the rate of 0.01% per day upon the outstanding amount of the loan shall be payable to the Lender. 7. CONFIDENTIALITY 7.1 The Parties acknowledge and confirm to take all possible measures to keep confidential all the confidential materials and information (the Confidential Information) they get to know by this Agreement. The Parties shall not disclose, provide or transfer such Confidential Information to any third party without the prior written consent of the other Party. In case of the termination of this Agreement, the accepter of the Confidential Information shall give back or destroy all the files, materials or software as required by the provider, and delete any of the Confidential Information from any memory equipments and discontinue using such Confidential Information. 6 7.2 The Parties agree that this article shall survive the modification and termination of this Agreement. 8. NOTICES Unless a written notice of change of address is issued, all correspondence relating to this Agreement shall be delivered in person, or by registered or prepaid mail, or by recognized express services or facsimile to the addresses appointed by the other party from time to time. 9. GOVERNING LAW AND DISPUTE SETTLEMENT 9.1 This Agreement shall be governed by and construed in accordance with the laws of New York State. 9.2 All disputes arising from the interpretation and performance of this Agreement shall initially be resolved by amicable negotiations. If no settlement is concluded, either Party shall have right to submit the dispute to China International Economic and Trade Arbitration Commission (the "CIETAC") and the arbitration proceedings shall take place in Beijing in accordance with the current rules of CIETAC and in English. The arbitration award shall be final and binding upon all the Parties. 9.3 In case of any disputes arising out of the interpretation and performance of this Agreement or any pending arbitration of such dispute, each Party shall continue to perform their obligations under this Agreement, except for the maters involved in the disputes. 10 FORCE MAJEURE 10.1 Force Majeure refers to any accident which is beyond the Party's control and is inevitable with the reasonable care of the other Party who shall be influenced, including but not limited to governmental activity, natural force, fire, explosion, storm, flood, earthquake, tide, lightening or war. However, the credit, capital or shortage of financing shall not be deemed as the matters beyond one Party's reasonable control. The Party influenced by the Force Majuere and seeking for exemption hereunder shall notify the other Party as soon as possible and inform the other Party of the measures to take in order to accomplish the performance of this Agreement. 10.2 In case the performance of this Agreement is delayed or cumbered by the above defined Force Majuere, the Party who is influenced by the Force Majuere shall not bear any liability within the scope of delay and cumbrance, and shall take all the proper measures to reduce or eliminate the influence of Force Majuere, and shall make efforts to renew the performance of its obligations hereunder which has been delayed or cumbered by the Force Majuere. Each Party shall try best to renew the performance of this Agreement once the Force Majuere is eliminated. 11 MISCELLANEOUS 7 11.1 Any modification, termination or waiver of this Agreement shall not take effect without the written consent of each party; 11.2 Any Appendix attached hereto shall be of the same effect as this Agreement. 11.3 The Borrower shall not transfer its rights and obligations hereunder to any third party without the prior written consent of the Lender; 11.4 In case any terms and stipulations in this Agreement is regarded as illegal or cannot be performed in accordance with the applicable law, it shall be deemed to be deleted from this Agreement and lose its effect and this Agreement shall remain its effect and be treated as without it from the very beginning. Each Party shall replace the deleted stipulations with those lawful and effective ones, which are acceptable to Party A, through mutual negotiation. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed on their behalf by a duly authorized representative as of the Effective Date first written above. 8 (No text on this page) KONGZHONG CORPORATION Authorized Representative: /s/ Richard Wei -------------------- SONGLIN YANG Signature: /s/ Songlin Yang YANG CHA Signature: /s/ Yang Cha 9 EX-10.3 8 u98939exv10w3.txt EX-10.3 EXCLUSIVE TECH & CONSULTING AGMT OCT 10,03 [Translation of Chinese original] - -------------------------------------------------------------------------------- EXHIBIT 10.3 EXCLUSIVE TECHNICAL CONSULTING AND SERVICES AGREEMENT This Exclusive Technical Consulting and Services Agreement (the "Agreement") is entered into in Beijing as of October 10, 2003, between the following two parties: PARTY A:KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. PARTY B:BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD. WHEREAS, 1. Party A, a wholly foreign-owned enterprise registered in People's Republic of China (the "PRC", excluding Hong Kong Special Administration District, Macao Special Administration District and Taiwan area , for the purpose of this "Agreement" ) under the laws of PRC, which owns resources to provide the technical and consulting services. 2. Party B, a wholly domestic invested company registered in PRC, is licensed by relevant government authorities to engage in the business of the Internet information provision service and value-added telecommunication service; 3. Party A agrees to be the provider of technical and consulting services to Party B, and Party B hereby agrees to accept such technical and consulting services; WHEREAS, Party A and Party B, through friendly negotiation and based on the equality and mutual benefit, enter into the Agreement as follows: 1. TECHNICAL CONSULTING AND SERVICES; OWNERSHIP AND EXCLUSIVE INTERESTS 1.1 During the term of this Agreement, Party A agrees to provide the relevant technical consulting and services to Party B (the content is specified in Appendix 1) in accordance with the Agreement. 1.2 Party B hereby agrees to accept such technical and consulting services. Party B further agrees that, during the term of this Agreement, it shall not utilize any third party to provide such technical and consulting services for such above-mentioned business without the prior written consent of Party A. 1.3 Party A shall be the sole and exclusive owner of all rights, title, interests and intellectual property rights arising from the performance of this Agreement, including, but not limited to, any copyrights, patent, know-how, commercial secrets and otherwise, whether developed by Party A or Party B based on Party 1 A's intellectual property. 1.4 Party B covenant that Party A or its affiliated companies have the priority on cooperation with Party B in the same condition in case Party B is going to cooperate with other enterprises in respect of any business. 2. CALCULATION AND PAYMENT OF THE FEE FOR TECHNICAL AND CONSULTING SERVICES (THE "FEE") Both Parties agree that the Fees under this Agreement shall be RMB five million yuan (RMB5,000,000). 3. REPRESENTATIONS AND WARRANTIES 3.1 Party A hereby represents and warrants as follows: 3.1.1 Party A is a company duly registered and validly existing under the laws of the PRC; 3.1.2 Party A has full right, power, authority and capacity and all consents and approvals of any other third party and government necessary to execute and perform this Agreement, which shall not be against any enforceable and effective laws or contracts; 3.1.3 the Agreement will constitute a legal, valid and binding agreement of Party A enforceable against it in accordance with its terms upon its execution. 3.2 Party B hereby represents and warrants as follows: 3.2.1 Party B is a company duly registered and validly existing under the laws of the PRC and is licensed to engage in the business of Internet information provision services and value-added telecommunication services. 3.2.2 Party B has full right, power, authority and capacity and all consents and approvals of any other third party and government necessary to execute and perform this Agreement, which shall not be against any enforceable and effective laws or contracts. 3.2.3 Once the Agreement has been duly executed by both parties, it will constitute a legal, valid and binding agreement of Party B enforceable against it in accordance with its terms upon its execution. 4. CONFIDENTIALITY 4.1 Party B agrees to use all reasonable means to protect and maintain the confidentiality of Party A's confidential documents and information acknowledged or received by Party B by accepting the exclusive consulting and services from Party A (collectively the "Confidential Information"). Party B shall not disclose 2 or transfer any Confidential Information to any third party without Party A's prior written consent. Upon termination or expiration of this Agreement, Party B shall, at Party A's option, return all and any documents, information or software contained any of such Confidential Information to Party A or destroy it, delete all of such Confidential Information from any memory devices, and cease to use them. Party B shall take necessary measures to keep the Confidential Information to the employees, agents or professional consultants of Party B who are necessary to get to know such Information and procure them to observe the confidential obligations hereunder. 4.2 The limitation stipulated in Section 4.1 shall not apply to: 4.2.1 the materials available to the public at the time of disclosure; 4.2.2 the materials that become available to the public after the disclosure without fault of Party B; 4.2.3 the materials Party B prove to have got the control neither directly nor indirectly from any other party before the disclosure; 4.2.4 the information that each Party is required by law to disclose to relevant government authorities, stock exchange institute, or that is necessary to disclose the above confidential information directly to the legal counselor and financial consultant in order to keep its usual business. 4.3 Both Parties agree that this article shall survive the modification, elimination or termination of this Agreement. 5. INDEMNITY Party B shall indemnify and hold Party A harmless from and against any loss, damage, obligation and cost arising out of any litigation, claim or other legal procedure against Party A resulting from the contents of the technical consulting and services demanded by Party B. 6. EFFECTIVE DATE AND TERM 6.1 This Agreement shall be executed and come into effect as of the date first set forth above and shall expire on December 31, 2003. 7. TERMINATION 7.1 This Agreement shall expire on the date due unless this Agreement is extended as set forth in the relevant terms hereunder. 7.2 During the term of this Agreement, Party B cannot terminate this Agreement before the schedule time. Notwithstanding the above-mentioned, Party A may terminate this Agreement at any time with a written notice to Party B 30 days before such 3 termination. If Party A terminate the Agreement in advance due to Party B's reason, Party B shall take the liability to compensate all the losses caused thereby to Party A and shall pay the relevant fees for the services provided. 7.3 Articles 4 and 5 shall survive after the termination or expiration of this Agreement. 8. SETTLEMENT OF DISPUTES 8.1 The parties shall strive to settle any dispute arising from the interpretation or performance in connection with this Agreement through friendly consultation. In case no settlement can be reached through consultation, each party can submit such matter to China International Economic and Trade Arbitration Commission (the "CIETAC"). The arbitration shall follow the current rules of CIETAC, and the arbitration proceedings shall be conducted in Chinese and shall take place in Beijing. The arbitration award shall be final and binding upon Both Parties. This article shall not be influenced by the termination or elimination of this Agreement. 8.2 Each Party shall continue to perform its obligations in good faith according to the provisions of this Agreement except for the matters in dispute. 9. FORCE MAJEURE 9.1 Force Majeure, which includes but is not limited to, acts of governments, acts of nature, fire, explosion, typhoon, flood, earthquake, tide, lightning, war, means any event that is beyond the party's reasonable control and cannot be prevented with reasonable care. However, any shortage of credit, capital or finance shall not be regarded as an event of Force Majeure. The affected party who is claiming to be not liable to its failure of fulfilling this Agreement by Force Majeure shall inform the other party, as soon as possible, of the approaches of the performance of this Agreement by the affected party. 9.2 In the event that the affected party is delayed in or prevented from performing its obligations under this Agreement by Force Majeure, only within the scope of such delay or prevention, the affected party will not be responsible for any damage by reason of such a failure or delay of performance. The affected party shall take appropriate means to minimize or remove the effects of Force Majeure and attempt to resume performance of the obligations delayed or prevented by the event of Force Majeure. After the event of Force Majeure is removed, both parties agree to resume performance of this Agreement with their best efforts. 10. NOTICES Notices or other communications required to be given by any party pursuant to this Agreement shall be written in English and Chinese and shall be deemed to be duly given when it is delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of the relevant party or parties set forth below. 4 PARTY A: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. Room 809, Tower A, Yue Tan Building, No. 2, Yue Tan North Street, Xi Cheng District, Beijing Fax: (86)10 - 68083118 Tele: (86)10 - 68081818 Addressee: Yunfan Zhou PARTY B: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD. Room 809, Tower A, Yue Tan Building, No. 2, Yue Tan North Street, Xi Cheng District, Beijing Fax: (86)10 - 68083118 Tele: (86)10 - 68081818 Addressee: Yunfan Cha 11. ASSIGNMENT Party B shall not assign its rights or obligations under this Agreement to any third party without the prior written consent of Party A. Party A can transfer its rights or obligations under this Agreement to any third party without the consent of Party B but shall inform Party B of the above assignment. 12. SEVERABILITY Any provision of this Agreement that is invalid or unenforceable because of any inconsistency with relevant law shall be ineffective or unenforceable within such jurisdiction where the relevant law governs, without affecting in any way the remaining provisions hereof. 13. AMENDMENT AND SUPPLEMENT Any amendment and supplement of this Agreement shall come into force only after a written agreement is signed by both parties. The amendment and supplement duly executed by both parties shall be part of this Agreement and have the same legal effect as this Agreement. 14. GOVERNING LAW The execution, validity, performance and interpretation of this Agreement shall be governed by and construed in accordance with the PRC laws. 5 IN WITNESS THEREOF the Parties hereto have caused this Agreement to be duly executed on their behalf by a duly authorized representative as of the date first set forth above. PARTY A: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. Authorized Representative: /s/ Yunfan Zhou ------------------------------- PARTY B: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD. Authorized Representative: /s/ Yunfan Zhou ------------------------------- 6 APPENDIX 1 THE CONTENT LIST OF TECHNICAL AND CONSULTING SERVICES 1. maintenances of the machine room and website; 2. provision and maintenances of the office network; 3. integrated security services for the website; 4. design and implementation of the integrated structure of the network of the website, including the installation of the server system and 24 hours' daily maintenances each week; 5. development and test of new products; 6. marketing and strategic plan of new products; 7. conception, creation, design, update and maintenance of the web pages; 8. maintenance of the clients service platform; 9. training of the employees; 10. study and analysis on market; 11. public relationship service 7 EX-10.4 9 u98939exv10w4.txt EX-10.4 EXCLUSIVE TECH & CONSULTING AGMT MAR 31,04 [Translation of Chinese original] - -------------------------------------------------------------------------------- EXHIBIT 10.4 EXCLUSIVE TECHNICAL AND CONSULTING SERVICES AGREEMENT This Exclusive Technical Consulting and Services Agreement (the "Agreement") is entered into in Beijing as of March 31, 2004, between the following two parties. PARTY A: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD PARTY B: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD WHEREAS, 1. Party A, a wholly foreign-owned enterprise registered in People's Republic of China (the "PRC", excluding Hong Kong Special Administration District, Macao Special Administration District and Taiwan area, for the purpose of this "Agreement" ) under the laws of PRC, which owns resources to provide the technical and consulting services. 2. Party B, a wholly domestic invested company registered in PRC, is licensed by relevant government authorities to engage in the business of the Internet information provision service and value-added telecommunication service; 3. Party A agrees to be the provider of technical and consulting services to Party B, and Party B hereby agrees to accept such technical and consulting services; WHEREAS, Party A and Party B, through friendly negotiation and based on the equality and mutual benefit, enter into the Agreement as follows: 1. TECHNICAL CONSULTING AND SERVICES; OWNERSHIP AND EXCLUSIVE INTERESTS 1.1 During the term of this Agreement, Party A agrees to provide the relevant technical consulting and services to Party B (the content is specified in Appendix 1) in accordance with the Agreement. 1.2 Party B hereby agrees to accept such technical and consulting services. Party B further agrees that, during the term of this Agreement, it shall not utilize any third party to provide such technical and consulting services for such above-mentioned business without the prior written consent of Party A. 1.3 Party A shall be the sole and exclusive owner of all rights, title, interests and intellectual property rights arising from the performance of this Agreement, including, (but not limited to, any copyrights, patent, know-how, commercial 1 secrets and otherwise), whether developed by Party A or Party B based on Party A's intellectual property. 1.4 Party B covenant that Party A have the priority on cooperation with Party B in the same condition in case Party B is going to cooperate with other enterprises in respect of any business. 2. CALCULATION AND PAYMENT OF THE FEE FOR TECHNICAL AND CONSULTING SERVICES (THE "FEE") Party A and Party B agree that the service fee of this agreement shall be RMB 5,000,000 yuan. 3. REPRESENTATIONS AND WARRANTIES 3.1 Party A hereby represents and warrants as follows: 3.1.1 Party A is a company duly registered and validly existing under the laws of the PRC; 3.1.2 Party A has full right, power, authority and capacity and all consents and approvals of any other third party and government necessary to execute and perform this Agreement, which shall not be against any enforceable and effective laws or contracts; 3.1.3 the Agreement will constitute a legal, valid and binding agreement of Party A enforceable against it in accordance with its terms upon its execution. 3.2 Party B hereby represents and warrants as follows: 3.2.1 Party B is a company duly registered and validly existing under the laws of the PRC and is licensed to engage in the business of Internet information provision services and value-added telecommunication services. 3.2.2 Party B has full right, power, authority and capacity and all consents and approvals of any other third party and government necessary to execute and perform this Agreement, which shall not be against any enforceable and effective laws or contracts. 3.2.3 Once the Agreement has been duly executed by both parties, it will constitute a legal, valid and binding agreement of Party B enforceable against it in accordance with its terms upon its execution. 4. CONFIDENTIALITY 4.1 Party B agrees to use all reasonable means to protect and maintain the confidentiality of Party A's confidential data and information acknowledged or received by Party B by accepting the exclusive consulting and services from Party 2 A (collectively the "Confidential Information"). Party B shall not disclose or transfer any Confidential Information to any third party without Party A's prior written consent. Upon termination or expiration of this Agreement, Party B shall, at Party A's option, return all and any documents, information or software contained any of such Confidential Information to Party A or destroy it, delete all of such Confidential Information from any memory devices, and cease to use them. Party B shall take necessary measures to keep the Confidential Information to the employees, agents or professional consultants of Party B who are necessary to get to know such Information and procure them to observe the confidential obligations hereunder. 4.2 The limitation stipulated in Section 4.1 shall not apply to: 4.2.1 the materials available to the public at the time of disclosure; 4.2.2 the materials that become available to the public after the disclosure without fault of Party B; 4.2.3 the materials Party B prove to have got the control neither directly nor indirectly from any other party before the disclosure; 4.2.4 the information that each Party is required by law to disclose to relevant government authorities, stock exchange institute, or that is necessary to disclose the above confidential information directly to the legal counselor and financial consultant in order to keep its usual business. 4.3 Both Parties agree that this article shall survive the modification, elimination or termination of this Agreement. 5. INDEMNITY Party B shall indemnify and hold harmless Party A from and against any loss, damage, obligation and cost arising out of any litigation, claim or other legal procedure against Party A resulting from the contents of the technical consulting and services demanded by Party B. 6. EFFECTIVE DATE AND TERM 6.1 This Agreement shall be executed and come into effect as of the date first set forth above. The term of this Agreement is ten (10) years, unless earlier terminated as set forth in this Agreement or in accordance with the terms set forth in the agreement entered into by both parties separately. 6.2 This Agreement may be automatically extended for another ten years except Party A gives its written consent of the termination of this Agreement three months before the expiration of this Agreement. 7. TERMINATION 7.1 This Agreement shall expire on the date due unless this Agreement is extended as set forth in the relevant terms hereunder. 3 7.2 During the term of this Agreement, Party B can not terminate this Agreement before the schedule time. Notwithstanding the above-mentioned, Party A may terminate this Agreement at any time with a written notice to Party B 30 days before such termination. If Party A terminate the Agreement in advance duo to Party B's reason, Party B shall take the liability to compensate all the losses caused thereby to Party A and shall pay the relevant fees for the services provided. 7.3 Article 4 and 5 shall survive after the termination or expiration of this Agreement. 8. SETTLEMENT OF DISPUTES 8.1 The parties shall strive to settle any dispute arising from the interpretation or performance in connection with this Agreement through friendly consultation. In case no settlement can be reached through consultation, each party can submit such matter to China International Economic and Trade Arbitration Commission (the "CIETAC"). The arbitration shall follow the current rules of CIETAC, and the arbitration proceedings shall be conducted in Chinese and shall take place in Beijing. The arbitration award shall be final and binding upon Both Parties. This article shall not be influenced by the termination or elimination of this Agreement. 8.2 Each Party shall continue to perform its obligations in good faith according to the provisions of this Agreement except for the matters in dispute. 9. FORCE MAJEURE 9.1 Force Majeure, which includes but is not limited to, acts of governments, acts of nature, fire, explosion, typhoon, flood, earthquake, tide, lightning, war, means any event that is beyond the party's reasonable control and cannot be prevented with reasonable care. However, any shortage of credit, capital or finance shall not be regarded as an event of Force Majeure. The affected party who is claiming to be not liable to its failure of fulfilling this Agreement by Force Majeure shall inform the other party, without delay, of the approaches of the performance of this Agreement by the affected party. 9.2 In the event that the affected party is delayed in or prevented from performing its obligations under this Agreement by Force Majeure, only within the scope of such delay or prevention, the affected party will not be responsible for any damage by reason of such a failure or delay of performance. The affected party shall take appropriate means to minimize or remove the effects of Force Majeure and attempt to resume performance of the obligations delayed or prevented by the event of Force Majeure. After the event of Force Majeure is removed, both parties agree to resume performance of this Agreement with their best efforts. 10. NOTICES Notices or other communications required to be given by any party pursuant to this 4 Agreement shall be written in English and Chinese and shall be deemed to be duly given when it is delivered personally or sent by registered or mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of the relevant party or parties set forth below. PARTY A: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD Room 809, Tower A, Yue Tan Building, No. 2, Yue Tan North Street, Xi Cheng District, Beijing Fax: (86)10-68083118 Tele:(86)10-68081818 Addressee: Nick Yang PARTY B: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD Room 809, Tower A, Yue Tan Building, No. 2, Yue Tan North Street, Xi Cheng District, Beijing Fax: (86)10-68083118 Tele:(86)10-68081818 Addressee: Yunfan Zhou 11. ASSIGNMENT Party B shall not assign its rights or obligations under this Agreement to any third party without the prior written consent of Party A. Party A shall transfer its rights or obligations under this Agreement to any third party without the consent of Party B, but shall inform Party B of the above assignment. 12. SEVERABILITY Any provision of this Agreement that is invalid or unenforceable because of any inconsistency with relevant law shall be ineffective or unenforceable within such jurisdiction where the relevant law governs, without affecting in any way the remaining provisions hereof. 13. AMENDMENT AND SUPPLEMENT Any amendment and supplement of this Agreement shall come into force only after a written agreement is signed by both parties. The amendment and supplement duly executed by both parties shall be part of this Agreement and shall have the same legal effect as this Agreement. 14. GOVERNING LAW The execution, validity, performance and interpretation of this Agreement shall be governed by and construed in accordance with the PRC laws. 5 IN WITNESS THEREOF THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE DULY EXECUTED ON THEIR BEHALF BY A DULY AUTHORIZED REPRESENTATIVE AS OF THE DATE FIRST SET FORTH ABOVE. (NO TEXT ON THIS PAGE) 6 PARTY A: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD Authorized Representative: /s/ Nick Yang ------------------------------- PARTY B: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD Authorized Representative: /s/ Yunfan Zhou ------------------------------- 7 APPENDIX 1: THE LIST OF TECHNICAL AND CONSULTING SERVICES Party A shall provide technical and consulting services as follows: 1. maintenances of the machine room and website; 2. provision and maintenances of the office network; 3. integrated security services for the website; 4. design and implementation of the integrated structure of the network of the website, including the installation of the server system and 24 hours' daily maintenances each week. 5. development and test of new products; 6. marketing plan of new products; 7. conception, creation, design, update and maintenance of the web pages; 8. maintenance of the clients service platform; 9. training of the employees; 10. study and analysis on market; 11. public relationship service 8 APPENDIX 2: CALCULATION AND PAYMENT OF THE FEE FOR TECHNICAL AND CONSULTING SERVICES The service fees hereunder shall be monthly calculated by 20% to 25% of the monthly package fees paid by Party B' end users to Party B (accumulated by all the package end users) and 20% to 25% of the fees of every message paid by Party B's clients (accumulated by the amount of the actual messages). The exact proportion above mentioned (within the scope of 20% to 25%) shall be decided by Party A in accordance with the actual service it provides to Party B and shall be calculated quarterly. In consideration of the development of Party B's business in the future, both Parties agree that Party B shall keep no less than RMB 100,000,000 cash or cash equivalence in its account. In case, Party B fails to reach such requirement at the end of any quarter, Party A shall be entitled to derate the fees of the quarter thereof to no less than RMB5,000,000. Meanwhile, both Parties agree that Party B is entitled to exempt from pay the service fees till Party B is commencing to make profits. 9 EX-10.5 10 u98939exv10w5.txt EX-10.5 AMENDED TRADEMARK LICENSE AGREEMENT EXHIBIT 10.5 AMENDED AND RESTATED TRADEMARK LICENSE AGREEMENT This Amended and Restated Trademark License Agreement (the "Agreement") is entered into as of May 10, 2004 by and between the following two parties in Beijing. The Licensor: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. ("KONGZHONG BEIJING") Legal Address: 12th floor, Zhong Dian Building, Zhong Guan Cun Nan Da Jie, Hai Dian District, Beijing The Licensee: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD. ("BEIJING AIRINBOX") Legal Address: 12th floor, Zhong Dian Building, Zhong Guan Cun Nan Da Jie, Hai Dian District, Beijing WHEREAS, the Licensor, a wholly foreign-owned enterprise registered in Beijing under the laws of People's Republic of China (not including Hong Kong, Macao and Taiwan, hereinafter called "China"), has the right to use and apply for registration the trademarks listed in the Exhibit 1 of this Agreement; WHEREAS, the Licensee, a limited liability company sponsored by natural persons in China registered in Beijing under the laws of the People's Republic of China (the "PRC"), is licensed to engage in the business of providing Internet information and the telecom value-added services; WHEREAS, the Licensor agrees to license the said trademarks to the Licensee in accordance with the terms and conditions set forth herein and the Licensee as well agrees to accept the license on the terms and conditions set forth herein; NOW THEREFORE, on the basis of mutual benefit and friendly negotiation, the parties 1 agree as follows: 1. Grant of License 1.1 The Trademarks Under the terms and conditions hereinafter set forth, the Licensor hereby grants to the Licensee and the Licensee accepts from the Licensor the license to use parts of or all parts of the trademarks listed in Exhibit 1, or any design, character, symbol and visible representation that presents any part of such trademarks (collectively the "Trademarks"), and the Licensee may deal its business with these Trademarks. Such license is non-monopolized, non-exclusive and non-transferable. 1.2 Territory 1.2.1 The use of the Trademarks grants by the Licensor to the Licensor extends only to the scope of the business operated by Licensee and the business relating to KongZhong Net. The Licensee agrees that it will not make, or authorize any use direct or indirect, of the Trademarks by any means, unless the Licensor agrees. 1.2.2 The License in this Agreement is effective in the district of China and where the Licensor grant the Licensee in the writing form from time to time. The Licensee agrees that it will not make, or authorize to use, direct or indirect of the Trademarks in any area. 1.3 Standards The Licensee shall strictly comply with any standards and criteria the Licensor requests from time to time when the Licensee uses the Trademarks. 1.4 Licensee's confirmation The Licensee confirms that it will not enjoy any rights, titles and interests of the Trademarks except the rights, titles and interests in the Trademarks under this Agreement. 2. TERMS OF PAYMENT The Licensee agrees to pay to the Licensor a license fee and the details of the calculation method and the form of payment are set forth in Exhibit 2. 2 3. GOODWILL The Licensee recognizes the value of the goodwill associated with the Trademarks and the relevant rights, and acknowledges that the Trademarks therein and goodwill (including but not limited to the goodwill occurs from the Licensee's use) pertaining thereto shall be the sole and exclusive property of the Licensor. 4. CONFIDENTIALITY 4.1 The Licensee shall protect and maintain the confidentiality of any and all confidential data and information acknowledged or received by the Licensee by accepting licensing of the Trademarks from the Licensor (collectively the "Confidential Information"). Upon termination or expiration of this Agreement, the Licensee shall, at the Licensor's option, return all and any documents, information or software contained any of such Confidential Information to the Licensor or destroy it and delete such Confidential Information from any electronic devices and cease to use them. The Licensee shall not disclose, grant or transfer any Confidential Information to any third party and will not use the Confidential Information without the Licensor's written consent. Licensee shall disclose the protected Confidential Information to the necessary employees, agents or consultants by the necessary measures, and shall urge the necessary employees, agents or consultants to observe the obligations under this Agreement. 4.2 The above limitations shall not apply to the situations as follows: 4.2.1 The materials which can be obtained in public in the time of disclosure; 4.2.2 The public materials disclosed not due to the mistake of Licensee; 4.2.3 The Licensee may prove that before the disclosure the materials were under its title and were not obtained directly or indirectly from the other resources; 4.2.4 Upon the legal demands of any party, the Confidential Information shall be disclosed to the government authorities, security exchange agent, and etc.; and upon the general operation needs, the above Confidential Information shall be disclosed to direct legal consultants and financial advisor. 4.3 With the consent of both parties, Article 4 shall survive any amendment, expiration or termination of this Agreement. 5. REPRESENTATIONS AND WARRANTIES 3 5.1 The Licensor represents and warrants as follows: 5.1.1 the Licensor is a company duly registered and in good standing under the applicable laws of the China; 5.1.2 the Licensor, subject to its business scope, has full right, power, authority and capacity and all necessary consents any approvals of any third party and government authorities to execute and perform this Agreement, which shall not be against any enforceable and effective laws or contracts; 5.1.3 the Agreement will constitute a legal, valid and binding agreement of the Licensor and will be enforceable against the Licensor in accordance with its terms upon its execution; 5.1.4 the Licensor has the exclusive ownership of the Trademarks. 5.2 The Licensee represents and warrants as follows: 5.2.1 the Licensee is a company duly registered and in good standing under the applicable laws of the China, and is approved by the relevant authorities to provide the internet information services and the value-added telecom service; 5.2.2 the Licensee, subject to its business scope, has full right, power, authority and capacity and all necessary consents and approvals of any third party and government authorities to execute and perform this Agreement, which shall not be against any enforceable and effective laws or contracts; 5.2.3 the Licensee will not use or authorize to use any trademarks or symbols, which the Licensor judges by itself, are similar to the Trademarks and to make confusion. 5.2.5 the Agreement will constitute a legal, valid and binding agreement of the Licensor and will be enforceable against the Licensor in accordance with its terms upon its execution. 6. The Licensor's Right of Licensing and Protection of the Licensor's Rights: 6.1 The Licensee agrees that it will not, during the term of this Agreement, or thereafter, attack the rights of Licensing or any rights of the Licensor in and to the Trademarks or attack the validity of this Agreement, or otherwise take or fail to 4 take any action that impairs such rights or license. 6.2 The Licensee agrees to assist the Licensor to the extent necessary in the procurement of any protection or to protect any of the Licensor's rights to the Trademarks. In the event any third party lodges a claim concerning the Trademarks, the Licensor, if it so desires, may commence or prosecute any claims or lawsuits in its own name or in the name of the Licensee or join the Licensee as a party thereto. In the event any third party infringes on the above mention Trademarks, the Licensee shall notify the Licensor in writing of any infringements, or imitation by others of the Trademarks which may come to the Licensee's attention, and the Licensor shall have the sole right to determine whether or not any action shall be taken on account of any such infringements. 6.3 The Licensee further agrees to use the Trademarks only in accordance with this Agreement and shall not use the Trademarks in any way that, in the opinion of the Licensor, is deceptive, misleading or in any way damaging to such Trademarks or the reputation of the Licensor. 7. QUALITY The Licensee shall use its reasonable best efforts to improve the quality of KongZhong Net, so to protect and enhance the reputation of the Trademarks. 8. PROMOTION MATERIAL In all cases where the Licensee makes promotion material involving the Trademarks, the production cost of such material thereof shall be borne by the Licensee. All copyrights or other intellectual property rights of such material concerning the Trademarks thereto shall be the sole and exclusive property of the Licensor whether developed by the Licensor or the Licensee. The Licensee agrees not to advertise or publicize any of the Trademarks on radio, television, papers, magazines, the Internet or otherwise the prior written consent of the Licensor. 9. EFFECTIVE DATE AND TERM 9.1 This Agreement has been duly executed as of the date first set forth above and shall be effective simultaneously. The term of this Agreement is 10 (ten) years unless earlier terminated as set forth in this Agreement. 5 9.2 Unless any other provisions set forth in written form, this Agreement shall be applicable to any other trademarks licensed to the Licensee within the term of this Agreement. After the execution of this Agreement, the Licensor and Licensee shall review this Agreement every 3 months to determine whether to make any amendment or supplement to this Agreement upon the detail situation. 9.3 This Agreement shall be extended for 10 (ten) years automatically only if the Licensor gives the Licensee written notice of termination of this Agreement 3 (three) months prior to the expiration of this Agreement. However, the Licensee has no right to determine whether to extend. 10. RECORD FILING Within 3(three) months after the Licensor becomes the exclusive owner of the Trademarks, both parties shall, in compliance with the law of China, make a record filing of the copy of the Agreement to the relevant trademark authority of China (if applicable). Both parties agree to execute or furnish the relevant documents required in line with the principal hereof and relevant laws. 11. TERMINATION 11.1 This Agreement shall expire on the date due or the date when the Licensor's right of ownership terminates unless this Agreement is extended as set forth above. 11.2 Without prejudice to any legal or other rights or remedies of the party who asks for termination of this Agreement, any party has the right to terminate this Agreement immediately with written notice to the other party in the event the other party materially breaches this Agreement including without limitation to Sections 6.1, 6.2 and 6.3 of this Agreement and fails to cure its breach within 30 days from the date it receives written notice of its breach from the non-breaching party. 11.3 During the term of this Agreement, the Licensor may terminate this Agreement at any time with a written notice to the Licensee 30 days before such termination. The Licensee shall not terminate this Agreement in prior. 11.4 Article 3, 4, 6, 15 and 16 shall survive after the termination or expiration of this Agreement. 12. FORCE MAJEURE 6 12.1 Force Majeure means any event that is beyond the party's reasonable control and cannot be prevented with reasonable care including but not limited to the acts of governments, nature, fire, explosion, typhoon, flood, earthquake, tide, lightning and war. However, any shortage of credit, capital or finance shall not be regarded as an event of Force Majeure. The party affected by Force Majeure shall notify the other party without delay. 12.2 In the event that the affected party is delayed in or prevented from performing its obligations under this Agreement by Force Majeure, only within the scope of such delay or prevention, the affected party will not be responsible for any damage by reason of such a failure or delay of performance. The affected party shall take appropriate measures to minimize or remove the effects of Force Majeure and attempt to resume performance of the obligations delayed or prevented by the event of Force Majeure, and the affected party will not be responsible to such performance and will only be responsible to the delayed parts of performance. After the event of Force Majeure is removed, both parties agree to resume the performance of this Agreement with their best efforts. 13. NOTICES Notice or other communications required to be given by any party pursuant to this Agreement shall be written in English and Chinese and shall be deemed to be duly given when it is delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address set forth below. The Licensor: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. Legal Address: Room 809, Block A, Yue Tan Building, 2#, Yue Tan Bei Jie, Xi Cheng District, Beijing Fax:(86) 10 - 68083118 Tel.:(86) 10 - 68081818 Receiver: Yunfan Zhou The Licensee: BEIJING KONGZHONG AIRINBOX INFORMATION TECHNOLOGIES CO., LTD. Legal Address: Room 809, Block A, Yue Tan Building, 2#, Yue Tan Bei Jie, Xi Cheng District, Beijing 7 Fax:(86) 10 - 68083118 Tel.:(86) 10 - 68081818 Receiver: Yunfan Zhou 14. RE-TRANSFER, RE-LICENSE This agreement and all the rights and duties hereunder are personal to the Licensee. The Licensee agrees that it will not assign, lease or pledge to any third party without the written consent of the Licensor. 15. SETTLEMENT OF DISPUTES 15.1 The parties shall strive to settle any disputes arising from the interpretation or performance through negotiation in good faith. In the event that no settlement can be reached through negotiation within 30 days after one party issues a negotiating notice, either party can submit such matter to China International Economic and Trade Arbitration Commission (the "CIETAC"). The arbitration shall follow the current rules of CIETAC, and the arbitration proceedings shall be conducted in Chinese and shall take place in Beijing. The arbitration award shall be final and binding upon the parties and shall be enforceable in accordance with its terms. 15.2 Except the dispute issues, all parties shall perform their own duties under the Agreement good faith. 16. APPLICABLE LAW The execution, validity, performance, interpretation and any disputes of this Agreement shall be governed and construed by the laws of the PRC. 17. AMENDMENT AND SUPPLEMENT Any amendment and supplement of this Agreement shall come into force only after a written agreement is signed by both parties. The amendment and supplement duly executed by both parties shall be part of this Agreement and shall have the same legal effect as this Agreement. 18. ENTIRE AGREEMENT This Agreement and all the agreements and/or documents referenced or specifically included herein constitute the entire agreement among the parties in respect of the 8 subject matter hereof and supersede all prior oral or written agreements, contract, understanding and correspondence among them, including the trademark license agreement between the parties dated March 31, 2004. 19. SEVERABILITY Any provision of this Agreement which is invalid or unenforceable due to the violation of relevant laws in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. 20. WAIVER Any party cannot perform the rights, power, or privileges under this Agreement shall not be deemed as waiver. Any wholly or partly performance of the rights, power, or privileges shall not exclude the performance of any other rights, power, or privileges. 21. EXHIBITS The Exhibits referred to in this Agreement are an integral part of this Agreement and have the same legal effect as this Agreement. IN WITNESS THEREOF the parties hereto have caused this Agreement to be duly executed by a duly authorized representative each on behalf of the party here to as of the date first set forth above. 9 [Signature page, no Agreement] The Licensor: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. Authorized Representative: /s/ Nick Yang The Licensee: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD. Authorized Representative: /s/ Yunfan Zhou 10 EXHIBIT 1 LIST OF LICENSED TRADEMARKS 11 EXHIBIT 2 CALCULATION METHOD AND FORM OF PAYMENT OF LICENSE FEE The license fee under this Agreement shall be 5% of the total income of Licensee. License fee for each Trademark shall be calculated on an average basis according to the total license fee. The license fee shall be paid every quarter and the Licensor shall pay the Licensee within 15 days after each quarter. If the Licensor considers it helpful to the business of the Licensee, the Licensor at its sole discretion may reduce or exempt whole or any part of the license fee. Both parties agree that before the Licensor obtains exclusive ownership of any Trademark, no license fee in respect of such Trademark will be charged. 12 EX-10.6 11 u98939exv10w6.txt EX-10.6 DOMAIN NAME LICENSE AGREEMENT EXHIBIT 10.6 DOMAIN NAME LICENSE AGREEMENT This Domain Name License Agreement (the "Agreement") is entered into as of April 1st, 2004 by and between the following two parties in Beijing. The Licensor: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD ("KongZhong (Beijing)") Legal Address: 12th floor, Zhong Dian Building, Zhong Guan Cun Nan Da Jie, Hai Dian District, Beijing Legal Representative: Yunfan Zhou The Licensee: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD Legal Address: 12th floor, Zhong Dian Building, Zhong Guan Cun Nan Da Jie, Hai Dian District, Beijing Legal Representative: Yunfan Zhou WHEREAS, the Licensor, a wholly foreign-owned enterprise registered in Beijing under the laws of People's Republic of China (not including Hong Kong, Macau and Taiwan, hereinafter called "China"), which owns the domain names listed in the Exhibit 1 of this Agreement; WHEREAS, the Licensee, a limited liability company sponsored by natural persons in China registered in Beijing under the laws of the People's Republic of China (the"PRC"), is licensed to engage in the business of providing Internet information and the telecom value-added services; WHEREAS, the Licensor agrees to license the said Domain Names to the Licensee in accordance with the terms and conditions set forth herein and the Licensee as well agrees to accept the license on the terms and conditions set forth herein; 1 NOW THEREFORE, on the basis of mutual benefit and friendly negotiation, the parties agree as follows: 1. Grant of License 1.1 The Domain Names Under the terms and conditions hereinafter set forth, the Licensor hereby grants to the Licensee and the Licensee accepts from the Licensor parts of or all parts of the Domain Names listed in Exhibit 1, and the Licensee may deal its business with these domain names. Such license is non-monopolized, non-exclusive and non-transferable. 1.2 Range 1.2.1 The Licensee agrees to use the licensed domain name in the field of it own business operation. The Licensee cannot directly or indirectly sublicense the Domain Names hereunder to any others unless the Licensor agrees. 1.2.2 The License in this Agreement is effective in China and where the Licensor may from time to time grant a license to the Licensee in the writing form. Licensee agrees that Licensee shall not directly or indirectly use or sublicense to the others the said domain name. 1.3 Standards The Licensee shall comply with any standards and criteria the Licensor may request from time to time when the Licensee uses the said domain names. 1.4 Licensee's confirm The Licensee confirms that the Licensee is not entitled any rights, titles and interests of the said domain names except the rights, titles and interests in the said domain names under this Agreement. 2. PAYMENT The Licensee agrees to pay the Licensor the license fees determined in accordance with the calculation method and the way of payment provided in Exhibit 2 of this Agreement. 2 3. GOODWILL The Licensee recognizes the value of the goodwill associated with the Domain Names and the relevant rights, and acknowledges that the Domain Names therein and goodwill (including but not limited to the goodwill occurs from the Licensee's use) pertaining thereto shall be the sole and exclusive property of the Licensor. 4. CONFIDENTIALITY 4.1 By accepting the granting of the Domain Name licenses from the Licensor, the Licensee agrees to protect and maintain the confidentiality of any and all confidential data and information acknowledged or received by the Licensee (collectively the "Confidential Information"). Upon termination or expiration of this Agreement, the Licensee shall, at the Licensor's request, return any and all documents, information or software containing such Confidential Information to the Licensor or destroy and delete such Confidential Information from any electronic devices and cease to use them. The Licensee shall not disclose, grant or transfer any Confidential Information to any third party and will not use the Confidential Information without the Licensor's written consent. Licensee shall disclose the protected confidential information to the necessary employees, agents or consultants by the necessary measures, and shall urge the necessary employees, agents or consultants to observe the obligations under this Agreement. 4.2 The above limitations shall not apply to the situations as follows: 4.2.1 The materials which can be obtained in public in the time of disclosure; 4.2.2 The public materials disclosed not due to the mistake of Licensee; 4.2.3 The Licensee may prove that before the disclosure the materials were under its title and were obtained directly or indirectly from the other resources; 4.2.4 Upon the legal demands of any party, the confidential information shall be disclosed to the government authorities, security exchange agent, and etc.; and upon the general operation needs, the above confidential information shall be disclosed to direct legal consultants and financial advisor. 4.3 With the consent of both parties, no matter whether this Agreement is terminated, rescinded, or modified, this Article is still effective. 5. REPRESENTATIONS AND WARRANTIES 3 5.1 The Licensor represents and warrants as follows: 5.1.1 the Licensor is a company duly registered and in good standing under the applicable laws of China; 5.1.2 the Licensor, within its business scope, has full corporate power and authority and has taken all corporate actions and has obtained all necessary approvals and authorizations from third parties and government authorities to execute and perform the obligations under this Agreement, which will not constitute or result in a violation of any enforceable and effective agreements; 5.1.3 the Agreement will constitute a legal, valid and binding agreement of the Licensor and will be enforceable against the Licensor in accordance with its terms upon its execution. 5.1.4 the Licensor legally hold the said domain names under this Agreement. 5.2 The Licensee makes to the Licensor the following representation and warranties: 5.2.1 the Licensee is a company duly registered and in good standing under the applicable laws of the China, and is approved by the relevant authorities to provide the internet information services and the value-added telecom service. 5.2.2 the Licensee, within its business scope, has full corporate, power and authority and has taken all corporate actions and has obtained all necessary approvals and authorizations from third parties and government authorities to execute and perform the obligations under this Agreement, which will not constitute or result in a violation of any enforceable and effective agreements; 5.2.3 the Licensee will timely subscribe the files and the cases pertaining to the domain name, which the Licensor considered shall be subscribed or dealt with. 5.2.5 the Agreement will constitute a legal, valid and binding agreement of the Licensor and will be enforceable against the Licensor in accordance with its terms upon its execution. 4 6. The Licensee further makes to the Licensor the following representation and warranties: 6.1 The Licensee agrees that it will not, during the term of this Agreement, or thereafter, challenge the title or any rights of the Licensor in and to the Domain Names or challenge the validity of this Agreement, and shall not perform or un-perform any act, which may impair the interest in the above rights or the license. 6.2 The Licensee agrees to assist the Licensor to the extent necessary in the procurement of any protection or to protect any of the Licensor's rights to the Domain Names, and the Licensor, if it so desires, may commence or prosecute any claims or lawsuits in its own name or in the name of the Licensee or join the Licensee as a party thereto. The Licensee shall notify the Licensor in writing of any infringements of the Domain Names that may come to the Licensee's attention, and the Licensor shall have the sole right to determine whether or not any action shall be taken on account of any such infringements. 6.3 The Licensee further agrees to use the Domain Names only in accordance with this Agreement and shall not use the Domain Names in any way that, in the opinion of the Licensor, is deceptive, misleading or in any way damaging to such Domain Names or the reputation of the Licensor. 7. QUALITY The Licensee shall make every effort to improve its service quality as to protect the goodwill represented by the said domain name. 8. PROMOTION In all cases where the Licensee produces promotional material involving the Domain Name, the production cost of such material thereof shall be borne by the Licensee. All copyrights or other intellectual property rights of such material concerning the Domain Name thereto shall be the sole and exclusive property of the Licensor whether developed by the Licensor or the Licensee. The Licensee agrees that the Licensee shall not promote or advertise the said domain names under this agreement in any newspapers, TV, magazine, radio, internet or any other media unless the prior consent and approval in writing has acquired. 9. EFFECTIVE DATE AND TERM 5 9.1 This Agreement is subscribed and goes into effect in the date indicated in the front of this agreement. The term of this Agreement is 10 (ten) years unless earlier terminated as set forth in this Agreement. 9.2 Unless otherwise agreed upon by the parties in writing, this Agreement shall be applicable to any other domain names licensed to the Licensee within the term of this Agreement. After the subscription of this Agreement, the Licensor and Licensee shall review this Agreement every 3 months to determine whether to modify or renew this Agreement upon the detail situation. 9.3 This Agreement may be extended for 10 (ten) years only if the Licensor gives the Licensee its written consent of the extension of this Agreement prior to the expiration of this Agreement. However, the Licensee has no right to confirm such extension. 10. REGISTER Within 3(three) months of the subscription of Agreement, both parties shall in compliance with the law of China put the licensed domain name on records in the relevant domain name administrative authorities. Both parties agree to subscribe or furnish the relevant files and materials the administrative authorities require on the basis of the principals and related laws under this Agreement. 11. TERMINATION 11.1 This Agreement shall expire on the date due or when the license right in possession of Licensor is terminated unless this Agreement is extended as set forth above. 11.2 Without prejudice to any legal or other rights or remedies of the party who asks for termination of this Agreement, any party has the right to terminate this Agreement immediately with written notice to the other party in the event the other party materially breaches this Agreement including but not limited to the provisions in Section 6.1, 6.2 and 6.3 of this Agreement and fails to cure its breach within 30 days from the date it receives written notice of its breach from the non-breaching party. 11.3 During the term of this Agreement, the Licensor may terminate this Agreement at any time with a written notice to the Licensee 30 days before such termination. 6 The Licensee shall not terminate this Agreement in prior. 11.4 Article 3, 4, 6, 15 and 16 shall survive after the termination or expiration of this Agreement. 12. FORCE MAJEURE 12.1 Force Majeure means any event that is beyond the party's reasonable control and cannot be prevented with reasonable care including but not limited to the acts of governments, nature, fire, explosion, typhoon, flood, earthquake, tide, lightning and war. However, any shortage of credit, capital or finance shall not be regarded as an event of Force Majeure. The party affected by Force Majeure shall notify the other party without delay. 12.2 In the event that the affected party is delayed in or prevented from performing its obligations under this Agreement by Force Majeure, only within the scope of such delay or prevention, the affected party will not be responsible for any damage by reason of such a failure or delay of performance. The affected party shall take appropriate measures to minimize or remove the effects of Force Majeure and attempt to resume performance of the obligations delayed or prevented by the event of Force Majeure, and the affected party will not be responsible to such performance and will only be responsible to the delayed parts of performance. After the event of Force Majeure is removed, both parties agree to resume the performance of this Agreement with their best efforts. 13. NOTICES Notice or other communications required to be given by any party pursuant to this Agreement shall be written in English and Chinese and shall be deemed to be duly given when it is delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address set forth below. The Licensor: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD Legal Address: Room 809, Block A, Yue Tan Building, 2#, Yue Tan Bei Jie, Xi Cheng District, Beijing Fax: (86) 10-68083118 Tel.: (86) 10-68081818 7 Receiver: Yunfan Zhou The Licensee: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD Legal Address: Room 809, Block A, Yue Tan Building, 2#, Yue Tan Bei Jie, Xi Cheng District, Beijing Fax: (86) 10-68083118 Tel.: (86) 10-68081818 Receiver: Yunfan Zhou 14. RE-TRANSFER, RE-LICENSE Without the consent of Licensee, the rights and obligation licensed under this Agreement shall not be transferred, leased, or mortgaged to any third party. 15. DISPUTE RESOLUTION 15.1 The parties shall strive to settle any disputes arising from the interpretation or performance through negotiation in good faith. In the event that no settlement can be reached through negotiation within 30 days after one party issues a negotiating notice, either party can submit such matter to China International Economic and Trade Arbitration Commission (the "CIETAC"). The arbitration shall follow the current rules of CIETAC, and the arbitration proceedings shall be conducted in Chinese and shall take place in Beijing. The arbitration award shall be final and binding upon the parties and shall be enforceable in accordance with its terms. 15.2 Except the dispute issues, all parties shall perform their own duties pursuant to the provisions in good faith. 16. APPLICABLE LAW The subscription, validity, interpretation, implementation and any disputes of this Agreement shall be governed by the laws of the PRC. 17. AMENDMENT AND SUPPLEMENT This Agreement shall not be amended, supplemented or modified except by a written instrument signed by both parties. The amendment or supplement duly executed by both parties shall constitute part of this Agreement and shall have the same legal effect as this Agreement. 8 18. SEVERABILITY Any provision of this Agreement which is invalid or unenforceable due to the violation of relevant laws in any jurisdiction shall, as to that jurisdiction, be ineffective or void of binding force only to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. 19. WAIVER Any party cannot perform the rights, power, or privileges under this Agreement shall not be deemed as waiver. Any wholly or partly performance of the rights, power, or privileges shall not exclude the performance of any other rights, power, or privileges. 20. EXHIBITS The Exhibits referred to in this Agreement are an integral part of this Agreement and have the same legal effect as this Agreement. IN WITNESS THEREOF the parties hereto have caused this Agreement to be duly executed by a duly authorized representative each on behalf of the party here to as of the date first set forth above. 9 [Signature page, no Agreement] The Licensor: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD Authorized Representative: /s/ Nick Young The Licensee: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD Authorized Representative: /s/ Yunfan Zhou 10 EXHIBIT 1 LIST OF LICENSED DOMAIN NAMES 11 EXHIBIT 2 CALCULATION METHOD AND PAYMENT METHOD OF THE LICENSE FEE The license fee under this Agreement shall be 5% of the total income of Licensee, the license fee shall be paid every quarter and the Licensor shall pay the Licensee within 15 days after each quarter, if the licensor considers it is helpful to the business of Licensee, the Licensor has its right to determine the whole or parts of the license fee can be reduced or exempted. 12 EX-10.7 12 u98939exv10w7.txt EX-10.7 AMENDED BUSINESS OPERATION AGREEMENT [Translation of Chinese original] EXHIBIT 10.7 AMENDED AND RESTATED BUSINESS OPERATION AGREEMENT This Amended and Restated Business Operation Agreement ("Agreement") is entered into on the day of May 10, 2004 (the "Effective Date"), in Beijing by and among the following parties: PARTY A: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. PARTY B: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD PARTY C: YUNFAN ZHOU PARTY D: SONGLIN YANG PARTY E: ZHEN HUANG PARTY F: YANG CHA WHEREAS: 1. Party A is a wholly foreign-owned enterprise registered in the People's Republic of China (the "PRC", excluding Hong Kong Special Administration District, Macao Special Administration District and Taiwan area, for the purpose of this "Agreement"); 2. Party B is a wholly domestic-owned company registered in the PRC and is approved by relevant governmental authorities to engage in the business of Internet information provision services and value-added telecommunication services; 3. A business relationship has been established between Party A and Party B by entering into Exclusive Technical Consulting and Services Agreement, under which Party B shall make all the payments to Party A and so the daily operation of Party B will bear a material impact on its capacity to pay the payables to Party A; 4. Party C is a shareholder of Party B owning 10% equity in Party B; Party D is a shareholder of Party B owning 42% equity in Party B; Party E is a shareholder of Party B owning 3% equity in Party B and Party F is a shareholder of Party B owning 45% equity of Party B. Party A, Party B, Party C, Party D and Party E, through friendly negotiation in the principle of equality and common interest, hereby jointly agree the following to abide by: 1 1. NON-BEHAVIOR OBLIGATION In order to ensure Party B's performance of the agreements between Party A and Party B and all its obligations born to Party A, Party B together with its shareholders Party C, Party D, Party E and Party F hereby jointly confirm and agree that Party B shall not conduct any transaction which may materially affect its assets, obligations, rights or the company's operation unless a prior written consent from Party A or another Party appointed by Party A, including but not limited to the following contents, has been obtained: 1.1 To conduct any business which is beyond the normal business area; 1.2 To borrow money or incur any debt from any third party; 1.3 To change or dismiss any directors or to dismiss and replace any high officials; 1.4 To sell to or acquire from any third party any assets or rights exceeding 200,000RMB, including but not limited to any intellectual property rights; 1.5 To provide guarantee for any third party with its assets or intellectual property rights or to provide any other guarantee or to set any other obligations over its assets; 1.6 To amend the Articles of Association of the company or to change its business area; 1.7 To change the normal business process or modify any material inside bylaws; 1.8 To assign rights and obligations under this Agreement herein to any third party. 2. MANAGEMENT OF OPERATION AND ARRANGEMENTS OF HR 2.1 Party B together with its shareholders Party C, Party D, Party E and Party F hereby jointly agree to accept and strictly enforce the proposals in respect of the employment and dismissal of its employees, the daily business management and financial management, etc., provided by Party A from time to time; 2.2 Party B together with its shareholders Party C, Party D, Party E and Party F hereby jointly agree that Party C, Party D, Party E and Party F shall only appoint the personnel designated by Party A as the directors of Party B in accordance with the procedures regulated by laws and regulations and the Article of Association of the company, and urge the chosen directors to elect the Chief Director of the company according to the persons designated by Party A, and Party B shall engage Party A's senior officers as Party B's General Manager, Chief Financial Officer, and other senior officers. 2 2.3 If any of the above officers quits or is dismissed by Party A, he or she will lose the qualification to undertake any positions in Party B and therefore Party B, Party C, Party D, Party E and Party F shall appoint other candidates designated by Party A to assume such position. 2.4 For the purpose of the above-mentioned 2.3, Party B, Party C, Party D, Party E and Party F shall take all the necessary inside and outside procedures to accomplish the above dismissal and engagement. 2.5 Party C, Party D, Party E and Party F hereby agree to sign Powers of Attorneys meanwhile according to which Party C, Party D, Party E and Party F shall authorize personnel designated by Party A to exercise their shareholders' rights and their full voting rights of shareholders on Party B's shareholders' meetings. Party C, Party D, Party E and Party F further agree to replace the authorized person appointed in the above mentioned Power of Attorney at any moment pursuant to the requirements of Party A. 3. OTHER AGREEMENTS 3.1 In the event that any of the agreements between Party A and Party B terminates or expires, Party A shall be entitled to terminate all agreements between Party A and Party B including but not limited to Exclusive Technical and Consulting Services Agreement. 3.2 Whereas the business relationship between Party A and Party B has been establishes through the Exclusive Technical Consulting and Services Agreement and other agreements and the daily business activities of Party B shall bear a material impact on its capacity to pay the payables to Party A, Party C, Party D, Party E and Party F jointly agree that they will immediately and unconditionally pay or transfer to Party A any bonus, dividends or any other incomes or benefits (no matter what kind of form it is in) obtained from Party B as shareholders of Party B at the time such payables occur. 4. THE AGREEMENT AND MODIFICATIONS 4.1 This Agreement and all the agreements and/or documents referenced or specifically included herein constitute the entire agreement among the Parties in respect of the subject matter hereof and supersede all prior oral or written agreements, contracts, understanding and correspondence among them, including the business operation agreement among Party A, Party B, Party C, Party D and Party E dated March 31, 2004. 4.2 Any amendment and supplement of this Agreement shall take effect only after it 3 is executed by each Party. The amendment and supplement duly executed by each Party shall be part of this Agreement and shall have the same legal effect as this Agreement. 5. GOVERNING LAW The execution, effect, performance and the resolution of disputes of this Agreement shall be governed by and construed in accordance with the PRC law. 6. DISPUTE RESOLUTION 6.1 The parties shall strive to settle any dispute arising from the interpretation or performance through negotiation in good faith. In case no settlement can be reached through consultation, each party can submit such matter to China International Economic and Trade Arbitration Commission ("CIETAC") for arbitration in accordance with the current rules of CIETAC. The arbitration proceedings shall take place in Beijing and shall be conducted in Chinese. The arbitration award shall be final and binding upon all the parties. 6.2 Each Party shall continue to perform its obligations in good faith according to the provisions of this Agreement except for the matters in dispute. 7. NOTICE 7.1 Any notice that is given by the party/parties hereto for the purpose of performing the rights, duties and obligations hereunder shall be in written form. Where such notice is delivered personally, the actual delivery time is regarded as notice time; where such notice is transmitted by telex or facsimile, the notice time is the time when such notice is transmitted. If such notice does not reach the addressee on business date or reaches the addressee after the business time, the next business day following such day is the date of notice. The written form includes facsimile and telex. 7.2 Any notice or other correspondence hereunder provided shall be delivered to the following addresses in accordance with the above terms: PARTY A: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD. Address: Room 809, Tower A, Yue Tan Building, No. 2, Yue Tan North Street, Xi Cheng District, Beijing Fax: (86)10-68083118 Tele:(86)10-68081818 Addressee: Zhou Yunfan 4 PARTY B: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD. Address: Room 809, Tower A, Yue Tan Building, No. 2, Yue Tan North Street, Xi Cheng District, Beijing Fax: (86)10-68083118 Tele: (86)10-68081818 Addressee: Zhou Yunfan PARTY C: YUNFAN ZHOU Address: 13 A, No. 9 Building, Guan Cheng South Garden, Ma Dian, Hai Dian District, Beijing Fax: Tele: Addressee: Yunfan Zhou PARTY D: SONGLIN YANG Address: 13 A, No. 9 Building, Guan Cheng South Garden, Ma Dian, Hai Dian District, Beijing Fax: Tele: Addressee: Songlin Yang PARTY E: ZHEN HUANG Address: 13 A, No. 9 Building, Guan Cheng South Garden, Ma Dian, Hai Dian District, Beijing Fax: Tele: Addressee: Zhen Huang PARTY E: YANG CHA Address: 13 A, No. 9 Building, Guan Cheng South Garden, Ma Dian, Hai Dian District, Beijing Fax: Tele: Addressee: Yang Cha 8. EFFECT, TERM AND OTHER ABOUT THIS AGREEMENT 8.1 This Agreement shall be executed by a duly authorized representative of each party as of the Effective Date first written above and become effective simultaneously. The term of this agreement is ten years unless early termination occurs in accordance with the relevant provisions herein. This Agreement may extend automatically for another ten years except Party A give 5 notice of no extension in written three months prior to expiration of the term of this Agreement. 8.2 Party B, Party C, Party D, Party E and Party F shall not terminate this Agreement within the term of this Agreement. Notwithstanding the above stipulation, Party A shall have the right to terminate this Agreement at any time by issuing a prior written notice to Party B, Party C, Party D, Party E and Party F thirty days before the termination. 8.3 In case any terms and stipulations in this Agreement is regarded as illegal or can not be performed in accordance with the applicable law, it shall be deemed to be deleted from this Agreement and lose its effect and this Agreement shall be treated as without it from the very beginning. However, the rest stipulations will remain effective. Each Party shall replace the deleted stipulations with those lawful and effective ones, which are acceptable to each Party, through mutual negotiation. 8.4 Any non-exertion of any rights, powers or privileges hereunder shall not be regarded as the waiver thereof. Any single or partial exertion of such rights, powers or privileges shall not exclude each party from exerting any other rights, powers or privileges. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed on their behalf by a duly authorized representative as of the Effective Date first written above. 6 (No text on this page) PARTY A: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. Authorized Representative: /s/ Nick Yang ------------- PARTY B: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD. Authorized Representative: /s/ Yunfan Zhou --------------- PARTY C: YUNFAN ZHOU Signature: /s/ Yunfan Zhou PARTY D: SONGLIN YANG Signature: /s/ Songlin Yang PARTY E: ZHEN HUANG Signature: /s/ Zhen Huang PARTY F: YANG CHA Signature: /s/ Yang Cha 7 EX-10.8 13 u98939exv10w8.txt EX-10.8 AMENDED EQUITY PLEDGE AGREEMENT [Translation of Chinese original] EXHIBIT 10.8 AMENDED AND RESTATED SHARE PLEDGE AGREEMENT This Amended and Restated Share Pledge Agreement (this Agreement) is entered into on May 10, 2004 in Beijing by and between the following parties: PLEDGEE: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. Registered Address: 12th floor, Zhong Dian Building, Zhong Guan Cun South Street, Hai Dian District, Beijing Legal Representative: Zhou Yunfan And PLEDGOR: YUNFAN ZHOU, SONGLIN YANG, ZHEN HUANG AND YANG CHA WHEREAS, 1. The Pledgor, Yunfan Zhou, Songlin Yang, Zhen Huang and Yang Cha, are citizens of the People's Republic of China ("PRC", excluding Hong Kong Special Administration District, Macao Special Administration District and Taiwan area , for the purpose of this "Agreement"), and respectively owns 10%, 42%, 3% and 45% equity interest in Beijing AirInBox Information Technologies Co., Ltd. 2. Beijing AirInBox Information Technologies Co., Ltd. is a limited liability company registered in Beijing engaging in the business of Internet information provision services, value-added telecommunication services, etc. 3. The Pledgee, a wholly foreign-owned company registered in Beijing, PRC, has been licensed by the PRC relevant government authority to carry on the business of computer software products, internet products development, sale and services, etc. The Pledgee and the Pledgor-owned Beijing AirInBox Information Technologies Co., Ltd. entered into Exclusive Technical Consulting and Services Agreement, Trademark Licensing Agreement and Domain Name Licensing Agreement on March 31, 2004. 4. In order to make sure that the Pledgee collect technical service fees under Exclusive Technical Consulting and Services Agreement, Trademark Licensing Agreement and Domain Name Licensing Agreement as normal from Pledgor-owned Beijing AirInBox Information Technologies Co., Ltd., the Pledgor are willing to severally and jointly pledge all their equity interest in Beijing AirInBox Information Technologies Co., Ltd. to the Pledgee as a security for the Pledgee to collect the above-mentioned fees. 1 In order to define each Party's rights and obligations, the Pledgee and the Pledgor through mutual negotiations hereby enter into this Agreement based upon the following terms: 1. DEFINITIONS Unless otherwise provided in this Agreement, the following terms shall have the following meanings: 1.1 Pledge means the full content of Article 2 hereunder. 1.2 Equity Interest means all the 100% equity interests in Beijing AirInBox Information Technologies Co., Ltd. legally and jointly held by the Pledgor and all the present and future rights and benefits based on such equity interest. 1.3 Service Agreement means the Exclusive Technical Consulting and Service Agreement entered into by and between Beijing AirInBox Information Technologies Co., Ltd. and the Pledgee on March 31, 2004. 1.4 Licensing Agreement means the Trademark Licensing Agreement and Domain Name Licensing Agreement entered into by and between Beijing AirInBox Information Technologies Co., Ltd. and the Pledgee on March 31, 2004. 1.5 Event of Default means any event in accordance with Article 7 hereunder. 1.6 Notice of Default means the notice of default issued by the Pledgee in accordance with this Agreement. 2. PLEDGE 2.1 The Pledgor agrees to pledge all his equity interest in Beijing AirInBox Information Technologies Co., Ltd. to the Pledgee to ensure the Pledgee collect the services fees under the Services Agreement Licensing Agreement. 2.2 The Pledge under this Agreement refers to the rights owned by the Pledgee to collect the fees (including legal fees), expenses and losses that Beijing AirInBox Information Technologies Co., Ltd. shall pay under the Service Agreement and Licensing Agreement, and the civil liability that Beijing AirInBox Information Technologies Co., Ltd. shall bear in case the Service Agreement and/or Licensing Agreement wholly or partially nullify due to 2 any reason. 2.3 The Pledge under this Agreement refers to the prior right owned by the Pledgee to the money gained from the conversion, auction, or sell of the equity interests pledged by the Pledgor to the Pledgee. 2.4 The pledge under this Agreement shall be terminated only Beijing AirInBox Information Technologies Co., Ltd. has performed all the obligations and liabilities under the Servicing Agreement and Licensing Agreement and the Pledgee has confirm in written form. If Beijing AirInBox Information Technologies Co., Ltd. does not fully perform all or part of its obligations or liabilities under the Servicing Agreement and Licensing Agreement at the expiration of such agreements, the Pledgee shall maintain the pledge hereunder up to the date all such obligations and liabilities are fully performed. 3. EFFECT 3.1 This Agreement shall take effect as of the date when the equity interests pledged are recorded in the Register of Shareholder of Beijing AirInBox Information Technologies Co., Ltd.. 3.2 The Pledgee is entitled to dispose the pledge hereunder if Beijing AirInBox Information Technologies Co., Ltd. fails to pay the fees in accordance with the Servicing Agreement and Licensing Agreement during the Pledge. 4. PHYSICAL POSSESSION OF DOCUMENTS 4.1 During the term of Pledge under this Agreement, the Pledgor shall deliver the physical possession of the Certificate of Distribution (original) of Beijing AirInBox Information Technologies Co., Ltd. and provide the testify of the proper record of such pledge on the shareholders' name list of Beijing AirInBox Information Technologies Co., Ltd. to the Pledgee within one week as of the date of conclusion of this Agreement. 4.2 The Pledgor shall be entitled to collect the incomes (such as, including but not limited to, any dividends and profits) from the equity interests, which shall become the assurance for the debt of Beijing AirInBox Information Technologies Co., Ltd., within the term of this Agreement, except for written consent of the Pledgee. 3 5. WARRANTIES AND REPRESENTATION OF THE PLEDGOR The Pledgor hereby makes the following representation and warranties to the Pledgee and confirm that the Pledgee execute such Agreement in reliance of such representation and warranties: 5.1 The Pledgor is the legal owner of the equity interests hereunder and is entitled to create pledge on such equity interests; 5.2 The Pledgee shall not be interfered by any other pledgee at any time once the Pledgee exercises the rights of the Pledge in accordance with this Agreement. 5.3 The Pledgee shall be entitled to dispose or assign the pledge in accordance with relevant laws and this Agreement. 5.4 The execution and performance of this Agreement of the Pledgor has gained all necessary authorization and shall not violate any applicable laws and regulations. The representative who signs this Agreement shall be lawfully and effectively authorized. 5.5 The Pledgor shall not encumber the equity interests (including but not limited to pledge) hereunder to any other person. 5.6 The Pledgor warrant that there is no on-going civil, administrative or criminal litigation or administrative punishment or arbitration related with the equity interests hereunder and have no idea about those in future at the date of conclusion of this Agreement. 5.7 There are no outstanding taxes, fees or undecided legal procedures related with the equity interests hereunder at the date of conclusion of this Agreement. 5.8 Each stipulation hereunder is the expression of each Party's true meaning and shall be binding upon all the Parties. 6 COVENANT OF THE PLEDGOR 6.1 During the effective term of this Agreement, the Pledgor covenants to the Pledgee that the Pledgor shall: 6.1.1 not transfer or assign the equity interests, create or permit to create any pledges which may have an adverse effect on the rights or benefits of the Pledgee without prior written consent from the Pledgee except transfer to the Pledgee or the person designated 4 by the Pledgee as required by the Pledgee; 6.1.2 comply with and implement laws and regulations with respect to the pledge of rights, present to the Pledgee the notices, orders or suggestions with respect to the Pledge issued or made by the competent authority within five days upon receiving such notices, orders or suggestions and take actions in accordance with the reasonable instruction of the Pledgee; 6.1.3 timely notify the Pledgee of any events or any received notices which may affect the Pledgor's equity interest or any part of its right, and any events or any received notices which may change the Pledgor's any covenant and obligation under this Agreement or which may affect the Pledgor's performance of its obligations under this Agreement, take actions in accordance with the reasonable instruction of the Pledgee. 6.2 The Pledgor agrees that the Pledgee's right of exercising the Pledge obtained from this Agreement shall not be suspended or hampered by the Pledgor or any successors of the Pledgor or any person authorized by the Pledgor or any other person. 6.3 The Pledgor warrants to the Pledgee that in order to protect or perfect the security over the payment of the technical consulting and service fees under the Service Agreement and the licensing fees under the Licensing Agreement, the Pledgor shall execute in good faith and cause other parties who have interests in the pledge to execute all the title certificates, contracts, and/or perform and cause other parties who have interests to take action as required by the Pledgee and make access to exercise the rights and authorization vested in the Pledgee under this Agreement, and execute all the documents with respect to the changes of certificate of equity interests with the Pledgee or another party designated by the Pledgee, and provides the Pledgee with all the documents regarded as necessary to the Pledgee within the reasonable time. 6.4 The Pledgor warrants to the Pledgee that the Pledgor will comply with and perform all the guarantees, covenants, agreements, representations and conditions for the benefits of the Pledgee. The Pledgor shall compensate for all the losses suffered by the Pledgee for the reasons that the Pledgor does not perform or fully perform their guarantees, covenants, agreements, representations and conditions. 7 EVENT OF DEFAULT 5 7.1 The following events shall be regarded as an event of default: 7.1.1 Beijing AirInBox Information Technologies Co., Ltd. or its successor or trustee fails to make full payment of service fees or licensing fees under the Servicing Agreement and Licensing Agreement as scheduled there under; 7.1.2 The Pledgor makes any material misleading or fraudulent representations or warranties under Article 5 herein, and/or the Pledgor is in violation of any warranties under Article 5 herein; 7.1.3 The Pledgor violates the warrants under Article 5 and the covenants under Article 6 herein; 7.1.4 The Pledgor badly violates any terms and conditions herein; 7.1.5 The Pledgor waives the pledged equity interests or transfers or assigns the pledged equity interests without prior written consent from the Pledgee except otherwise agreed under Article 6.1.1 herein ; 7.1.6 The Pledgor's any external loan, security, compensation, covenants or any other compensation liabilities (1) are required to be repaid or performed prior to the scheduled date; or (2) are due but can not be repaid or performed as scheduled and thereby cause the Pledgee to deem that the Pledgor's capacity to perform the obligations herein is affected; 7.1.7 The Pledgor is incapable of repaying the general debt or other debt; 7.1.8 This Agreement is illegal for the reason of the promulgation of any related laws or the Pledgor's incapability of continuing to perform the obligations herein; 7.1.9 Any approval, permits, licenses or authorization from the competent authority of the government needed to perform this Agreement or validate this Agreement are withdrawn, suspended, invalidated or materially amended; 7.1.10 The property of the Pledgor is adversely changed and cause the Pledgee to deem that the capability of the Pledgor to perform the obligations herein is affected; 6 7.1.11 Other circumstances whereby the Pledgee is incapable of exercising the right to dispose the Pledge in accordance with the related laws. 7.2 The Pledgor shall immediately give a written notice to the Pledgee if the Pledgor is aware of or find that any event under Article 7.1 herein or any events that may result in the foregoing events have happened or is going on. 7.3 Unless the event of default under Article 7.1 herein has been solved to the Pledgee's satisfaction, the Pledgee, at any time when the event of default happens or thereafter, may give a written notice of default to the Pledgor and require the Pledgor to immediately make full payment of the outstanding fees under the Service Agreement and the Licensing Agreement, and other payables or dispose the Pledge in accordance with Article 8 herein. 8 EXERCISE OF THE RIGHT OF THE PLEDGE 8.1 The Pledgor shall not transfer or assign the pledge without prior written approval from the Pledgee prior to the full repayment of the fees under the Service Agreement and the Licensing Agreement. 8.2 The Pledgee shall give a notice of default to the Pledgor when the Pledgee exercises the right of pledge. 8.3 Subject to Article 7.3, the Pledgee may exercise the right to dispose the Pledge at any time when the Pledgee gives a notice of default in accordance with Article 7.3 or thereafter. 8.4 The Pledgee is entitled to have priority in receiving payment by the evaluation or proceeds from the auction or sale of whole or part of the equity interests pledged herein in accordance with legal procedure until the outstanding fees under the Servicing Agreement and the Licensing Agreement and all other payables there under are repaid. 8.5 The Pledgor shall not hinder the Pledgee from disposing the Pledge in accordance with this Agreement and shall give necessary assistance so that the Pledgee could realize his Pledge. 9 TRANSFER OR ASSIGNMENT 9.1 The Pledgor shall not donate or transfer his rights and obligations to any third party herein without prior consent from the Pledgee. 9.2 This Agreement shall be binding upon the Pledgor and his successors 7 and be effective to the Pledgee and his each successor and assignee. 9.3 The Pledgee may transfer or assign his all or any rights and obligations under the Service Agreement and/or the Licensing Agreement to any third party at any time. In this case, the assignee shall enjoy and undertake the same rights and obligations herein of the Pledgee as if the assignee is a party hereto. When the Pledgee transfers or assigns the rights and obligations under the Service Agreement and/or the Licensing Agreement, at the request of the Pledgee, the Pledgor shall execute the relevant agreements and/or documents with respect to such transfer or assignment. 9.4 After the Pledgee's change resulting from the transfer or assignment, the new parties to the pledge shall reexecute a pledge contract. 10 TERMINATION This Agreement shall not be terminated until the fees under the Service Agreement and the Licensing Agreement are paid off and the Beijing AirInBox Information Technologies Co., Ltd. will not undertake any obligations under the Service Agreement and the Licensing Agreement any more, and the Pledgee shall cancel or terminate this Agreement within reasonable time as soon as practicable. 11 FEES AND OTHER CHARGES 11.1 The Pledgor shall be responsible for all the fees and actual expenditures in relation to this Agreement including but not limited to legal fees, cost of production, stamp tax and any other taxes and charges. If the Pledgee pays the relevant taxes in accordance with the laws, the Pledgor shall fully indemnify such taxes paid by the Pledgee. 11.2 The Pledgor shall be responsible for all the fees (including but not limited to any taxes, formalities fees, management fees, litigation fees, attorney's fees, and various insurance premiums in connection with disposition of Pledge) incurred by the Pledgor for the reason that (1) The Pledgor fails to pay any payable taxes, fees or charges in accordance with this Agreement; or (2) The Pledgee has recourse to any foregoing taxes, charges or fees by any means for other reasons. 12 FORCE MAJEURE 12.1 If this Agreement is delayed in or prevented from performing in the Event of Force Majeure ("Event of Force Majeure"), only within the limitation of 8 such delay or prevention, the affected party is absolved from any liability under this Agreement. Force Majeure, which includes acts of governments, acts of nature, fire, explosion, geographic change, flood, earthquake, tide, lightning, war, means any unforeseen events beyond the prevented party's reasonable control and cannot be prevented with reasonable care. However, any shortage of credit, capital or finance shall not be regarded as an event beyond a Party's reasonable control. The Party affected by Force Majeure who claims for exemption from performing any obligations under this Agreement or under any Article herein shall notify the other party of such exemption promptly and advice him of the steps to be taken for completion of the performance. 12.2 The Pledge affected by Force Majeure shall not assume any liability under this Agreement. However, subject to the Party affected by Force Majeure having taken its reasonable and practicable efforts to perform this Agreement, the Party claiming for exemption of the liabilities may only be exempted from performing such liability as within limitation of the part performance delayed or prevented by Force Majeure. Once causes for such exemption of liabilities are rectified and remedied, both parties agree to resume performance of this Agreement with their best efforts. 13 APPLICABLE LAW AND DISPUTE RESOLUTION 13.1 The execution, validity, performance and interpretation of this Agreement shall be governed by and construed in accordance with the PRC law. 13.2 The parties shall strive to settle any dispute arising from the interpretation or performance through friendly consultation. In case no settlement can be reached through consultation, each party can submit such matter to China International Economic and Trade Arbitration Commission ("CIETAC") for arbitration. The arbitration shall follow the current rules of CIETAC, and the arbitration proceedings shall be conducted in Chinese and shall take place in Beijing. The arbitration award shall be final and binding upon the parties. 13.3 Each Party shall continue performance of this Agreement in good faith according to the stipulations herein except the matters in dispute. 14 NOTICE Any notice or correspondence, which is given by the Party as stipulated hereunder, shall be in Chinese and English writing and shall be delivered in person or by registered or prepaid mail or recognized express service, or be transmitted by telex or facsimile to the following addresses: 9 PLEDGEE: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. Registered Address: Room 809,12 floor, Tower A, Yue Tan Building, Yue Tan Bei Jie, Xi Cheng District, Beijing Fax: (86)10-68083118 Tele: (86)10-68081818 Addressee: Yunfan Zhou YUNFAN ZHOU Address: Room 13A, No.9 Building, Guan Cheng Nan Yuan, Ma Dian, Hai Dian District, Beijing Fax: Tele: Addressee: Yunfan Zhou SONGLIN YANG Address: Room 13A, No.9 Building, Guan Cheng Nan Yuan, Ma Dian, Hai Dian District, Beijing Fax: Tele: Addressee: Songlin Yang ZHEN HUANG Address: Room 13A, No.9 Building, Guan Cheng Nan Yuan, Ma Dian, Hai Dian District, Beijing Fax: Tele: Addressee: Zhen Huang YANG CHA Address: Room 13A, No.9 Building, Guan Cheng Nan Yuan, Ma Dian, Hai Dian District, Beijing Fax: Tele: Addressee: Yang Cha 15 APPENDICES The appendices to this Agreement are entire and integral part of this Agreement. 16 WAIVER The Pledgee's non-exercise or delay in exercise of any rights, remedies, power or 10 privileges hereunder shall not be deemed as the waiver of such rights, remedies, power or privileges. Any single or partial exercise of the rights, remedies, power and privileges shall not exclude the Pledgee from exercising any other rights, remedies, power and privileges. The rights, remedies, power and privileges hereunder are accumulative and shall not exclude the application of any other rights, remedies, power and privileges stipulated by laws. 17 MISCELLANEOUS 17.1 Any amendments, modifications or supplements to this Agreement shall be in writing and come into effect upon being executed and sealed by the parties hereto. 17.2 This Agreement and all the agreements and/or documents referenced or specifically included herein constitute the entire agreement among the Parties in respect of the subject matter hereof and supersede all prior oral or written agreements, contract, understanding and correspondence among them, including the equity pledge agreement among the Pledgee, Yunfan Zhou, Songlin Yang and Zhen Huang dated March 31, 2004. 17.3 In case any terms and stipulations in this Agreement is regarded as illegal or can not be performed in accordance with the applicable law, such terms and stipulations shall be deemed to lose effect and enforcement within the scope governed by the applicable law, and the rest stipulations will remain effective. 17.4 This Agreement is translated from the Chinese original and shall be kept in seven copies. 11 (No text on this page) PLEDGEE: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. Authorized Representative: /s/ Nick Yang ------------- PLEDGOR: YUNFAN ZHOU Signature: /s/ Yunfan Zhou PLEDGOR: SONGLIN YANG Signature: /s/ Songlin Yang PLEDGOR: ZHEN HUANG Signature: /s/ Zhen Huang PLEDGOR: YANG CHA Signature: /s/ Yang Cha 12 APPENDICES 1. Register of Shareholders of Beijing AirInBox Information Technologies Co., Ltd. 2. Certificate of Capital Contribution of Beijing AirInBox Information Technologies Co., Ltd. 13 EX-10.9 14 u98939exv10w9.txt EX-10.9 AMENDED OPTION AGREEMENT EXHIBIT 10.9 AMENDED AND RESTATED OPTION AGREEMENT THIS AMENDED AND RESTATED OPTION AGREEMENT ("Agreement") is made on this 10th day of May, 2004 in Beijing, People's Republic of China ("PRC") among (1) KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. [CHINESE CHARACTERS], with its registered address at Room 1205, CEC Building, No.6 South Street of Zhong Guan Cun, Hai Dian District, Beijing, PRC ("KongZhong Beijing") (2) ZHOU, YUNFAN, a PRC citizen whose PRC identification number is 110102197411102374, and whose residential address is 13A, No. 9 Building, Guang Cheng South Garden, Ma Dian, Beijing, PRC("Zhou") (3) YANG, SONGLIN, a PRC citizen whose PRC identification number is 410105490701051 and whose residential address is 13A, No. 9 Building, Guang Cheng South Garden, Ma Dian, Beijing , PRC ("Yang") (4) HUANG, ZHEN, a PRC citizen whose PRC identification number is 610104780219162 and whose residential address is, 13A, No. 9 Building, Guang Cheng South Garden, Ma Dian, Beijing , PRC("Huang") and (5) Cha, Yang, a PRC citizen whose PRC identification number is 110108196401019036, and whose residential address is 13A, No. 9 Building, Guang Cheng South Garden, Ma Dian, Beijing , PRC ("Cha") (Each of Zhou, Yang, Huang and Cha is hereinafter referred to as a "Grantor" and collectively the "Grantors") WHEREAS - ------- A. KongZhong Beijing is a wholly foreign-owned enterprise, duly established and registered in Beijing under the laws of the PRC. B. Zhou, Yang, Huang and Cha together hold 100% of the registered capital of Beijing AirInBox Information Technologies Co., Ltd. ("Beijing AirInBox"), a limited liability company, with a registered capital of RMB 10,000,000. (the "Equity Interests") and respectively, Zhou holds 10%, Yang holds 42%, Huang holds 3%, bj-4825 1 and Cha holds 45%. C. Grantors have agreed to grant exclusively to KongZhong Beijing an option to purchase the Equity Interests, 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 Zhou, Yang, Huang and Cha hereby grants to KongZhong Beijing an option (each and "Option" and collectively the "Options") to purchase their respective Equity Interests at the purchase price of RMB twenty thousand (20,000) per one (1) percent of the registered capital of Beijing AirInBox, each of such option shall become vested as of the date of this Agreement. 1.2 Term ---- This Agreement shall take effect as of the date of signing by the parties hereto and shall remain in full force and effect until the earlier of (1) the date on which all of the Equity Interests have been purchased by KongZhong Beijing and (2) the tenth anniversary of the date hereof. ARTICLE 2: EXERCISE OF THE OPTION AND ITS CLOSING 2.1 Timing of Exercise ------------------ 2.1.1 Each of the Grantors agrees that KongZhong Beijing in its sole discretion may at any time, and from time to time after the date hereof, exercise the Options, in whole or in part, to acquire all or any portion of their respective Equity Interests, subject only to applicable laws of the PRC, including any restrictions on foreign investment. 2.1.2 For the avoidance of doubt, each of the holders hereby agrees that KongZhong Beijing shall be entitled to exercise the Option for an unlimited number of times, until all of the Equity Interests have been acquired by KongZhong Beijing. 2.1.3 The Grantors agree that KongZhong Beijing may designate in its sole discretion 2 any third party to exercise the Options on its behalf, in which case KongZhong Beijing shall provide written notice to the Grantor at the time the Option granted by such Grantor is exercised. 2.2 Transfer -------- The Grantors agree that the Option shall be freely transferable, in whole or in part, by KongZhong Beijing 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 KongZhong Beijing hereunder. 2.3 Notice Requirement ------------------ 2.3.1 To exercise an Option, KongZhong Beijing shall send an written notice to the Grantor such Option is to be exercised 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 Equity Interests shall be registered; 2.3.1.3 the amount of Equity Interests to be purchased from such Grantor; 2.3.1.4 the type of payment; and 2.3.1.5 a letter of authorization, 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 KongZhong Beijing shall have the right to exercise the Options and elect to register the Equity Interests in the name of another person as it may designates from time to time. 2.4 Closing ------- On each Closing Date, KongZhong Beijing shall pay to the relevant Grantor the applicable purchase price for the Equity Interests to be purchased on such Closing Date as provided in Article 1 above. ARTICLE 3: COMPLETION 3 3.1 Assignment Agreement -------------------- Concurrently with the execution and delivery of this Agreement, and from time to time upon the request of KongZhong Beijing, each of the Grantors shall execute and deliver one or more assignments, each in the form and content substantially satisfactory to KongZhong Beijing (each an "Assignment"), together with any other documents necessary to give effect to the transfer to KongZhong Beijing or its designated party of all or any part of the Equity Interests upon an exercise of an Option by KongZhong Beijing (the " Ancillary Documents"). Each Assignment and the Ancillary Documents are to be held in KongZhong Beijing. 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 KongZhong Beijing, each of Grantors shall execute and deliver one or more resolutions of the board of directors and/or shareholders of Beijing AirInBox, approving the following: 3.2.1 The transfer by the Grantor of all or part of the Equity Interests to KongZhong Beijing or its designated party; and 3.2.2 any other matters as KongZhong Beijing may reasonably request. Each Resolution is to be held in KongZhong Beijing. ARTICLE 4: REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties ------------------------------ Each of Grantors severally represents and warrants to KongZhong Beijing that: 4.1.1 it has the full powder and authority to enter into, and perform under, this Agreement; 4.1.2 its signing of this Agreement or fulfilling of any its obligations hereunder does not violate any laws, regulations and contracts to which it is bound, or require any government authorization 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 4.14 it has disclosed to KongZhong Beijing 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 count of competent jurisdiction; 4.1.6 its equity shareholding in Beijing AirInBox is free and clear from all liens, encumbrances and third party rights; 4.1.7 it will not transfer, donate, pledge, or otherwise dispose of its equity shareholdings in any way unless otherwise agreed by KongZhong Beijing; 4.1.8 the Option granted to KongZhong Beijing shall be exclusive, and neither Grantor shall grant the Option or any similar rights to a third party by any means whatsoever; and 4.1.9 Zhou further represents and warrants to KongZhong Beijing that he owns 10% of the Equity Interests of Beijing AirInBox, Yang further represents and warrants to KongZhong Beijing that he owns 42% of the Equity Interests of Beijing AirInBox, Huang further represents and warrants to KongZhong Beijing that he owns 3% of the Equity Interests of Beijing AirInBox and Cha further represents and warrants to KongZhong Beijing that he owns 45% of the Equity Interests of Beijing AirInBox. 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 warrants were make on and as of such Closing Date. 4.2 Covenants and Undertaking ------------------------- Each of Grantors covenants and undertakes to COTAB that: 4.2.1 he will bear all costs arising from executing each Assignment, the Ancillary Documents and any other relevant documents required therefore, and will complete all such formalities as are necessary to make KongZhong Beijing or its designated party a full and proper shareholder of Beijing AirInBox. Such formalities include, but are not limited to, assisting KongZhong Beijing with the obtaining of necessary approvals of the equity transfer from relevant government authorities (if any), 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. 5 4.2.2 he will, upon request by KongZhong Beijing, establish a domestic entity to hold the interests in Beijing AirInBox as a Chinese party in case Beijing AirInBox is restructured to an FIE. 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 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. 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 ------------------------ 6 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). Each Party's obligations under this clause shall survive after the termination of this Agreement. 8.2 Exceptions ---------- 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 designate 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: KongZhong Beijing : KongZhong Information Technologies (Beijing) Co., Ltd. Address : Room 809, Tower A, No. 2 Yuetan North Street, Xicheng District, Beijing, China Zip code : 100045 Telephone : (86 10) 68083188 7 Facsimile : (86 10) 68083118 Contact : Chief Executive Officer Person Zhou, Yunfan : Zhou, Yunfan Address : 13A, No. 9 Building, Guang Cheng South Garden,Ma Dian, Beijing, China Zip code : 100088 Telephone : (86 10) 62077989 Facsimile : (86 10) 62077989 Yang, Songlin : Yang, Songlin Address : 13A, No. 9 Building, Guang Cheng South Garden, Ma Dian, Beijing, China Zip code : 100088 Telephone : (86 10) 62077989 Facsimile : (86 10) 62077989 Huang, Zhen : Huang, Zhen Address : 13A, No.9 Building, Guang Cheng South Garden, Ma Dian, Beijing, China Zip Code : 100088 Telephone : (86 10) 62077989 Facsimile : (86 10) 62077989 Cha, Yang : Cha, Yang Address : 13A, No.9 Building, Guang Cheng South Garden, Ma Dian, Beijing, China Zip Code : 100088 Telephone : (86 10) 62077989 Facsimile : (86 10) 62077989 9.3.2 Notices and correspondences shall be deemed to have been effectively delivered: 9.3.2.1 at the exact tine 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 8 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 five (5) originals in English, with one (1) original for KongZhong Beijing, one (1) original each for Grantors. 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. 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 Equity Interests. This Agreement has been signed by the Parties or their duly authorized representatives on the date first specified above. 9 KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. By: /s/ Nick Yang ------------------------------- Signature: Seal: ZHOU, YUNFAN Signature: /s/ Yunfan Zhou ------------------------ YANG, SONGLIN Signature: /s/ Songlin Yang ------------------------ HUANG, ZHEN Signature: /s/ Zhen Huang ------------------------ CHA, YANG Signature: /s/ Yang Cha ------------------------ 10 EX-10.10 15 u98939exv10w10.txt EX-10.10 AMENDED POWER OF ATTORNEY BY SONGLIN YANG [Translation of Chinese original] EXHIBIT 10.10 AMENDED AND RESTATED POWER OF ATTORNEY I, Songlin Yang, citizen of the People's Republic of China (the "PRC"), PRC ID card number 410105490701051, hereby irrevocably authorize Mr. Yunfan Zhou to exercise the following powers and rights during the term of this Power of Attorney: I hereby assigns Mr. Yunfan Zhou to vote on my behalf at the shareholders' meetings of Beijing AirInBox Information Technologies Co., Ltd and exercise the full voting rights as the shareholder of the company as granted to me by law and under the Articles of Association of the company, including but not limited to, the right to propose the holding of shareholders' meeting, to accept any notification about the holding and discussion procedure of the meeting, to attend the shareholders' meeting of Beijing AirInBox Information Technologies Co., Ltd and exercise the full voting rights (such as, my authorized representative on the shareholders' meeting of the company, to designate and appoint the directors and the general manager and to decide the allotment of the profits, etc.), to sell or transfer any or all of my shares of Beijing AirInBox Information Technologies Co., Ltd, etc. The above authorization and designation are based upon the fact that Mr. Yunfan Zhou is acting as an employee of KongZhong Information Technologies (Beijing) Co., Ltd and KongZhong Information Technologies(Beijing) Co., Ltd accepts such authorization and designation. Once Mr. Yunfan Zhou loses his title or position in KongZhong Information Technologies (Beijing) Co., Ltd or KongZhong Information Technologies(Beijing) Co., Ltd issues a written notice to dismiss or replace the designated/authorized person, this Power of Attorney shall become invalid immediately and I will withdraw such authorization to him immediately and designate/authorize other individual employed by KongZhong Information Technologies(Beijing) Co., Ltd to exercise all the rights mentioned above. Therefore, I will sign another Power of Attorney in accordance with the terms and form of this one or with other terms or form subject to KongZhong Information Technologies (Beijing) Co., Ltd's satisfaction. The term of this Power of Attorney is ten (10) years except for the early termination of Business Operation Agreement jointly executed by Beijing AirInBox Information Technologies Co., Ltd, KongZhong Information Technologies (Beijing) Co., Ltd, Yunfan Zhou, Zhen Huang, Yang Cha and me by any reason, commencing from the signing date of this Power of Attorney. This Power of Attorney should upon becoming effective replace a similar power of attorney dated March 31, 2004 executed by me. /s/ Songlin Yang (Signature) SONGLIN YANG 5/10/2004 SCHEDULE OF POWERS OF ATTORNEY 1. From the shareholders of Beijing AirInbox Information Technologies Co., Ltd, each dated May 10, 2004 (a) Songlin Yang to Yunfan Zhou (b) Yang Cha to Yunfan Zhou (c) Zhen Huang to Yunfan Zhou 2. From Zhen Huang, as a shareholder of Beijing Boya Wuji Technologies Co., Ltd, to Yunfan Zhou, dated March 30, 2004 EX-10.11 16 u98939exv10w11.txt EX-10.11 AGREEMENT DATED MAR 31, 2004 EXHIBIT 10.11 AGREEMENT This Agreement is entered into as of March 31st, 2004, in Beijing, P.R.C. by and between the following two parties KONGZHONG CORPORATION Legal Representative:Yunfan Zhou KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD Legal Registered Address: 12th floor, Zhong Dian Building, Zhong Guan Cun Nan Da Jie, Hai Dian District, Beijing Legal Representative: Yunfan Zhou BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD Legal Address: 12th floor, Zhong Dian Building, Zhong Guan Cun Nan Da Jie, Hai Dian District, Beijing Legal Representative: Yunfan Zhou YUNFAN ZHOU PIN: 110102197411102374 Address: 9# 13A, Ma Dian Guan Cheng Nan Yuan, Hai Dian District, Beijing SONGLIN YANG PIN: 410105490701051 Address: 9# 13A, Ma Dian Guan Cheng Nan Yuan, Hai Dian District, Beijing 1 ZHEN HUANG PIN: 610104780219162 Address: 9# 13A, Ma Dian Guan Cheng Nan Yuan, Hai Dian District, Beijing WHEREAS: 1. The Loan Agreement, which was entered into between Yunfan Zhou and Communications Over The Air Inc. (afterwards transferred its name into KongZhong Corporation) in May 7, 2002, provided that KongZhong Corporation shall lend Yunfan Zhou no less than the amount of 700,000 RMB, which was the contributed capital to BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD by Yunfan Zhou, and Yunfan Zhou acquired entire amount of the loan but has not refunded; 2. The Loan Agreement, which was entered into between Yunfan Zhou and Communications Over The Air Inc. (afterwards transferred its name into KongZhong Corporation) in September 26, 2003, provided that Communications Over The Air Inc. (afterwards transferred its name into KongZhong Corporation) shall lend Yunfan Zhou no less than the amount of 300,000 RMB, which was the capital to pay Leilei Wang, an ex-shareholder, in exchange with 15% of the total equity in BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD, and Yunfan Zhou acquired entire amount of the loan but has not refunded; 3. The Loan Agreement, which was entered into between Songlin Yang and Communications Over The Air Inc. (afterwards transferred its name into KongZhong Corporation) in May 7, 2002, provided that KongZhong Corporation shall lend Songlin Yang no less than the amount of 700,000 RMB, which was the contributed capital to BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO.,LTD by Songlin Yang, and Songlin Yang acquired entire amount of the loan but has not refunded; 4. The Loan Agreement, which was entered into between Zhen Huang and Communications Over The Air Inc. (afterwards transferred its name into KongZhong Corporation) in September 26, 2003, provided that Communications Over The Air Inc. (afterwards transferred its name into KongZhong Corporation) shall lend Zhen Huang no less than the amount of 300,000 RMB, which was the capital to pay Leilei Wang, an ex-shareholder, in exchange with 15% of the total equity in BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD, and Zhen Huang acquired entire amount of the 2 loan but has not refunded; 5. The Exclusive Agreement, which was entered into by and between KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD and BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD in July 30, 2002, provided that two parties shall cooperate with each other in the fields of technical support, technical service, domain name and trademark; 6. All Parties to this Agreement reach the contracts relating to the relevant issues in the above Agreement in the signature date of this agreement. Yunfan Zhou, Songlin Yang, Zhen Huang and KongZhong Corporation reached a loan Agreement; KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD and BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD reached a trademark license agreement, a domain name license agreement and an exclusive technical and consulting services agreement; Yunfan Zhou, Songlin Yang, Zhen Huang and KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD reached a equity mortgage agreement; Yunfan Zhou, Songlin Yang, Zhen Huang and KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD AND BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD reached a business management agreement. Through friendly negotiation, all parties agrees that: 1. After the effective date of this agreement, Article 1 to Article 6 of the "Whereas Clause" in the said agreements ("the original agreements") shall be substituted by the Articles below Articles 7 of the relevant agreements ("the new agreements"). The original agreements shall be terminated from the effective date of this agreement, and the original agreements have no binding force to parties. 2. In order to avoid the misunderstanding, the signature and the effect of this agreement shall not effect the acquired rights and/or the coming obligation under the original agreements. 3. After this agreement comes into effect, the rights and obligations of all parties under the original contracts shall be ruled by the new agreements. 4. If dispute occurs among parties in the construction and the performance of this agreement, each party shall settle the disputes by negotiation in goodwill. If the 3 relevant parties could not reach the agreement to settle the dispute within the 30 days after the a party set forth a request to settle the dispute by negotiation, each party may file the relevant disputes to China International Economic and Trade Arbitration Committee to arbitrate following the effective arbitration rules. The arbitration forum is Beijing. The arbitration language is Chinese. The award of the arbitration is final and binding to parties. 5. The rescind of the original agreements and the effect and substation of the new agreements shall be ruled by the law, under which the agreements were entered. 6. This Agreement goes into effect in the signature date. This Agreement is subscribed by parties in the date said above. 4 [Signature Page, No Agreement Articles] KONGZHONG CORPORATION Authorized Representative: /s/ Nick Yang KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD Authorized Representative: /s/ Nick Yang BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD Authorized Representative: /s/ Yunfan Zhou YUNFAN ZHOU Signature: /s/ Yunfan Zhou SONGLIN YANG Signature: /s/ Songlin Yang ZHEN HUANG Signature: /s/ Zhen Huang 5 EX-10.12 17 u98939exv10w12.txt EX-10.12 EXCLUSIVE TECH CONSULTING AGMT MAR 31, 04 [Translation of Chinese original] - -------------------------------------------------------------------------------- EXHIBIT 10.12 EXCLUSIVE TECHNICAL CONSULTING AND SERVICES AGREEMENT This Exclusive Technical Consulting and Services Agreement (the "Agreement") is entered into in Beijing as of March, 31, 2004, between the following two parties: PARTY A: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD. PARTY B: BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. WHEREAS, 1. Party A, a wholly foreign-owned enterprise registered in People's Republic of China (the "PRC", excluding Hong Kong Special Administration District, Macao Special Administration District and Taiwan area, for the purpose of this "Agreement") under the laws of PRC, which owns resources to provide the technical and consulting services. 2. Party B, a wholly domestic invested company registered in PRC, is licensed by relevant government authorities to engage in the business of the Internet information provision service and value-added telecommunication service; 3. Party A agrees to be the provider of technical and consulting services to Party B, and Party B hereby agrees to accept such technical and consulting services; WHEREAS, Party A and Party B, through friendly negotiation and based on the equality and mutual benefit, enter into the Agreement as follows: 1. TECHNICAL CONSULTING AND SERVICES; OWNERSHIP AND EXCLUSIVE INTERESTS 1.1 During the term of this Agreement, Party A agrees to provide the relevant technical consulting and services to Party B (the content is specified in Appendix 1) in accordance with the Agreement. 1.2 Party B hereby agrees to accept such technical and consulting services. Party B further agrees that, during the term of this Agreement, it shall not utilize any third party to provide such technical and consulting services for such above-mentioned business without the prior written consent of Party A. 1.3 Party A shall be the sole and exclusive owner of all rights, title, interests and intellectual property rights arising from the performance of this Agreement, including, but not limited to, any copyrights, patent, know-how, commercial secrets and otherwise, whether developed by Party A or Party B based on Party 1 A's intellectual property. 1.4 Party B covenant that Party A or its affiliated companies have the priority on cooperation with party B in the same condition in case Party B is going to cooperate with other enterprises in respect of any business. 2. CALCULATION AND PAYMENT OF THE FEE FOR TECHNICAL AND CONSULTING SERVICES (THE "FEE") Both Parties agree that the Fee of this Agreement shall be calculated and paid according to the Appendix 2 this Agreement. 3. REPRESENTATIONS AND WARRANTIES 3.1 Party A hereby represents and warrants as follows: 3.1.1 Party A is a company duly registered and validly existing under the laws of the PRC; 3.1.2 Party A has full right, power, authority and capacity and all consents and approvals of any other third party and government necessary to execute and perform this Agreement, which shall not be against any enforceable and effective laws or contracts; 3.1.3 the Agreement will constitute a legal, valid and binding agreement of Party A enforceable against it in accordance with its terms upon its execution. 3.2 Party B hereby represents and warrants as follows: 3.2.1 Party B is a company duly registered and validly existing under the laws of the PRC and is licensed to engage in the business of Internet information provision services and value-added telecommunication services. 3.2.2 Party B has full right, power, authority and capacity and all consents and approvals of any other third party and government necessary to execute and perform this Agreement, which shall not be against any enforceable and effective laws or contracts. 3.2.3 Once the Agreement has been duly executed by both parties, it will constitute a legal, valid and binding agreement of Party B enforceable against it in accordance with its terms upon its execution. 4. CONFIDENTIALITY 4.1 Party B agrees to use all reasonable means to protect and maintain the confidentiality of Party A's confidential documents and information acknowledged or received by Party B by accepting the exclusive consulting and services from Party A (collectively the "Confidential Information"). Party B shall not disclose 2 or transfer any Confidential Information to any third party without Party A's prior written consent. Upon termination or expiration of this Agreement, Party B shall, at Party A's option, return all and any documents, information or software contained any of such Confidential Information to Party A or destroy it, delete all of such Confidential Information from any memory devices, and cease to use them. Party B shall take necessary measures to keep the Confidential Information to the employees, agents or professional consultants of Party B who are necessary to get to know such Information and procure them to observe the confidential obligations hereunder. 4.2 The limitation stipulated in Section 4.1 shall not apply to: 4.2.1 the materials available to the public at the time of disclosure; 4.2.2 the materials that become available to the public after the disclosure without fault of Party B; 4.2.3 the materials Party B prove to have got the control neither directly nor indirectly from any other party before the disclosure; 4.2.4 the information that each Party is required by law to disclose to relevant government authorities, stock exchange institute, or that is necessary to disclose the above confidential information directly to the legal counselor and financial consultant in order to keep its usual business. 4.3 Both Parties agree that this article shall survive the modification, elimination or termination of this Agreement. 5. INDEMNITY Party B shall indemnify and hold Party A harmless from and against any loss, damage, obligation and cost arising out of any litigation, claim or other legal procedure against Party A resulting from the contents of the technical consulting and services demanded by Party B. 6. EFFECTIVE DATE AND TERM 6.1 This Agreement shall be executed and come into effect as of the date first set forth above. The term of this Agreement is ten (10) years, unless earlier terminated as set forth in this Agreement or in accordance with the terms set forth in the agreement entered into by both parties separately. 6.2 This Agreement may be automatically extended for another ten years except Party A gives its written notice of the termination of this Agreement three months before the expiration of this Agreement. 7. TERMINATION 3 7.1 This Agreement shall expire on the date due unless this Agreement is extended as set forth in the relevant terms hereunder. 7.2 During the term of this Agreement, Party B cannot terminate this Agreement before the schedule time. Notwithstanding the above-mentioned, Party A may terminate this Agreement at any time with a written notice to Party B 30 days before such termination. If Party A terminate the Agreement in advance duo to Party B's reason, Party B shall take the liability to compensate all the losses caused thereby to Party A and shall pay the relevant fees for the services provided. 7.3 Article 4 and 5 shall survive after the termination or expiration of this Agreement. 8. SETTLEMENT OF DISPUTES 8.1 The parties shall strive to settle any dispute arising from the interpretation or performance in connection with this Agreement through friendly consultation. In case no settlement can be reached through consultation, each party can submit such matter to China International Economic and Trade Arbitration Commission (the "CIETAC"). The arbitration shall follow the current rules of CIETAC, and the arbitration proceedings shall be conducted in Chinese and shall take place in Beijing. The arbitration award shall be final and binding upon Both Parties. This article shall not be influenced by the termination or elimination of this Agreement. 8.2 Each Party shall continue to perform its obligations in good faith according to the provisions of this Agreement except for the matters in dispute. 9. FORCE MAJEURE 9.1 Force Majeure, which includes but is not limited to, acts of governments, acts of nature, fire, explosion, typhoon, flood, earthquake, tide, lightning, war, means any event that is beyond the party's reasonable control and cannot be prevented with reasonable care. However, any shortage of credit, capital or finance shall not be regarded as an event of Force Majeure. The affected party who is claiming to be not liable to its failure of fulfilling this Agreement by Force Majeure shall inform the other party, as soon as possible, of the approaches of the performance of this Agreement by the affected party. 9.2 In the event that the affected party is delayed in or prevented from performing its obligations under this Agreement by Force Majeure, only within the scope of such delay or prevention, the affected party will not be responsible for any damage by reason of such a failure or delay of performance. The affected party shall take appropriate means to minimize or remove the effects of Force Majeure and attempt to resume performance of the obligations delayed or prevented by the event of Force Majeure. After the event of Force Majeure is removed, both parties agree to resume performance of this Agreement with their best efforts. 10. NOTICES 4 Notices or other communications required to be given by any party pursuant to this Agreement shall be written in English and Chinese and shall be deemed to be duly given when it is delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of the relevant party or parties set forth below. PARTY A: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD. Room 809, Tower A, Yue Tan Building, No. 2, Yue Tan North Street, Xi Cheng District, Beijing Fax: (86) 10-68083118 Tele:(86) 10-68081818 Addressee: Yunfan Zhou PARTY B: BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. Room 809, Tower A, Yue Tan Building, No. 2, Yue Tan North Street, Xi Cheng District, Beijing Fax: (86) 10-68083118 Tele:(86) 10-68081818 Addressee: Yang Zha 11. ASSIGNMENT Party B shall not assign its rights or obligations under this Agreement to any third party without the prior written consent of Party A. Party A can transfer its rights or obligations under this Agreement to any third party without the consent of Party B but shall inform Party B of the above assignment. 12. SEVERABILITY Any provision of this Agreement that is invalid or unenforceable because of any inconsistency with relevant law shall be ineffective or unenforceable within such jurisdiction where the relevant law governs, without affecting in any way the remaining provisions hereof. 13. AMENDMENT AND SUPPLEMENT Any amendment and supplement of this Agreement shall come into force only after a written agreement is signed by both parties. The amendment and supplement duly executed by both parties shall be part of this Agreement and have the same legal effect as this Agreement. 14. GOVERNING LAW 5 The execution, validity, performance and interpretation of this Agreement shall be governed by and construed in accordance with the PRC laws. IN WITNESS THEREOF the Parties hereto have caused this Agreement to be duly executed on their behalf by a duly authorized representative as of the date first set forth above. (NO TEXT ON THIS PAGE) PARTY A:KONGZHONG TECHNOLOGY (BEIJING) CO., LTD. Authorized Representative: /s/ Nick Yang ____________________________ PARTY B: BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. 6 Authorized Representative: /s/ Yang Zha _____________________________ 7 APPENDIX 1 THE CONTENT LIST OF TECHNICAL AND CONSULTING SERVICES 1. maintenances of the machine room and website; 2. provision and maintenances of the office network; 3. integrated security services for the website; 4. design and implementation of the integrated structure of the network of the website, including the installation of the server system and 24 hours' daily maintenances each week. 5. development and test of new products; 6. marketing and strategic plan of new products; 7. conception, creation, design, update and maintenance of the web pages; 8. maintenance of the clients service platform; 9. training of the employees; 10. study and analysis on market; 11. public relationship service 8 APPENDIX 2 CALCULATION AND PAYMENT OF THE FEE FOR TECHNICAL AND CONSULTING SERVICES The service fees hereunder shall be monthly calculated by 20% to 25% of the monthly package fees paid by Party B' end users to Party B (accumulated by all the package end users) and 20% to 25% of the fees of every message paid by Party B's clients (accumulated by the amount of the actual messages). The exact proportion above mentioned (within the scope of 20% to 25%) shall be decided by Party A in accordance with the actual service it provides to Party B and shall be calculated quarterly and Party B shall pay the service fees 15 days after each quarter. Meanwhile, both Parties agree that Party B shall be exempted from paying any service fees until Party B starts making profits. 9 EX-10.13 18 u98939exv10w13.txt EX-10.13 AMENDED TRADEMARK LICENSE AGREEMENT EXHIBIT 10.13 AMENDED AND RESTATED TRADEMARK LICENSE AGREEMENT This Amended and Restated Trademark License Agreement (the "Agreement") is entered into as of May 10, 2004 by and between the following two parties in Beijing. The Licensor: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. ("KONGZHONG BEIJING") Legal Address: 12th floor, Zhong Dian Building, Zhong Guan Cun Nan Da Jie, Hai Dian District, Beijing The Licensee: BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. ("BEIJING BOYA WUJI") Legal Address: 12th floor, Zhong Dian Building, Zhong Guan Cun Nan Da Jie, Hai Dian District, Beijing WHEREAS, the Licensor, a wholly foreign-owned enterprise registered in Beijing under the laws of People's Republic of China (not including Hong Kong, Macao and Taiwan, hereinafter called "China"), has the right to use and apply for registration the trademarks listed in the Exhibit 1 of this Agreement; WHEREAS, the Licensee, a limited liability company sponsored by natural persons in China registered in Beijing under the laws of the People's Republic of China (the "PRC"), is licensed to engage in the business of providing Internet information and the telecom value-added services; WHEREAS, the Licensor agrees to license the said trademarks to the Licensee in accordance with the terms and conditions set forth herein and the Licensee as well agrees to accept the license on the terms and conditions set forth herein; NOW THEREFORE, on the basis of mutual benefit and friendly negotiation, the parties agree as follows: 1 1. Grant of License 1.1 The Trademarks Under the terms and conditions hereinafter set forth, the Licensor hereby grants to the Licensee and the Licensee accepts from the Licensor the license to use parts of or all parts of the trademarks listed in Exhibit 1, or any design, character, symbol and visible representation that presents any part of such trademarks (collectively the "Trademarks), and the Licensee may deal its business with these Trademarks. Such license is non-monopolized, non-exclusive and non-transferable. 1.2 Territory 1.2.1 The use of the Trademarks grants by the Licensor to the Licensor extends only to the scope of the business operated by Licensee and the business relating to KongZhong Net. The Licensee agrees that it will not make, or authorize any use direct or indirect, of the Trademarks by any means, unless the Licensor agrees. 1.2.2 The License in this Agreement is effective in the district of China and where the Licensor grant the Licensee in the writing form from time to time. The Licensee agrees that it will not make, or authorize to use, direct or indirect of the Trademarks in any area. 1.3 Standards The Licensee shall strictly comply with any standards and criteria the Licensor requests from time to time when the Licensee uses the Trademarks. 1.4 Licensee's confirmation The Licensee confirms that it will not enjoy any rights, titles and interests of the Trademarks except the rights, titles and interests in the Trademarks under this Agreement 2. TERMS OF PAYMENT The Licensee agrees to pay to the Licensor a license fee and the details of the calculation method and the form of payment are set forth in Exhibit 2. 3. GOODWILL 2 The Licensee recognizes the value of the goodwill associated with the Trademarks and the relevant rights, and acknowledges that the Trademarks therein and goodwill (including but not limited to the goodwill occurs from the Licensee's use) pertaining thereto shall be the sole and exclusive property of the Licensor. 4. CONFIDENTIALITY 4.1 The Licensee shall protect and maintain the confidentiality of any and all confidential data and information acknowledged or received by the Licensee by accepting licensing of the Trademarks from the Licensor (collectively the "Confidential Information"). Upon termination or expiration of this Agreement, the Licensee shall, at the Licensor's option, return all and any documents, information or software contained any of such Confidential Information to the Licensor or destroy it and delete such Confidential Information from any electronic devices and cease to use them. The Licensee shall not disclose, grant or transfer any Confidential Information to any third party and will not use the Confidential Information without the Licensor's written consent. Licensee shall disclose the protected confidential information to the necessary employees, agents or consultants by the necessary measures, and shall urge the necessary employees, agents or consultants to observe the obligations under this Agreement. 4.2 The above limitations shall not apply to the situations as follows: 4.2.1 The materials which can be obtained in public in the time of disclosure; 4.2.2 The public materials disclosed not due to the mistake of Licensee; 4.2.3 The Licensee may prove that before the disclosure the materials were under its title and were not obtained directly or indirectly from the other resources; 4.2.4 Upon the legal demands of any party, the Confidential Information shall be disclosed to the government authorities, security exchange agent, and etc.; and upon the general operation needs, the above Confidential Information shall be disclosed to direct legal consultants and financial advisor. 4.3 With the consent of both parties, Article 4 shall survive any amendment, expiration or termination of this Agreement. 5. REPRESENTATIONS AND WARRANTIES 5.1 The Licensor represents and warrants as follows: 3 5.1.1 the Licensor is a company duly registered and in good standing under the applicable laws of the China; 5.1.2 the Licensor, subject to its business scope, has full right, power, authority and capacity and all necessary consents any approvals of any third party and government authorities to execute and perform this agreement, which shall not be against any enforceable and effective laws or contracts; 5.1.3 the Agreement will constitute a legal, valid and binding agreement of the Licensor and will be enforceable against the Licensor in accordance with its terms upon its execution; 5.1.4 the Licensor has the exclusive ownership of the Trademarks. 5.2 The Licensee represents and warrants as follows: 5.2.1 the Licensee is a company duly registered and in good standing under the applicable laws of the China, and is approved by the relevant authorities to provide the internet information services and the value-added telecom service; 5.2.2 the Licensee, subject to its business scope, has full right, power, authority and capacity and all necessary consents and approvals of any third party and government authorities to execute and perform this Agreement, which shall not be against any enforceable and effective laws or contracts; 5.2.3 the Licensee will not use or authorize to use any trademarks or symbols, which the Licensor judges by itself, are similar to the Trademarks and to make confusion. 5.2.5 the Agreement will constitute a legal, valid and binding agreement of the Licensor and will be enforceable against the Licensor in accordance with its terms upon its execution. 6. The Licensor's Right of Licensing and Protection of the Licensor's Rights: 6.1 The Licensee agrees that it will not, during the term of this Agreement, or thereafter, attack the rights of Licensing or any rights of the Licensor in and to the Trademarks or attack the validity of this Agreement, or otherwise take or fail to take any action that impairs such rights or license. 4 6.2 The Licensee agrees to assist the Licensor to the extent necessary in the procurement of any protection or to protect any of the Licensor's rights to the Trademarks. In the event any third party lodges a claim concerning the Trademarks, the Licensor, if it so desires, may commence or prosecute any claims or lawsuits in its own name or in the name of the Licensee or join the Licensee as a party thereto. In the event any third party infringes on the above mention Trademarks, the Licensee shall notify the Licensor in writing of any infringements, or imitation by others of the Trademarks which may come to the Licensee's attention, and the Licensor shall have the sole right to determine whether or not any action shall be taken on account of any such infringements. 6.3 The Licensee further agrees to use the Trademarks only in accordance with this Agreement and shall not use the Trademarks in any way that, in the opinion of the Licensor, is deceptive, misleading or in any way damaging to such Trademarks or the reputation of the Licensor. 7. QUALITY The Licensee shall use its reasonable best efforts to improve the quality of Kong Zhong Net, so to protect and enhance the reputation of the Trademarks. 8. PROMOTION MATERIAL In all cases where the Licensee makes promotion material involving the Trademarks, the production cost of such material thereof shall be borne by the Licensee. All copyrights or other intellectual property rights of such material concerning the Trademarks thereto shall be the sole and exclusive property of the Licensor whether developed by the Licensor or the Licensee. The Licensee agrees not to advertise or publicize any of the Trademarks on radio, television, papers, magazines, the Internet or otherwise the prior written consent of the Licensor. 9. EFFECTIVE DATE AND TERM 9.1 This Agreement has been duly executed as of the date first set forth above and shall be effective simultaneously. The term of this Agreement is 10 (ten) years unless earlier terminated as set forth in this Agreement. 9.2 Unless any other provisions set forth in written form, this Agreement shall be applicable to any other trademarks licensed to the Licensee within the term of this 5 Agreement. After the execution of this Agreement, the Licensor and Licensee shall review this Agreement every 3 months to determine whether to make any amendment or supplement to this Agreement upon the detail situation. 9.3 This Agreement shall be extended for 10 (ten) years automatically only if the Licensor gives the Licensee written notice of termination of this Agreement 3 (three) months prior to the expiration of this Agreement. However, the Licensee has no right to determine whether to extend. 10. RECORD FILING Within 3(three) months after the Licensor becomes the exclusive owner of the Trademarks, both parties shall, in compliance with the law of China, make a record filing of the copy of the Agreement to the relevant trademark authority of China (if applicable). Both parties agree to execute or furnish the relevant documents required in line with the principal hereof and relevant laws. 11. TERMINATION 11.1 This Agreement shall expire on the date due or the date when the Licensor's right of ownership terminates unless this Agreement is extended as set forth above. 11.2 Without prejudice to any legal or other rights or remedies of the party who asks for termination of this Agreement, any party has the right to terminate this Agreement immediately with written notice to the other party in the event the other party materially breaches this Agreement including without limitation to Section 6.1, 6.2 and 6.3 of this Agreement and fails to cure its breach within 30 days from the date it receives written notice of its breach from the non-breaching party. 11.3 During the term of this Agreement, the Licensor may terminate this Agreement at any time with a written notice to the Licensee 30 days before such termination. The Licensee shall not terminate this Agreement in prior. 11.4 Article 3, 4, 6, 15 and 16 shall survive after the termination or expiration of this Agreement. 12. FORCE MAJEURE 12.1 Force Majeure means any event that is beyond the party's reasonable control and cannot be prevented with reasonable care including but not limited to the acts of 6 governments, nature, fire, explosion, typhoon, flood, earthquake, tide, lightning and war. However, any shortage of credit, capital or finance shall not be regarded as an event of Force Majeure. The party affected by Force Majeure shall notify the other party without delay. 12.2 In the event that the affected party is delayed in or prevented from performing its obligations under this Agreement by Force Majeure, only within the scope of such delay or prevention, the affected party will not be responsible for any damage by reason of such a failure or delay of performance. The affected party shall take appropriate measures to minimize or remove the effects of Force Majeure and attempt to resume performance of the obligations delayed or prevented by the event of Force Majeure, and the affected party will not be responsible to such performance and will only be responsible to the delayed parts of performance. After the event of Force Majeure is removed, both parties agree to resume the performance of this Agreement with their best efforts. 13. NOTICES Notice or other communications required to be given by any party pursuant to this Agreement shall be written in English and Chinese and shall be deemed to be duly given when it is delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address set forth below. The Licensor: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. Legal Address: Room 809, Block A, Yue Tan Building, 2#, Yue Tan Bei Jie, Xi Cheng District, Beijing Fax:(86) 10-68083118 Tel.:(86) 10-68081818 Receiver: Yunfan Zhou The Licensee: BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. Legal Address: Room 809, Block A, Yue Tan Building, 2#, Yue Tan Bei Jie, Xi Cheng District, Beijing Fax:(86) 10-68083118 7 Tel.:(86) 10 -68081818 Receiver: Yunfan Zhou 14. RE-TRANSFER, RE-LICENSE This agreement and all the rights and duties hereunder are personal to the Licensee. The Licensee agrees that it will not assign, lease or pledge to any third party without the written consent of the Licensor. 15. SETTLEMENT OF DISPUTES 15.1 The parties shall strive to settle any disputes arising from the interpretation or performance through negotiation in good faith. In the event that no settlement can be reached through negotiation within 30 days after one party issues a negotiating notice, either party can submit such matter to China International Economic and Trade Arbitration Commission (the "CIETAC"). The arbitration shall follow the current rules of CIETAC, and the arbitration proceedings shall be conducted in Chinese and shall take place in Beijing. The arbitration award shall be final and binding upon the parties and shall be enforceable in accordance with its terms. 15.2 Except the dispute issues, all parties shall perform their own duties under the Agreement good faith. 16. APPLICABLE LAW The execution, validity, performance, interpretation and any disputes of this Agreement shall be governed and construed by the laws of the PRC. 17. AMENDMENT AND SUPPLEMENT Any amendment and supplement of this Agreement shall come into force only after a written agreement is signed by both parties. The amendment and supplement duly executed by both parties shall be part of this Agreement and shall have the same legal effect as this Agreement. 18. ENTIRE AGREEMENT This Agreement and all the agreements and/or documents referenced or specifically included herein constitute the entire agreement among the parties in respect of the subject matter hereof and supersede all prior oral or written agreements, contract, 8 understanding and correspondence among them, including the trademark license agreement between the parties dated March 31, 2004. 19. SEVERABILITY Any provision of this Agreement which is invalid or unenforceable due to the violation of relevant laws in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. 20. WAIVER Any party cannot perform the rights, power, or privileges under this Agreement shall not be deemed as waiver. Any wholly or partly performance of the rights, power, or privileges shall not exclude the performance of any other rights, power, or privileges. 21. EXHIBITS The Exhibits referred to in this Agreement are an integral part of this Agreement and have the same legal effect as this Agreement. IN WITNESS THEREOF the parties hereto have caused this Agreement to be duly executed by a duly authorized representative each on behalf of the party here to as of the date first set forth above. 9 [Signature page, no Agreement] The Licensor: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD. Authorized Representative: /s/ Nick Yang ------------------------------- The Licensee: BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. Authorized Representative: /s/ Yang Cha ------------------------------- 10 EXHIBIT 1 LIST OF LICENSED TRADEMARKS 11 EXHIBIT 2 CALCULATION METHOD AND FORM OF PAYMENT OF LICENSE FEE The license fee under this Agreement shall be 5% of the total income of Licensee. License fee for each Trademark shall be calculated on an average basis according to the total license fee. The license fee shall be paid every quarter and the Licensor shall pay the Licensee within 15 days after each quarter. If the Licensor considers it helpful to the business of the Licensee, the Licensor at its sole discretion may reduce or exempt whole or any part of the license fee. Both parties agree that before the Licensor obtains exclusive ownership of any Trademark, no license fee in respect of such Trademark will be charged. 12 EX-10.14 19 u98939exv10w14.txt EX-10.14 DOMAIN NAME LICENSE AGREEMENT EXHIBIT 10.14 DOMAIN NAME LICENSE AGREEMENT This Domain Name License Agreement (the "Agreement") is entered into as of March 31st, 2004 by and between the following two parties in Beijing. The Licensor: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD. The Licensee: BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. WHEREAS, the Licensor, a wholly foreign-owned enterprise registered in Beijing under the laws of People's Republic of China (for the purpose of this Agreement, not including Hong Kong, Macau and Taiwan, hereinafter called "China"), which owns the domain names listed in the Exhibit 1 of this Agreement; WHEREAS, the Licensee, a limited liability company sponsored by natural persons in China registered in Beijing under the laws of the People's Republic of China (the"PRC" or "China"), is licensed to engage in the business of providing Internet information and the telecom value-added services; WHEREAS, the Licensor agrees to license the said Domain Names to the Licensee in accordance with the terms and conditions set forth herein and the Licensee as well agrees to accept the license on the terms and conditions set forth herein; NOW THEREFORE, on the basis of mutual benefit and friendly negotiation, the parties agree as follows: 1. Grant of License 1.1 The Domain Names Under the terms and conditions hereinafter set forth, the Licensor hereby grants to the Licensee and the Licensee accepts from the Licensor parts of or all parts of the Domain Names listed in Exhibit 1, and the Licensee may deal its business with these domain names. Such license is non-monopolized, 1 non-exclusive and non-transferable. 1.2 Scope 1.2.1 The use of the domain names licensed by the Licensor to the Licensee extends only to the business operated by the Licensee. The Licensee agrees that it will not use, or authorize any use, direct or indirect, of the licensed Domain Names by any other means without the Licensor's consent. 1.2.2 The License in this Agreement is effective within the territory of China and other areas as may be granted from time to time by the Licensor in writing. Licensee agrees that Licensee shall not directly or indirectly use or authorize any use of the said domain name in other areas. 1.3 Standards The Licensee shall comply with any standards and criteria the Licensor requests from time to time when the Licensee uses the said domain names. 1.4 Licensee's confirmation The Licensee confirms that the Licensee does not enjoy any rights, titles and interests of the said domain names except the rights, titles and interests in the said domain names under this Agreement 2. PAYMENT The Licensee agrees to pay the Licensor the license fee, the details of the calculation method and method of payment is set forth in Exhibit 2 to this Agreement. 3. GOODWILL The Licensee recognizes the value of the goodwill associated with the Domain Names and the relevant rights, and acknowledges that the Domain Names therein and goodwill (including but not limited to the goodwill occurs from the Licensee's use) pertaining thereto shall be the sole and exclusive property of the Licensor. . 4. CONFIDENTIALITY 4.1 By accepting the granting of the Domain Name licenses from the Licensor, the Licensee agrees to protect and maintain the confidentiality of any and all confidential data and information acknowledged or received by the Licensee 2 (collectively the "Confidential Information"). Upon termination or expiration of this Agreement, the Licensee shall, at the Licensor's option, return any and all documents, information or software containing such Confidential Information to the Licensor or destroy and delete such Confidential Information from any memory devices and cease to use them. The Licensee shall not disclose, grant or transfer any Confidential Information to any third party and will not use the Confidential Information without the Licensor's written consent. Licensee shall disclose the protected Confidential Information to the necessary employees, agents or consultants by the necessary measures, and shall urge the necessary employees, agents or consultants to observe the obligations under this Agreement. 4.2 The above limitations shall not apply to the situations as follows: 4.2.1 The materials which can be obtained in public in the time of disclosure ; 4.2.2 The public materials disclosed not due to the mistake of Licensee; 4.2.3 The Licensee may prove that before the disclosure the materials were under its title and were not obtained directly or indirectly from the other resources; 4.2.4 Upon the legal demands of any party, the Confidential Information shall be disclosed to the government authorities, security exchange agent, and etc.; and upon the general operation needs, the above Confidential Information shall be disclosed to direct legal consultants and financial advisor. 4.3 With the consent of both parties, no matter whether this Agreement is modified, rescinded, or terminated, this Article is still effective. 5. REPRESENTATIONS AND WARRANTIES 5.1 The Licensor represents and warrants as follows: 5.1.1 the Licensor is a company duly registered and in good standing under the applicable laws of the China. 5.1.2 the Licensor, within its business scope, has full corporate, power and authority and has taken all corporate actions and has obtained all necessary approvals and authorizations from third parties and government authorities to execute and perform the obligations under this Agreement, which will not constitute or result in a violation of any enforceable and effective laws or agreements. 3 5.1.3 the Agreement will constitute a legal, valid and binding agreement of the Licensor and will be enforceable against the Licensor in accordance with its terms upon its execution. 5.1.4 the Licensor legally hold the said domain names under this Agreement. 5.2 The Licensee makes to the Licensor the following representation and warranties: 5.2.1 the Licensee is a company duly registered and in good standing under the applicable laws of the China, and is approved by the relevant authorities to provide the internet information services and the value-added telecom service. 5.2.2 the Licensee, within its business scope, has full corporate, power and authority and has taken all corporate actions and has obtained all necessary approvals and authorizations from third parties and government authorities to execute and perform the obligations under this Agreement, which will not constitute or result in a violation of any enforceable and effective laws or agreements. 5.2.3 the Licensee will timely subscribe the files and the cases pertaining to the domain name, which the Licensor considered shall be subscribed or dealt with. 5.2.5 the Agreement will constitute a legal, valid and binding agreement of the Licensor and will be enforceable against the Licensor in accordance with its terms upon its execution. 6. The Licensee further makes to the Licensor the following representation and warranties: 6.1 The Licensee agrees that it will not, during the term of this Agreement, or thereafter, challenge the title or any rights of the Licensor in and to the Domain Names or challenge the validity of this Agreement, and shall not perform or un-perform any act, which the Licensor may deem impairing the interest in the above rights or the license. 6.2 The Licensee agrees to assist the Licensor to the extent necessary in the procurement of any protection or to protect any of the Licensor's rights to the Domain Names, and the Licensor, if it so desires, may commence or prosecute any 4 claims or lawsuits in its own name or in the name of the Licensee or join the Licensee as a party thereto. The Licensee shall promptly notify the Licensor in writing of any infringements of the Domain Names to its acknowledgement that may come to the Licensee's attention, and the Licensor shall have the sole right to determine whether or not any action shall be taken on account of any such infringements. 6.3 The Licensee further agrees to use the Domain Names only in accordance with this Agreement and shall not use the Domain Names in any way that, in the opinion of the Licensor, is deceptive, misleading or in any way damaging to such Domain Names or the reputation of the Licensor. 7. QUALITY The Licensee shall make every effort to improve its service quality as to protect the goodwill represented by the said domain name. 8. PROMOTION In all cases where the Licensee produces promotional material involving the Domain Name, the production cost of such material thereof shall be borne by the Licensee. All copyrights or other intellectual property rights of such material concerning the Domain Name thereto shall be the sole and exclusive property of the Licensor whether developed by the Licensor or the Licensee. The Licensee agrees that the Licensee shall not promote or advertise the said domain names under this Agreement in any radio, TV, newspapers, magazine, internet or any other media unless the prior consent and approval from the Licensor in writing has acquired. 9. EFFECTIVE DATE AND TERM 9.1 This Agreement has been duly executed as of the date first set froth above and shall be effective simultaneously. The term of this Agreement is 10 (ten) years unless earlier terminated pursuant to this Agreement. 9.2 Unless any other provisions set forth in written form, this Agreement shall be applicable to any other domain names licensed to the Licensee during the term of this Agreement. After the execution of this Agreement, the Licensor and Licensee shall review this Agreement every 3 months to determine whether to modify or renew this Agreement under specific circumstances. 5 9.3 This Agreement may be automatically extended for 10 (ten) years unless otherwise terminated by the Licensor by a written notice to the Licensee three (3) months before the expiration of this Agreement. However, the Licensee has no right to confirm such extension. 10. REGISTRATION Within three (3) months of the execution of Agreement, both parties shall, in accordance with the law of China, file the licensed domain names with the relevant domain name administrative authorities (if applicable). Both parties agree to execute or furnish the relevant documents necessary for such filing based on the principals set forth in this Agreement and requirements under relevant laws. 11. TERMINATION 11.1 This Agreement shall expire on the date due or when the license right in possession of Licensor is terminated (the earlier date is preferred) unless this Agreement is extended as set forth above. 11.2 Without prejudice to any legal rights or remedies, which are based on any laws or causes, of the party who asks for termination of this Agreement after the termination of this Agreement, any party has the right to terminate this Agreement immediately with written notice to the other party in the event the other party materially breaches this Agreement including but not limited to the provisions in Section 6.1, 6.2 and 6.3 of this Agreement and fails to cure its breach within 30 days from the date it receives written notice of its breach from the non-breaching party. 11.3 During the term of this Agreement, the Licensor may terminate this Agreement at any time with a written notice to the Licensee, which shall be effective 30 days after sending. The Licensee shall not terminate this Agreement in prior. 11.4 Article 3, 4, 6, 15 and 16 shall survive after the termination or expiration of this Agreement. 12. FORCE MAJEURE 12.1 Force Majeure means any event that is beyond the party's reasonable control and cannot be prevented with reasonable care including but not limited to the acts of 6 governments, nature, fire, explosion, typhoon, flood, earthquake, tide, lightning and war. However, any shortage of credit, capital or finance shall not be regarded as an event of Force Majeure. The party affected by Force Majeure shall notify the other party as soon as possible. 12.2 In the event that the affected party is delayed in or prevented from performing its obligations under this Agreement by Force Majeure, only within the scope of such delay or prevention, the affected party will not be responsible for any damage by reason of such a failure or delay of performance. The affected party shall take appropriate measures to minimize or remove the effects of Force Majeure and attempt to resume performance of the obligations delayed or prevented by the event of Force Majeure, and the affected party will not be responsible to such performance and will only be responsible to the delayed parts of performance. After the event of Force Majeure is removed, both parties agree to resume the performance of this Agreement with their best efforts. 13. NOTICES Notice or other communications required to be given by any party pursuant to this Agreement shall be written in English and Chinese and shall be deemed to be duly given when it is delivered personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address set forth below. The Licensor: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD. Legal Address: Room 809, Tower A, Yue Tan Building, 2#, Yue Tan Bei Jie, Xi Cheng District, Beijing Fax: (86) 10-68083118 Tel.:(86) 10-68081818 Receiver: Yunfan Zhou The Licensee: BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. Legal Address: Room 809, Tower A, Yue Tan Building, 2#, Yue Tan Bei Jie, Xi Cheng District, Beijing Fax: (86) 10-68083118 7 Tel.: (86) 10-68081818 Receiver: Yang Zha 14. RE-TRANSFER, RE-LICENSE Without the written consents of the Licensor, the rights and obligation licensed of or under this Agreement shall not be transferred, leased, or pledged to any third party. 15. DISPUTE RESOLUTION 15.1 The parties shall strive to settle any disputes arising from the interpretation or performance through negotiation in good faith. In the event that no settlement can be reached through negotiation within 30 days after one party issues a negotiating notice, either party can submit such matter to China International Economic and Trade Arbitration Commission (the "CIETAC"). The arbitration shall follow the current rules of CIETAC, and the arbitration proceedings shall be conducted in Chinese and shall take place in Beijing. The arbitration award shall be final and binding upon the parties and shall be enforceable in accordance with its terms. 15.2 Except the dispute issues, all parties shall perform their own duties pursuant to the provisions in good faith. 16. APPLICABLE LAW The execution, validity, interpretation, implementation and disputes of this Agreement shall be governed by the laws of the PRC. 17. AMENDMENT AND SUPPLEMENT This Agreement shall not be amended, modified, or supplemented except by a written instrument signed by both parties. The amendment or supplement duly executed by both parties shall constitute part of this Agreement and shall have the same legal effect as this Agreement. 18. SEVERABILITY Any provision of this Agreement which is invalid or unenforceable due to the violation of relevant laws in any jurisdiction shall, as to that jurisdiction, be ineffective or void of binding force only to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. 8 19. WAIVER Any party cannot perform the rights, power, or privileges under this Agreement shall not be deemed as waiver. Any wholly or partly performance of the rights, power, or privileges shall not exclude the performance of any other rights, power, or privileges. 20. EXHIBITS The Exhibits referred to in this Agreement are an integral part of this Agreement and have the same legal effect as this Agreement. IN WITNESS THEREOF the parties hereto have caused this Agreement to be duly executed by a duly authorized representative each on behalf of the party here to as of the date first set forth above. 9 [Signature page, no Agreement] The Licensor: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD. Authorized Representative: /s/ Nick Yang The Licensee: BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. Authorized Representative: /s/ Yang Zha 10 EXHIBIT 1 LIST OF LICENSED DOMAIN NAMES 11 EXHIBIT 2 CALCULATION METHOD AND PAYMENT METHOD OF THE LICENSE FEE The license fee under this Agreement shall be 5% of the total income of the Licensee, the license fee shall be calculated on a quarterly basis and the Licensee shall pay the Licensor within 15 days after the end of each quarter, if the licensor considers it is helpful to the business of the Licensee, the Licensor is entitled to reduce or exempt whole or part of the license fee. 12 EX-10.15 20 u98939exv10w15.txt EX-10.15 BUSINESS OPERATION AGREEMENT [Translation of Chinese original] EXHIBIT 10.15 BUSINESS OPERATIONS AGREEMENT This Business Operations Agreement (the "Agreement") is entered into on the day of March 31, 2004 (the "Effective Date") in Beijing by and among the following parties: PARTY A: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD. PARTY B: BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. PARTY C: YUNFAN ZHOU PARTY D: ZHEN HUANG WHEREAS: 1. Party A is a wholly foreign-owned enterprise registered in the People's Republic of China (the "PRC", excluding Hong Kong Special Administration District, Macao Special Administration District and Taiwan area, for the purpose of this "Agreement"); 2. Party B is a wholly domestic-owned company registered in the PRC and is approved by relevant governmental authorities to engage in the business of Internet information provision services and value-added telecommunication services; 3. A business relationship has been established between Party A and Party B by entering into Exclusive Technical Consulting and Services Agreement, under which Party B shall make all the payments to Party A and so the daily operation of Party B will bear a material impact on its capacity to pay the payables to Party A; 4. Party C is a shareholder of Party B who owns 50% equity in Party B; Party D is a shareholder of Party B who owns 50% equity in Party B. Party A, Party B, Party C and Party D, through friendly negotiation in the principle of equality and common interest, hereby jointly agree the following to abide by: 1. NON-BEHAVIOR OBLIGATION In order to ensure Party B's performance of the agreements between Party A and Party B and all its obligations born to Party A, Party B together with its shareholders Party C, and Party D hereby jointly confirm and agree that Party B shall not conduct any transaction which may materially affect its assets, obligations, rights or the company's operation unless a prior written consent from Party A or another Party appointed by Party A, 1 including but not limited to the following contents, has been obtained: 1.1 To conduct any business which is beyond the normal business area; 1.2 To borrow money or incur any debt from any third party; 1.3 To change or dismiss any directors or to dismiss and replace any high officials; 1.4 To sell to or acquire from any third party any assets or rights exceeding 200,000RMB, including but not limited to any intellectual property rights; 1.5 To provide guarantee for any third party with its assets or intellectual property rights or to provide any other guarantee or to set any other obligations over its assets; 1.6 To amend the Articles of Association of the company or to change its business area; 1.7 To change the normal business process or modify any material inside bylaws; 1.8 To assign rights and obligations under this Agreement herein to any third party. 2. MANAGEMENT OF OPERATION AND ARRANGEMENTS OF HR 2.1 Party B together with its shareholders Party C and Party D hereby jointly agree to accept and strictly enforce the proposals in respect of the employment and dismissal of its employees, the daily business management and financial management, etc., provided by Party A from time to time. 2.2 Party B together with its shareholders Party C and Party D hereby jointly agree that Party B, Party C and Party D shall only appoint the personnel designated by Party A as the directors of Party B in accordance with the procedures regulated by laws and regulations and the Article of Association of the company, and urge the chosen directors to elect the Chairman of the company according to the persons designated by Party A, and Party B shall engage Party A's senior officers as Party B's General Manager, Chief Financial Officer, and other senior officers. 2.3 If any of the above officers quits or is dismissed by Party A, he or she will lose the qualification to undertake any positions in Party B and therefore Party B, Party C and Party D shall appoint other candidates designated by Party A to assume such position. 2.4 For the purpose of the above-mentioned 2.3, Party B, Party C and Party D shall take all the necessary inside and outside procedures to accomplish the above dismissal and engagement in accordance with relevant laws, the Articles of 2 Association of the company and this Agreement. 2.5 Party C and Party D hereby agree to, upon the execution of this Agreement, simultaneously sign Powers of Attorneys pursuant to which Party C and Party D shall authorize personnel designated by Party A to exercise their shareholders' rights and their full voting rights of shareholders on Party B's shareholders' meetings. Party C and Party D further agree to replace the authorized person appointed in the above mentioned Power of Attorney at any moment pursuant to the requirements of Party A. 3. OTHER AGREEMENTS 3.1 In the event that any of the agreements between Party A and Party B terminates or expires, Party A shall be entitled to terminate all agreements between Party A and Party B including but not limited to Exclusive Technical and Consulting Services Agreement. 3.2 Whereas the business relationship between Party A and Party B has been establishes through the Exclusive Technical Consulting and Services Agreement and other agreements and the daily business activities of Party B shall bear a material impact on its capacity to pay the payables to Party A, Party C and Party D jointly agree that they will immediately and unconditionally pay or transfer to Party A any bonus, dividends or any other incomes or benefits (no matter what kind of form it is in) obtained from Party B as shareholders of Party B at the time such payables occur. 4. ENTIRE AGREEMENT AND MODIFICATIONS 4.1 This Agreement together with all the other agreements and/or documents mentioned or specifically included in this Agreement will be part of the whole agreements concluded in respect of the object matters in this Agreement and shall replace all the other prior oral and written agreements, contracts, understandings and communications among all the parties involving this object matters. 4.2 Any modification of this Agreement shall take effect only after it is executed by each Party. The amendment and supplement duly executed by each Party shall be part of this Agreement and shall have the same legal effect as this Agreement. 5. GOVERNING LAW The execution, validity, performance, interpretation and disputes of this Agreement shall be governed by and construed in accordance with the PRC law. 3 6. DISPUTE RESOLUTION 6.1 The parties shall strive to settle any dispute arising from the interpretation or performance through negotiation in good faith. In case no settlement can be reached through consultation, each party can submit such matter to China International Economic and Trade Arbitration Commission ("CIETAC") for arbitration in accordance with the current rules of CIETAC. The arbitration proceedings shall take place in Beijing and shall be conducted in Chinese. The arbitration award shall be final and binding upon all the parties. 6.2 Each Party shall continue to perform its obligations in good faith according to the provisions of this Agreement except for the matters in dispute. 7. NOTICE 7.1 Any notice that is given by the party/parties hereto for the purpose of performing the rights and obligations hereunder shall be in written form. Where such notice is delivered personally, the actual delivery time is regarded as notice time; where such notice is transmitted by telex or facsimile, the notice time is the time when such notice is transmitted. If such notice does not reach the addressee on business date or reaches the addressee after the business time, the next business day following such day is the date of notice. The written form includes facsimile and telex. 7.2 Any notice or other correspondence hereunder provided shall be delivered to the following addresses in accordance with the above terms: PARTY A: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD. Address: Room 809, Tower A, Yue Tan Building, No. 2, Yue Tan North Street, Xi Cheng District, Beijing Fax: (86) 10-68083118 Tele: (86) 10-68081818 Addressee: Yunfan Zhou PARTY B: BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. Address: Room 809, Tower A, Yue Tan Building, No. 2, Yue Tan North Street, Xi Cheng District, Beijing Fax: (86) 10-68083118 Tele: (86) 10-68081818 Addressee: Yang Zha PARTY C: YUNFAN ZHOU 4 Address: 13 A, No. 9 Building, Guan Cheng South Garden, Ma Dian, Hai Dian District, Beijing Fax: Tele: Addressee: Yunfan Zhou PARTY D: ZHEN HUANG Address: 13 A, No. 9 Building, Guan Cheng South Garden, Ma Dian, Hai Dian District, Beijing Fax: Tele: Addressee: Zhen Huang 8. EFFECT, TERM AND OTHER ABOUT THIS AGREEMENT 8.1 This Agreement shall be executed by a duly authorized representative of each party as of the Effective Date first written above and become effective simultaneously. The term of this agreement is ten years unless early termination occurs in accordance with the relevant provisions herein. This Agreement may extend automatically for another ten years except Party A give notice of no extension in written three months prior to expiration of the term of this Agreement. 8.2 Party B, Party C and Party D shall not terminate this Agreement within the term of this Agreement. Notwithstanding the above stipulation, Party A shall have the right to terminate this Agreement at any time by issuing a prior written notice to Party B, Party C and Party D thirty (30) days before the termination. 8.3 In case any terms and stipulations in this Agreement is regarded as illegal or can not be performed in accordance with the applicable law, it shall be deemed to be deleted from this Agreement and lose its effect and this Agreement shall be treated as without it from the very beginning. However, the rest stipulations will remain effective. Each Party shall replace the deleted stipulations with those lawful and effective ones, which are acceptable to each Party, through mutual negotiation. 8.4 Any non-exertion of any rights, powers or privileges hereunder shall not be regarded as the waiver thereof. Any single or partial exertion of such rights, powers or privileges shall not exclude each party from exerting any other rights, powers or privileges. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed by a duly authorized representative each on behalf of the party as of the Effective Date first written above. 5 (No text on this page) PARTY A: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD. Authorized Representative: /s/ Nick Yang _________________ PARTY B: BEIJING BOYA WUJI TECHNOLOGIES CO., LTD. Authorized Representative: /s/ Yang Zha _________________ PARTY C: YUNFAN ZHOU Signature: /s/ Yunfan Zhou _________________ PARTY D: ZHEN HUANG Signature: /s/ Zhen Huang __________________ 6 EX-10.16 21 u98939exv10w16.txt EX-10.16 EQUITY PLEDGE AGREEMENT [Translation of Chinese original] Exhibit 10.16 SHARE PLEDGE AGREEMENT This Share Pledge Agreement ("this Agreement") is entered into on March 31, 2004 in Beijing by and between the following parties: PLEDGEE: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD (KONGZHONG BEIJING) And PLEDGORS: YUNFAN ZHOU, ZHEN HUANG (THE PLEDGORS) WHEREAS, 1. The Pledgors, Yunfan Zhou and Zhen Huang, are citizens of the People's Republic of China ("PRC", excluding Hong Kong Special Administration District, Macao Special Administration District and Taiwan area, for the purpose of this Agreement), and each of Yunfan Zhou and Zhen Huang respectively owns 50% equity interest in Beijing Boya Wuji Technologies Co., Ltd. ("Beijing Boya Wuji"). 2. Beijing Boya Wuji is a limited liability company registered in Beijing engaging in the business of Internet information provision services, value-added telecommunication services, etc. 3. The Pledgee, a wholly foreign-owned company registered in Beijing, PRC, has been licensed by the PRC relevant government authority to carry on the business of computer software products, internet products development, sale and services of own products, etc. The Pledgee and the Pledgors-owned Beijing Boya Wuji entered into Exclusive Technical Consulting and Services Agreement, [Trademark Licensing Agreement] and Domain Name Licensing Agreement on March 31, 2004. 4. In order to make sure that the Pledgee collect technical service fees under Exclusive Technical Consulting and Services Agreement, [Trademark Licensing Agreement] and Domain Name Licensing Agreement from Pledgors-owned Beijing Boya Wuji, the Pledgors are willing to severally and jointly pledge all their equity interest in Beijing Boya Wuji to the Pledgee as a security for the Pledgee to collect the above-mentioned fees. In order to define each Party's rights and obligations, the Pledgee and the Pledgors 1 through mutual negotiations hereby enter into this Agreement based upon the following terms: 1. DEFINITIONS Unless otherwise provided in this Agreement, the following terms shall have the following meanings: 1.1 Pledge means the full content of Article 2 hereunder. 1.2 Equity Interest means all the 100% equity interests in Beijing Boya Wuji legally and jointly held by the Pledgors and all the present and future rights and benefits based on such equity interest. 1.3 Service Agreement means the Exclusive Technical Consulting and Services Agreement entered into by and between Beijing Boya Wuji and the Pledgee on March 31, 2004. 1.4 Licensing Agreement means the Trademark Licensing Agreement and Domain Name Licensing Agreement entered into by and between Beijing Boya Wuji and the Pledgee on March 31, 2004. 1.5 Event of Default means any event in accordance with Article 7 hereunder. 1.6 Notice of Default means the notice of default issued by the Pledgee in accordance with this Agreement. 2. PLEDGE 2.1 The Pledgors agree to pledge all their Equity Interest in Beijing Boya Wuji to the Pledgee to ensure the Pledgee collect the services fees under the Service Agreement. 2.2 The Pledge under this Agreement refers to all the fees (including legal fees), expenses and losses that Beijing Boya Wuji shall pay to the Pledgee under the Service Agreement and Licensing Agreement, and the civil liability to the Pledgee that Beijing Boya Wuji shall bear in case the Service Agreement and/or Licensing Agreement wholly or partially nullify due to any reason. 2.3 The Pledge under this Agreement refers to the rights owned by the Pledgee who shall be entitled to have priority in receiving payment by evaluation, or proceeds from the auction, or sale of the Equity Interest pledged by the Pledgors to the Pledgee. 2 2.4 Unless otherwise agreed in written by the Pledgee after the execution of this Agreement, the pledge under this Agreement shall be terminated only upon Beijing Boya Wuji's full performance of all its obligations and liabilities under the Servicing Agreement and Licensing Agreement and subject to written consent by the Pledgee. If Beijing Boya Wuji does not fully perform all or part of its obligations or liabilities under the Servicing Agreement and Licensing Agreement upon expiration of such agreements, the Pledgee shall maintain the Pledge hereunder up to the date all such obligations and liabilities are fully performed. 3. EFFECT 3.1 This Agreement shall take effect as of the date when the equity shares pledged are recorded in the Name List of Shareholders of Beijing Boya Wuji. 3.2 The Pledgee is entitled to dispose the pledge hereunder if Beijing Boya Wuji fails to pay the fees in accordance with the Servicing Agreement and Licensing Agreement during the Pledge. 4. PHYSICAL POSSESSION OF DOCUMENTS 4.1 During the term of Pledge under this Agreement, the Pledgors shall deliver the physical possession of the Certificate of Distribution (original) of Beijing Boya Wuji and provide the evidence of the proper record of such Pledge on the Name List of Shareholders of Beijing Boya Wuji to the Pledgee within one week as of the date of execution of this Agreement. 4.2 The Pledgors shall be entitled to collect the incomes (such as, including but not limited to, any dividends and profits) from the Equity Interest, which shall become the assurance for the debt of Beijing Boya Wuji, within the term of this Agreement, except for written consent of the Pledgee. 5 WARRANTIES AND REPRESENTATION OF THE PLEDGORS The Pledgors hereby make the following representation and warranties to the Pledgee and confirm that the Pledgee execute such Agreement in reliance of such representation and warranties: 5.1 The Pledgors are the legal owner of the Equity Interest hereunder and are entitled to create pledge on such shares; 5.2 The Pledgee shall not be interfered by any others at any time once the Pledgee exercises the rights of the Pledge in accordance with this Agreement. 3 5.3 The Pledgee shall be entitled to exercise the Pledge in accordance with relevant laws and this Agreement. 5.4 The execution and performance of this Agreement by the Pledgors has gained all necessary authorization and shall not violate any applicable laws and regulations. The representative who signs this Agreement shall be lawfully and effectively authorized. 5.5 Except the Pledge hereunder, the Equity Interest owned by the Pledgors shall not burden any other liabilities (including but not limited to pledge). 5.6 The Pledgors warrant that there is no on-going civil, administrative or criminal litigation or administrative punishment or arbitration related with the Equity Interest hereunder and have no idea about those in future at the date of execution of this Agreement. 5.7 There are no outstanding taxes, fees or unfinished legal procedures related with the Equity Interest hereunder at the date of execution of this Agreement. 5.8 Each stipulation hereunder is the expression of the Pledgors' true intention and shall be binding upon to the Pledgors. 6 COVENANT OF THE PLEDGORS 6.1 During the effective term of this Agreement, the Pledgors covenant to the Pledgee that the Pledgors shall: 6.1.1 not transfer the Equity Interest, create or permit to create any pledges which may have an adverse effect on the rights or benefits of the Pledgee without prior written consent from the Pledgee except for transfer to the Pledgee or the person designated by the Pledgee as required by the Pledgee; 6.1.2 comply with and implement relevant laws and regulations, present to the Pledgee the notices, orders or suggestions with respect to the Pledge issued or made by the competent authority within five days upon receiving such notices, orders or suggestions and take actions in accordance with the reasonable instruction of the Pledgee; 6.1.3 timely notify the Pledgee of any events or any received notices which may affect the Pledgors' Equity Interest or any part of its 4 right, and any events or any received notices which may change the Pledgors' any covenant and obligation under this Agreement or which may affect the Pledgors' performance of its obligations under this Agreement, take actions in accordance with the reasonable instruction of the Pledgee; 6.2 The Pledgors agrees that the Pledgee's right of exercising the Pledge obtained from this Agreement shall not be suspended or hampered by the Pledgors or any successors of the Pledgors or any person authorized by the Pledgors or any other person. 6.3 The Pledgors warrants to the Pledgee that in order to protect or perfect the security over the payment of the technical consulting and service fees under the Service Agreement and the licensing fees under the Licensing Agreement, the Pledgors shall execute in good faith and cause other parties who have interests in the pledge to execute all the title certificates, contracts, and /or perform and cause other parties who have interests to take action as required by the Pledgee and make access to exercise the rights and authorization vested in the Pledgee under this Agreement, and execute all the documents with respect to the changes of certificate of equity interests with the Pledgee or another party designated by the Pledgee, and provides the Pledgee with all the documents regarded as necessary to the Pledgee within the reasonable time. 6.4 The Pledgors warrants to the Pledgee that the Pledgors will comply with and perform all the guarantees, covenants, agreements, representations and conditions for the benefits of the Pledgee. The Pledgors shall compensate for all the losses suffered by the Pledgee for the reasons that the Pledgors does not perform or fully perform their guarantees, covenants, agreements, representations and conditions. 7 EVENT OF DEFAULT 7.1 The following events shall be regarded as an event of default: 7.1.1 Beijing Boya Wuji or its successor or trustee fails to make full payment of service fees or licensing fees under the Servicing Agreement and Licensing Agreement as scheduled there under; 7.1.2 The Pledgors makes any material misleading or fraudulent representations or warranties under Article 5 herein, and/or the Pledgors is in violation of any warranties under Article 5 herein; 7.1.3 The Pledgors violates the warrants under Article 5 and the covenants under Article 6 herein; 5 7.1.4 The Pledgors seriously violates any terms and conditions herein; 7.1.5 The Pledgors waives the pledged Equity Interest or transfers or assigns the pledged Equity Interest without prior written consent from the Pledgee except otherwise agreed under Article 6.1.1 herein; 7.1.6 The Pledgors' any external loan, security, compensation, covenants or any other compensation liabilities (1) are required to be repaid or performed prior to the scheduled date; or (2) are due but can not be repaid or performed as scheduled and thereby cause the Pledgee to deem that the Pledgors' capacity to perform the obligations herein is affected; 7.1.7 The Pledgors is incapable of repaying the general debt or other debt; 7.1.8 This Agreement is illegal for the reason of the promulgation of any related laws or the Pledgors' incapability of continuing to perform the obligations herein; 7.1.9 Any approval, permits, licenses or authorization from the competent authority of the government needed to perform this Agreement or validate this Agreement are withdrawn, suspended, invalidated or materially amended; 7.1.10 The property of the Pledgors is adversely changed and cause the Pledgee to deem that the capability of the Pledgors to perform the obligations herein is affected; 7.1.11 Other circumstances whereby the Pledgee is incapable of exercising the right to dispose the Pledge in accordance with the related laws. 7.2 The Pledgors shall immediately give a written notice to the Pledgee if the Pledgors are aware of or find that any event under Article 7.1 herein or any events that may result in the foregoing events have happened or is going on. 7.3 Unless the event of default under Article 7.1 herein has been solved to the Pledgee's satisfaction, the Pledgee, at any time when the event of default happens or thereafter, may give a written notice of default to the Pledgors and require the Pledgors to immediately make full payment of the outstanding fees under the Service Agreement and the Licensing Agreement, and other payables or exercise the Pledge in accordance with Article 8 herein. 6 8 EXERCISE OF THE RIGHT OF THE PLEDGE 8.1 The Pledgors shall not transfer or assign the pledge without prior written approval from the Pledgee prior to the full repayment of the fees under the Service Agreement and the Licensing Agreement. 8.2 The Pledgee shall give a notice of default to the Pledgors when the Pledgee exercises the right of pledge. 8.3 Subject to Article 7.3, the Pledgee may exercise the right to exercise the Pledge at any time or after the Pledgee gives a notice of default in accordance with Article 7.3 or thereafter. 8.4 The Pledgee is entitled to have priority in receiving payment by the evaluation or proceeds from the auction or sale of whole or part of the share pledged herein in accordance with legal procedure until the outstanding fees under the Servicing Agreement and the Licensing Agreement and all other payables there under are repaid. 8.5 The Pledgors shall not hinder the Pledgee from exercising the Pledge in accordance with this Agreement and shall give necessary assistance so that the Pledgee could perfect his Pledge. 9 TRANSFER OR ASSIGNMENT 9.1 The Pledgors shall not assign or transfer his rights and/or obligations to any third party herein without prior consent from the Pledgee. 9.2 This Agreement shall be binding upon the Pledgors and his successors and be effective to the Pledgee and his each successor and assignee. 9.3 The Pledgee may transfer or assign his all or any rights and obligations under the Service Agreement and/or the Licensing Agreement to any third party at any time. In this case, the assignee shall enjoy and undertake the same rights and obligations herein of the Pledgee as if the assignee is a party hereto. When the Pledgee transfers or assigns the rights and obligations under the Service Agreement and/or the Licensing Agreement, at the request of the Pledgee, the Pledgors shall execute the relevant agreements and/or documents with respect to such transfer or assignment. 9.4 After the Pledgee's change resulting from the transfer or assignment, the new parties to the pledge shall reexecute a pledge contract. 7 10 TERMINATION This Agreement shall not be terminated until the fees under the Service Agreement and the Licensing Agreement are paid off and Beijing Boya Wuji will not undertake any obligations under the Service Agreement and the Licensing Agreement any more, and the Pledgee shall cancel or terminate this Agreement within reasonable time as soon as practicable. 11 FEES AND OTHER CHARGES 11.1 The Pledgors shall be responsible for all the fees and actual expenditures in relation to this Agreement including but not limited to legal fees, cost of production, stamp tax and any other taxes and charges. If the Pledgee pays the relevant taxes in accordance with the laws, the Pledgors shall fully indemnify such taxes paid by the Pledgee. 11.2 The Pledgors shall be responsible for all the fees (including but not limited to any taxes, formalities fees, management fees, litigation fees, attorney's fees, and various insurance premiums in connection with exercising of Pledge) incurred by the Pledgors for the reason that (1) The Pledgors fails to pay any payable taxes, fees or charges in accordance with this Agreement; or (2) The Pledgee has recourse to any foregoing taxes, charges or fees by any means for other reasons. 12 FORCE MAJEURE 12.1 If this Agreement is delayed in or prevented from performing in the Event of Force Majeure ("Event of Force Majeure"), only within the limitation of such delay or prevention, the affected party is absolved from any liability under this Agreement. Force Majeure, which includes acts of governments, acts of nature, fire, explosion, geographic change, flood, earthquake, tide, lightning, war, means any unforeseen events beyond the prevented party's reasonable control and cannot be prevented with reasonable care. However, any shortage of credit, capital or finance shall not be regarded as an event beyond a Party's reasonable control. The Party affected by Force Majeure who claims for exemption from performing any obligations under this Agreement or under any Article herein shall promptly notify the other party of such exemption promptly and advice him of the steps to be taken for completion of the performance. 12.2 The party affected by Force Majeure shall not assume any liability under this Agreement. However, subject to the Party affected by Force Majeure having taken its reasonable and practicable efforts to perform this Agreement, the Party claiming for exemption of the liabilities may only be 8 exempted from performing such liability as within limitation of the part performance delayed or prevented by Force Majeure. Once causes for such exemption of liabilities are rectified and remedied, both parties agree to resume performance of this Agreement with their best efforts. 13 APPLICABLE LAW AND DISPUTE RESOLUTION 13.1 The execution, validity, performance and interpretation of this Agreement shall be governed by and construed in accordance with the PRC law. 13.2 The parties shall strive to settle any dispute arising from the interpretation or performance through friendly consultation. In case no settlement can be reached through consultation, each party can submit such matter to China International Economic and Trade Arbitration Commission ("CIETAC") for arbitration. The arbitration shall follow the current rules of CIETAC, and the arbitration proceedings shall be conducted in Chinese and shall take place in Beijing. The arbitration award shall be final and binding upon the parties. 13.3 Each Party shall continue performance of this Agreement in good faith according to the stipulations herein except the matters in dispute. 14 NOTICE Any notice or correspondence, which is given by the Party as stipulated hereunder, shall be in Chinese and English writing and shall be delivered in person or by registered or prepaid mail or recognized express service, or be transmitted by facsimile to the following addresses: PLEDGEE: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO. LTD Registered Address: Room 809, Tower A, Yue Tan Building, Yue Tan North Street, Xi Cheng District, Beijing Fax: (86) 10-68083118 Tele:(86) 10-68081818 Addressee: Yunfan Zhou YUNFAN ZHOU Address: Room 13A, No.9 Building, Guan Cheng Nan Yuan, Ma Dian, Hai Dian District, Beijing Fax: Tele: Addressee: Yunfan Zhou 9 ZHEN HUANG Address: Room 13A, No.9 Building, Guan Cheng South Garden, Ma Dian, Hai Dian District, Beijing Fax: Tele: Addressee: Zhen Huang 15 APPENDICES The appendices to this Agreement are entire and integral part of this Agreement. 16 WAIVER The Pledgee's non-exercise or delay in exercise of any rights, remedies, power or privileges hereunder shall not be deemed as the waiver of such rights, remedies, power or privileges. Any single or partial exercise of the rights, remedies, power and privileges shall not exclude the Pledgee from exercising any other rights, remedies, power and privileges. The rights, remedies, power and privileges hereunder are accumulative and shall not exclude the application of any other rights, remedies, power and privileges stipulated by laws. 17 MISCELLANEOUS 17.1 Any amendments, modifications or supplements to this Agreement shall be in writing and come into effect upon being executed and sealed by the parties hereto. 17.2 In case any terms and stipulations in this Agreement is regarded as illegal or can not be performed in accordance with the applicable law, such terms and stipulations shall be deemed to lose effect and enforcement within the scope governed by the applicable law, and the rest stipulations will remain effective. 17.3 This Agreement is written in Chinese and there are 5 original copies. 10 (No text on this page) PLEDGEE: KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD. Authorized Representative: /s/ Nick Yang ------------------ PLEDGORS: YUNFAN ZHOU Signature: /s/ Yunfan Zhou ------------------- PLEDGORS: ZHEN HUANG Signature: /s/ Zhen Huang ------------------ 11 APPENDICES 1. Name List of Shareholders of Beijing Boya Wuji Technologies Co., Ltd. 2. Certificate of Capital Contribution of Beijing Boya Wuji Technologies Co., Ltd. 12 EX-10.17 22 u98939exv10w17.txt EX-10.17 OPTION AGREEMENT EXHIBIT 10.17 OPTION AGREEMENT THIS OPTION AGREEMENT ("Agreement") is made on this 31st day of March 2004 in Beijing, People's Republic of China ("PRC") among (1) KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD. (Chinese Characters) ("KongZhong Beijing") (2) ZHOU, YUNFAN, a PRC citizen whose PRC identification number is 110102197411102374, and whose residential address is 13A, No. 9 Building, Guang Cheng South Garden, Ma Dian, Beijing, PRC("Zhou") and (3) HUANG, ZHEN, a PRC citizen whose PRC identification number is 610104780219162, and whose residential address is 13A, No. 9 Building, Guang Cheng South Garden, Ma Dian, Beijing, PRC ("Huang") (Each of Zhou and Huang is hereinafter referred to as a "Grantor" and collectively the "Grantors") WHEREAS A. KongZhong Beijing is a wholly foreign-owned enterprise, duly established and registered in Beijing under the laws of the PRC. B. Zhou and Huang established Beijing Boya Wuji Technology Co., Ltd. ("Beijing Boyawuji"), a limited liability company, with a registered capital of RMB 1,000,000, on March 29th, 2004 in accordance with PRC law. C. Zhou and Huang together hold 100% of the registered capital of Beijing Boyawuji (the "Equity Interests") and respectively, Zhou holds 50% and Huang holds 50%. D. Grantors have agreed to grant exclusively to KongZhong Beijing an option to purchase the Equity Interests, subject to the terms and conditions set forth below. THE PARTIES THEREFORE AGREE AS FOLLOWS: 1 ARTICLE 1: GRANT OF THE OPTION 1.1 Purchase Option Each of Zhou and Huang hereby grants to KongZhong Beijing an option (each and "Option" and collectively the "Options") to Purchase their respective Equity Interests at the purchase price of RMB ten thousand (10,000) per one (1) percent of the registered capital of Beijing Boyawuji, each of such option shall become vested as of the date of this Agreement. 1.2 Term This Agreement shall take effect as of the date of signing by the parties hereto and shall remain in full force and effect until the earlier of (1) the date on which all of the Equity Interests have been purchased by KongZhong Beijing and (2) the tenth anniversary of the date hereof. ARTICLE 2: EXERCISE OF THE OPTION AND ITS CLOSING 2.1 Timing of Exercise 2.1.1 Each of the Grantors agrees that KongZhong Beijing in its sole discretion may at any time, and from time to time after the date hereof, exercise the Options, in whole or in part, to acquire all or any portion of their respective Equity Interests, subject only to applicable laws of the PRC, including any restrictions on foreign investment. 2.1.2 For the avoidance of doubt, each of the holders hereby agrees that KongZhong Beijing shall be entitled to exercise the Option for an unlimited number of times, until all of the Equity Interests have been acquired by KongZhong Beijing. 2.1.3 The Grantors agree that KongZhong Beijing may designate in its sole discretion any third party to exercise the Options on its behalf, in which case KongZhong Beijing shall provide written notice to the Grantor at the time the Option granted by such Grantor is exercised. 2.2 Transfer The Grantors agree that the Option shall be freely transferable, in whole or in part, by KongZhong Beijing 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 2 third party shall assume the rights and obligations of KongZhong Beijing hereunder. 2.3 Notice Requirement 2.3.1 To exercise an Option, KongZhong Beijing shall send an written notice to the Grantor such Option is to be exercised 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 Equity Interests shall be registered; 2.3.1.3 the amount of Equity Interests to be purchased from such Grantor; 2.3.1.4 the type of payment; and 2.3.1.5 a letter of authorization, 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 KongZhong Beijing shall have the right to exercise the Options and elect to register the Equity Interests in the name of another person as it may designates from time to time. 2.4 Closing On each Closing Date, KongZhong Beijing shall pay to the relevant Grantor the applicable purchase price for the Equity Interests to be purchased 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 KongZhong Beijing, each of the Grantors shall execute and deliver one or more assignments, each in the form and content substantially satisfactory to KongZhong Beijing (each an "Assignment") together with any other documents necessary to give effect to the transfer to 3 KongZhong Beijing or its designated party of all or any part of the Equity Interests upon an exercise of an Option by KongZhong Beijing (the " Ancillary Documents"). Each Assignment and the Ancillary Documents are to be held in KongZhong Beijing. 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 KongZhong Beijing, each of Grantors shall execute and deliver one or more resolutions of the board of directors and/or shareholders of Beijing Boyawuji, approving the following: 3.2.1 The transfer by the Grantor of all or part of the Equity Interests to KongZhong Beijing or its designated party; and 3.2.2 any other matters as KongZhong Beijing may reasonably request. Each Resolution is to be held in KongZhong Beijing. ARTICLE 4: REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties Each of Grantors severally represents and warrants to KongZhong Beijing that: 4.1.1 it has the full power and authority to enter into, and perform under, this Agreement; 4.1.2 its signing of this Agreement or fulfilling of any its obligations hereunder does not violate any laws, regulations and contracts to which it is bound, or require any government authorization 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 KongZhong Beijing 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 count of competent jurisdiction; 4 4.1.6 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 unless otherwise agreed by KongZhong Beijing; 4.1.7 the Option granted to KongZhong Beijing shall be exclusive, and neither Grantor shall grant the Option or any similar rights to a third party by any means whatsoever. Zhou further represents and warrants to KongZhong Beijing that it owns 50% of the Equity Interests of Beijing Boya Wuji and Huang further represents and warrants to KongZhong Beijing that it owns 50% of the Equity Interests of Beijing Beijing Boya Wuji. 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 and 4.1.7 shall be deemed to be repeated as of each Closing Date as if such representations and warrants were make on and as of such Closing Date. 4.2 Covenants and Undertaking Each of Grantors covenants and undertakes to KongZhong Beijing that: 4.2.1 he/she will bear all costs arising from executing each Assignment, the Ancillary Documents and any other relevant documents required therefore, and will complete all such formalities as are necessary to make KongZhong Beijing or its designated party a full and proper shareholder of Beijing Boya Wuji. Such formalities include, but are not limited to, assisting KongZhong Beijing with the obtaining of necessary approvals of the equity transfer from relevant government authorities (if any), 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 he/she will, upon request by KongZhong Beijing, establish a domestic entity to hold the interests in Beijing Boya Wuji as a Chinese party in case Beijing Boya Wuji is restructured to an FIE. 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. 5 ARTICLE 6: BREACH 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. 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 (if any) 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). Each Party's obligations under this clause shall survive after the termination of this Agreement. 8.2 Exceptions If a disclosure is explicitly required by law, any courts, arbitration tribunals, or 6 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 Unless KongZhong send a written termination notice three (3) months prior to the expiration, this Agreement shall be extended with a term of ten (10) years. 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 designate 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: KongZhong Beijing : KongZhong Information Technology (Beijing) Co., Ltd. Address : Room 809, Tower A, No. 2 Yuetan North Street, Xicheng District, Beijing, China Zip code : 100045 Telephone : (86 10) 68083188 Facsimile : (86 10) 68083118 Contact : Chief Executive Officer Person Zhou, Yunfan : Zhou, Yunfan Address : 13A, No. 9 Building, Guang Cheng South Garden,Ma Dian, Beijing, China Zip code : 100088 7 Telephone : (86 10) 62077989 Facsimile : (86 10) 62077989 Huang, Zhen : Huang, Zhen Address : 13A, No. 9 Building, Guang Cheng South Garden, Ma Dian, Beijing, China Zip Code : 100088 Telephone : (86 10) 62077989 Facsimile : (86 10) 62077989 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 Three (3) originals in English, with one (1) original for KongZhong Beijing, one (1) original each for Grantors. 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. 9.7 Headings 8 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 Equity Interests. This Agreement has been signed by the Parties or their duly authorized representatives on the date first specified above. (the rest of this page is intentionally left blank) 9 KONGZHONG INFORMATION TECHNOLOGY (BEIJING) CO., LTD. (SEAL) (Chinese Characters) By: /s/ Nick Yang ---------------------------- Signature: ZHOU, YUNFAN Signature: /s/ Yunfan Zhou ---------------------------- HUANG, ZHEN Signature: /s/ Zhen Huang ---------------------------- 10 EX-10.18 23 u98939exv10w18.txt EX-10.18 LETTER AGREEMENT EXHIBIT 10.18 Date: May 10, 2004 To: KongZhong Corporation We, KongZhong Information Technologies (Beijing) Co., Ltd. ("KongZhong Beijing"), hereby irrevocably agree and confirm that prior consultation with KongZhong Corporation ("KongZhong") shall take place and prior written approval of the board of directors of KongZhong shall be obtained with respect to individuals to be designated by KongZhong Beijing for appointment by the shareholders of Beijing AirInbox Information Technologies Co., Ltd ("Beijing AirInBox") and/or Beijing Boya Wuji Technologies Co., Ltd ("Beijing Boya Wuji") as their respective proxies for the exercise of their rights and powers as shareholders so long as we have the power to designate any individuals for such appointment under the business operation agreements, as amended from time to time, entered into between KongZhong Beijing as one party, and Beijing AirInbox and its shareholders, or Beijing Boya Wuji and its shareholders, as other parties. KongZhong Information Technologies (Beijing) Co., Ltd. /s/ Yunfan Zhou Name: Yunfan Zhou Title: Legal Representative EX-10.19 24 u98939exv10w19.txt EX-10.19 COOPERATION AGREEMENT MAY 23, 2003 EXHIBIT 10.19 COOPERATION AGREEMENT ON MONTERNET WAP SERVICES Party A:China Mobile Telecommunications Group Corporation Party B: Beijing AirInBox Information Technologies Co.,Ltd According to the principal of equality and mutual benefits, through friendly negotiation, both parties agrees to build up a cooperation relationship with each other. In order to regulate the rights and obligations between two parties, this Agreement is established. This Agreement is effective and binding upon both parties. 1. Cooperation Principles Based on the common interests and the mutual benefits, in the field of mobile data WAP services, both parties shall perform this Agreement in good faith and cooperate another party's task. 2. Cooperation Projects Party A, as the network operator, shall provide the platform for MMS and communications services, and also provide to Party B the standards for Monternet(TM) WAP service and technical standards for interfacing; Party B, as the service provider, shall develop and provide application content services in accordance with the standards provided by Party A. Party B may connect to Party A's MMS platform to provide WAP service, subject to Party A's testing and approval., viz. Http://wap.monternet.com. The cooperation started from September 1, 2002, the term of the cooperation considered by both parties is from September 1, 2002 to August 31, 2003. 3. Obligation (1). Party A's obligation (a) Party A shall take advantage of the media it controls to promote and advertise the main site of Monternet as to abstract the consumer to log on this site. (b) Party A shall provide Party B with the Monternet WAP services criteria and the technical interface standards to insure Party B may successfully connect to the main site of Monternet. (c) Upon the requirement from Party B, Party A shall provide the necessary training for Party B. (d) Considering the WAP system firewall of Party A and the interface of Party B as the boundary, Party A shall be responsible for all the equipment's maintenance at its side and insure the daily services of these equipment. (e) Party A shall provide the services supplied by Party B and tested by Party A itself on the Monternet WAP main site. (f) Party A shall be responsible for the daily maintenance of the WAP network platform and the equipment technical troubles caused by Party A to insure the appliance services can run normally. (g) Party A shall provide the network interface services for Party B without any charges, and assist Party B to connect the application services with the WAP network platform. (h) Party B shall be responsible to establish the criteria and standards for the WAP operation, notice Party B the criteria and standards entirely and without diverges, and furnish a reasonable period to Party B to realize these criteria and standards. (i) Party A shall be responsible for the user's register, logon, authentication, and right appraisal, and shall response the relevant data to Party B. (j) Party A shall be responsible to calculate the visit amount, and upon the demand of Party B shall provide the relevant visit data for Party B. (k) Respect to the services Party B provides on the Monternet main site, Party A shall, according to the calculation materials provided by Party B, charge Party A's customers information fees who enjoy Party B's services, and pursuant to Article 6 pay Party B the relevant money. (l) Party A shall be responsible to provide the consultant and customers services, to treat the customers' complaints, and shall immediately solve the problems caused by Party A with regard to the network, net gate, and the operation platform, meanwhile, Party A shall notice the relevant situations to Party B to request Party B to treat it as soon as possible if the problems are caused by Party B. (2) Party B's obligation (a) Party B shall take advantage of its controlled media (including web sites, WAP sites, plane, TV, and etc.) to assist China Mobile to introduce the WAP main site of Monternet (wap.monternet.com) and the relevant application services in order that more customers to log on this site to enjoy this service. After the written confirm of Party A, Party B may make use of the cooperation name or service name to advertise the Monternet WAP services. Without the written authorization of Party A, Party B shall not advertise the WAP services foreign to the Monternet in the name of "China Mobile" and "Mobile Monternet" (b) Party B shall, in accordance to the project to both parties, furnish the WAP application sever, application software, information resources, special data line, and the other necessary equipment, and insure these equipment to run normally as Party A required. (c) Party B shall actively assist Party A to test the interface, insure to connect to the Mobile Monternet WAP main site in accordance with the Monternet WAP services criteria and the technical interface standards. (d) Considering the WAP system firewall of Party A and the interface of Party B as the boundary, Party B shall be responsible for all the equipment's maintenance at its side and insure the daily services of these equipment. (e) The network performance capability provided by Party B shall reach the standards as follows, which shall be tested and recorded by Party A (i) the successful link ratio in traffic time shall not be less than 98% (ii) the network delay( indicating to the delay pinging from the WTBS to the SP server ) shall not be higher than 100ms (iii) the response delay (indicating to the delay from when the WTBS sends out its service request to when the WTBS responses the receipt of the services) (f) Party B shall immediately solve the application service problems caused by Party B and take any necessary measures to insure that there be no similar problems occurring anymore. And Party B shall indemnify the damages of Party A or the customers thereof caused by Party B. (g) Party B shall be responsible to negotiate with and subscribe the business agreement with the direct provider of the application services content. Party B guarantees the information and the services provided will not violate the related policies and regulations of P.R.C., and will not infringe the consumers' interests and the third party's intellectual properties. With regards to the information services, which shall be renewed, Party B shall be responsible for the contents exam and its setting out on the website. (h) Party B shall assure its customers may smoothly use any services provided on the Mobile Monternet WAP main site by Party A. Unless receive the acknowledgement from Party A, Party B shall not ask for the users, who log on the Mobile Monternet WAP main site, to register or to qualify, and shall not ask the users to register on the site except for Mobile Monternet WAP main site. (i) Party B shall insure that the provided contents be valuable to users and immediately update it every time. (j) Party B shall not unilaterally supply any other service, which does not ratified by Party A, through the WAP site, without the written consent of Party A. (k) The application contents Party B provides for Party A, no matter what the carrier of these application services is, shall not be supplied to the other communication operator or WAP sites, or else Party A has its right to terminate the application services provided by Party B on the WAP main site of Party A and cancel the payment to Party B. (l) Party B shall not provide its own toll service on its own WAP site, or else Party A may terminate the application services provided by Party B on the WAP main site of Party A and cancel the payment to Party B. (m) If, prior to the cooperation with Party A, Party B has supplied its own service on the site of its own or of Party A's branch companies in provinces, Party B shall terminate such services principle. Party B may add a Mobile Monternet link in the place of the original service. Or else, Party A may Party A may terminate the application services provided by Party B on the WAP main site of Party A and cancel the payment to Party B. (n) Party B shall add a link of Mobile Monternet WAP main site's homepage (http://wap.monternet.com) on its own WAP site, and recommend users to use the application services on the Mobile Monternet WAP main site. (o) Party B may select to provide national services on the Mobile Monternet WAP main site or local services on the province branch companies' WAP site; however, with respect to services of the same kind, Party B only can select one of these two options, which means the local services shall not be re-supplied in the nation wide services and the nation-wide services shall not be re-provided in the local services; the services provided for provinces shall not be overlapped, and Party B shall not provide WAP connecting services in several provinces in order to reach the aim of nation-wide service, or else Party B's nation-wide services will be terminated. (p) Without the written consent of Party A, the brand or the brand logo of Party B shall not appear in the application services provided by Party B on the Party A's WAP website, and the logo of Mobile Monternet shall be used. (q) Any redirection to the third party's or Party B's URL address links shall not appear in the services provided by Party B on the Party A's WAP website; and all the services shall add a link to the homepage of Monternet (http://wap.monternet.com). (r) Party B shall clearly and without diverges furnish to Party A any materials that business income calculation needs, shall take all economic and legal responsibilities. 4. Both Parties' Rights (1) Rights of Party A (a)Party A has right to inspect by itself or by the authorized third party the content and the information Party B provided, and to exam whether or not the content is timely. (b) Party A may refuse to release, delete the information which contains the inappropriate content in violate with the statues, regulations, policies of P.R.C. If any economic damages to Party A or any impairment of the goodwill to Party A occur, Party A may ask for Party B to compensate. (c) Party A is entitled to modify, amend, or delete the content which it considers be modified, amended, or deleted. (d) Party A has its right to establish the standards to exam the application services provided by Party B, and upon such standards to estimate the services Party B provided. With respect to the application services that disqualified for continuously 3 months, Party A may ask Party B to adjust or modify the related services, if the services still cannot reach the requirement of Party A after such adjustment and modification, the services qualification of Party B shall be canceled. (e) Party A has the right to determine the order of application services on the WAP main site of Party A provided by Party B. (f) Party A is entitled to guide or inspect Party A's fee criteria. (g) Party A shall have the right to obtain its reasonable income. (the detailed income distribution pls. See Article 6 of this Agreement) (2) Rights of Party B (a) Party B may select to provide national services on the Mobile Monternet WAP main site or local services on the local branch companies' WAP site; if nation-wide service, Party B may make an application to Party A; if local services, Party B may make an application to the local branch of Party A. However, the fee settlement of the local services is not provided by Party A but is made by the sole agreement with the local branch company. (b) The scope of services provided by Party B shall be consistent with the scope recorded on its value-added services business license. (c) Under the guide of Party A, Party B is entitled to determine the fee standards and whether the provided services shall be charged. (d) Party B is entitled to obtain the statistics arising from the user's visit to the provided information and the application data. (e) Without the written consent of Party B, Party A shall not transfer, announce, or re-sell the product information of Party B to any third party. (f) Party B has its right to acquire a reasonable part of revenue of the service (the allocation of the revenue refers to Article 6 this Agreement). (g) If the statistics from Party B and that from Party A is different far away, Party B may ask Party A to furnish the statistics in detail to check. 5. Confidentiality (1) For purpose of this Agreement, "Proprietary Information" means any information obtained by one party from the other party ("DISCLOSING PARTY") during their cooperation which is developed, created or discovered by the Disclosing Party, or be available to or transferred to the Disclosing Party that are commercially valuable to the Disclosing Party's business. Proprietary Information includes without limitation trade secrets, computer program, design technology, idea, know-how, technique, data, business and product development plan, customer's information and other information related to the business of the Disclosing Party, or confidential information obtained by the Disclosing Party from others. The Parties acknowledge that the Disclosing Party shall own Proprietary Information, and such Proprietary Information is of significant importance to such Disclosing Party. The cooperation relationship between the Parties hereto has generated the relationship of confidence and trust related to Proprietary Information between the parties hereto. (2) Without prior written consent of the Disclosing Party, the other party shall keep any of Proprietary Information in confidence and may not use or disclose to any person or entity such Proprietary Information, except for normal performance of the obligations provided hereunder. (3) Both Parties shall bear non-disclosure responsibility for this cooperation and the details of this Agreement. Without the prior written consent of the other party, either party shall not disclose such cooperation and details of this Agreement to any third party. 6. Revenue Sharing and Fee Settlement (1) Party A and Party B cooperate to provide WAP service to Party A's customers, and both parties are entitled to reasonable revenue. The settlement shall be counted according to the statistics from Party A's charging system. (2) This fee settlement is limited to the services provided by Party B on the WAP main site of Party A, not including the local services provided by Party B in the local area of Party B. (3) The communication fee arising from the customers for their use of WAP service on the network of Party A shall be possessed by Party A. (4) The term of fee settlement shall be started from the beginning of this project and ended when this agreement is expired or terminated. (5) Party A shall figure out the information fee receivable from its customers for use of Party B's services, 15% of which shall be taken by Party A, while the remaining 85% shall be paid to Party B. (6) Party A shall notify Party B of the income last month before 20th day of every month (deducting the information fee receivable by Party A). Party B shall make out an "service" invoice to Party A in accordance with such income. (7) After receipt of the invoice, Party A shall remit the fee receivable by Party B to its appointed bank account within 5 working days, pursuant to information provided by Party B. (8) Party A and Party B shall pay taxes arising out of the WAP service revenue respectively. (9) Fee settlement is depending upon Party A's calculating system. If Party B dissents to the calculation result, Party A may supply the detail communication list to Party B and assist Party B to exam the reasons of problems, however, the fee settlement of this month will not be adjusted. (10) Party B shall provide Party A with its accurate bank account and related information: Name of Beneficiary: Beijing AirInBox Information Technologies Co.,Ltd Opening Bank: De Wai sub-branch, Xin Jie Kou Branch, Industrial and Business Bank of China. Account No.:0200001309006796982 7. Liability for Breach (1) If any party's breach of this Agreement causes this Agreement unenforceable, the non-breaching party shall be entitled to terminate this Agreement and require compensation for any losses thus incurred. (2) If any party's breach causes adverse social impact or economic losses on the other party, the non-breach party shall be entitled to hold the breaching party liable and demand corresponding economic compensation, or even terminate this Agreement. 8. Disputes Settlement (1) If any dispute arises relating the performance of this Agreement, the parties shall settle it through friendly consultation. (2) If the consultation fails to resolve the dispute, either party may file to the Beijing Arbitration Commission upon its arbitration rule. The award of the arbitration shall be final and with binding force upon both parties. 9. Term of This Agreement (1) This Agreement shall become effective as of the date of subscription, and the expiration date is September 30, 2003. (2) The term of this Agreement may be automatically renewable for another year unless otherwise terminated by one party giving a written notice to the other party at least one month prior to its expiration. (3) This Agreement may be automatically terminated upon agreement by both parties during the term of this Agreement. (4) If the occurrence of any force majeure events makes it impossible to continue performance of this Agreement, this Agreement may be automatically terminated upon settlement of all outstanding bills by both parties. (5) If the occurrence of a certain event makes it impossible for one party to continue performance of this Agreement, and if such event is foreseeable, such party shall notify such event to the other party within five working days after its reasonable forecast of such event, and cooperate with the other party to complete all outstanding matters. If such party fails to notify the other party of such event and thus make the other party suffer losses, such party shall indemnify the other party correspondingly. 10. Miscellaneous (1) Attachment to this Agreement, SP Cooperation Administrative Measures, WAP Handbook, has the same legal effect with this Agreement. (2) Any outstanding matter shall be addressed by both parties through friendly negotiation. (3) This Agreement is made in duplicate and each party shall hold one copy. Each copy shall have the same legal effect. Party A:China Mobile Telecommunications Group Corporation Authorized Agent: (signature) /s/ Ye Bing Date: Party B: Beijing AirInBox Information Technologies Co.,Ltd Authorized Agent: (signature) /s/ Li Luyi Date: EX-10.20 25 u98939exv10w20.txt EX-10.20 COOPERATION AGREEMENT JUNE 5, 2003 EXHIBIT 10.20 COOPERATION AGREEMENT ON MONTERNET MULTIMEDIA MESSAGING SERVICES Party A: China Mobile Telecommunications Group Corporation. Party B: Beijing AirInBox Information Technologies Co., Ltd According to the principal of equality and mutual benefits, through friendly negotiation, both parties agree to build up a cooperation relationship with each other. In order to regulate the rights and obligations between two parties, this Agreement is established. This Agreement is effective and binding upon both parties. 1. Cooperation Principles Based on the common interests and the mutual benefits, in the field of mobile data WAP services, both parties shall perform this Agreement in good faith and cooperate another party's task. 2. Cooperation Projects "MMS" refers to the multimedia messaging services provided by China Mobile. Its most significant feature is its support of multimedia functions and its capacity to deliver full-functional content and information, which includes the information in multimedia format such as word, picture, voice and data. Party A, as the network operator, shall provide the platform for MMS and communications services, and also provide to Party B the standards for Monternet(TM) MMS service and technical standards for interfacing; Party B, as the service provider, shall develop and provide application content services in accordance with the standards provided by Party A. Party B may connect to Party A's MMS platform to provide MMS service, subject to Party A's testing and approval. 3. Obligation (1). Party A's obligation (a) Party A shall take advantage of the media, eg. TV advertisement and posters etc. it controls to promote and advertise the main site of Monternet so as to absorb the consumer to log on this site. (b) Party A shall provide Party B with the Monternet MMS services criteria and the technical interface standards to insure Party B may successfully connect to the main site of Monternet. (c) Upon the requirement from Party B, Party A shall provide the necessary training for Party B. (d) Considering the MMSC system firewall of Party A and the interface of Party B as the boundary, Party A shall be responsible for all the equipment's maintenance at its side and insure the daily services of these equipment. (e) Party A shall be responsible for the daily maintenance of the MMS network platform and the equipment technical troubles caused by Party A to insure the appliance services can run normally. (f) Party A shall provide the network interface services for Party B without any charges, and assist Party B to connect the application services with the MMS network platform. (g) Party B shall be responsible to establish the criteria and standards for the MMS operation, notice Party B the criteria and standards entirely and without diverges, and furnish a reasonable period to Party B to realize these criteria and standards. (h) For the services provided by Party B at the MMS network platform, Party A shall collect fees from its customers for their use of Party B's services pursuant to the pricing information provided by Party B and confirmed by Party A, and settle the fee with Party B pursuant to relevant provisions under Section 6 of this Agreement. (i) Party A shall be responsible to provide the consultant and customers services, to treat the customers' complaints, and shall immediately solve the problems caused by Party A with regard to the network, the operation platform, and charging problems, meanwhile, Party A shall notice the relevant situations to Party B to request Party B to treat it as soon as possible if the problems are caused by Party B. (2) Party B's obligation (a) Party B shall be subject to the cooperation requirements and obligations specified in Monternet(TM) SP Cooperation Administrative Measures, MMS Business Handbook, which forms an attachment to this Agreement. (b) Party B shall use all kinds of promotional media (including WEB site, WAP site, plane media and TV) to promote MMS service. Party B shall secure prior consent from Party A before Party B uses Party A's name and business mark in promotion of Monternet(TM) MMS service; without prior written consent of Party A, Party B shall not use the name of "China Mobile" or "Monternet(TM)" to conduct promotional activity unrelated to Monternet(TM) in any media. (c) Party B shall be responsible to provide application server, application software, information source, special line for application data and other necessary equipment to the satisfactory of Party A on the basis of the parties' cooperation project. (d) Party B shall provide active collaboration in Party A's testing of connection point, and undertake to provide MMS service in accordance with MMS network platform business standards and connection point technical standards provided by Party A. (e) Using the connection point of Party A's MMSC system firewall with Party B as the boundary, Party B shall be responsible for the maintenance of all equipment on its own side, and to ensure smooth operation of such equipment. (f) Party B shall immediately address the breakdown of application service caused by itself, and take practical measures to prevent re-occurrence of such breakdown. Party B shall be liable for any economic losses incurred by Party A or the customer of Party A's MMS service caused by Party B. (g) Party B shall negotiate and handle commercial arrangement with direct providers of the application contents (such as the owner of image or music copyright). Party B shall ensure the compliance of its information and service with applicable state policies and regulations, cause no harm to consumers' interest or infringe any intellectual property rights or relevant interest of any third party. Party B shall be solely liable for the litigation thus incurred. (h) Party B shall not unilaterally provide other services not confirmed by Party A to Party A's customers without Party A's prior written consent. (i) Party B shall not provide to any other telecommunications service operator the same content with those provided to Party A without regard to the transmission means of the application service; otherwise, Party A may terminate the application services provided by Party B on Party A's MMS & network platform and cease making fee payments to Party B. (j) Party B shall provide Party A with all clear and indiscriminate information required for fee calculation for the services provided by Party B, and shall assume all economic and legal liabilities related thereto. (k) Party B shall provide Party A with all statistical information relating to the consumption of Party B's MMS services by Party A's customers. 4. Rights of Parties (1) Rights of Party A (a) Party A shall be entitled to review or entrust qualified institution to review the information provided by Party B and the content of Party B's application services. (b) Party A shall be entitled to refuse to transmit any information which contravenes to state directives, regulations and policies and other contents that Party A deems inappropriate, and demand compensation from Party B for any adverse impact on Party A's business and reputation. (c) Party A shall be entitled to demand Party B to amend, modify and delete those contents which Party A deems necessary to do so. (d) Party A shall be entitled to formulate targets for the application services provided by Party B, and evaluate Party B's performance in accordance with such targets. The evaluation methods are detailed in the attachment to this Agreement - - Chapter 9 of the Monternet(TM) SP Cooperation Administrative Measures, MMS Business Handbook. (e) Party A shall be entitled to give guidance and supervision of the pricing policy of Party B's service. (f) Party A shall be entitled to reasonable revenue. (See Section 6 of this Agreement for detailed revenue sharing). (2) Rights of Party B (a) Party B shall be entitled to determine the pricing of its services under Party A's guidance. (b) Party B shall be entitled to obtain statistical data regarding customer visits to the Party B's information and application service contents through the network platform. (c) Without Party B's consent or written authorization, Party A shall not transfer, release or resell any information products provided by Party B to any third party unrelated to this Agreement by any means. (d) Party B shall be entitled to a reasonable share of the business revenue. See Section 6 of this Agreement for detailed revenue sharing. (e) In case of significant discrepancy between the statistics of Party A and Party B, Party B may require Party A to provide detailed phone bills for verification, the details of which are set forth in Chapter 6 of the Monternet(TM) SP Cooperation Administrative Measures, MMS Business Handbook. 5. Confidentiality (1) For purpose of this Agreement, "Proprietary Information" means any information obtained by one party from the other party ("DISCLOSING PARTY") during their cooperation which is developed, created or discovered by the Disclosing Party, or be available to or transferred to the Disclosing Party that are commercially valuable to the Disclosing Party's business. Proprietary Information includes without limitation trade secrets, computer program, design technology, idea, know-how, technique, data, business and product development plan, customer's information and other information related to the business of the Disclosing Party, or confidential information obtained by the Disclosing Party from others. The Parties acknowledge that the Disclosing Party shall own Proprietary Information, and such Proprietary Information is of significant importance to such Disclosing Party. The cooperation relationship between the Parties hereto has generated the relationship of confidence and trust related to Proprietary Information between the parties hereto. (2) Without prior written consent of the Disclosing Party, the other party shall keep any of Proprietary Information in confidence and may not use or disclose to any person or entity such Proprietary Information, except for normal performance of the obligations provided hereunder. (3) Both Parties shall bear non-disclosure responsibility for this cooperation and the details of this Agreement. Without the prior written consent of the other party, either party shall not disclose such cooperation and details of this Agreement to any third party. 6. Revenue Sharing and Fee Settlement (1) Party A and Party B cooperate to provide MMS service to Party A's customers, and both parties are entitled to reasonable revenue. (2) Telecommunications fee generated by use of Party A's network resources to access Party B's services shall be solely owned by Party A. (3) Party A shall, on behalf of Party B, collect service fee from its customers accordingly for their use of Party B's services charge from such service. (4) Party A shall figure out the information fee receivable from its customers for use of Party B's services, 15% of which shall be taken by Party A, while the remaining 85% shall be paid to Party B. (5) The basis of settlement: Monternet service fee bill shall be the basis of settlement. (6) Party B may, pursuant to the fee settlement bill issued by Party A, conduct fee settlement with Party A's local subsidiary without entering into separate agreement with Party A's local provincial subsidiary. (7) Settlement period: China Mobile settles with Party B monthly. (8) Fee calculation standards and settlement process are described in Chapter 6 of Monternet(TM) SP Cooperation Administrative Measures, MMS Business Handbook. (9) Party A and Party B shall pay taxes arising out of the MMS service revenue respectively. (10) Party B shall provide Party A with its accurate bank account and related information: Name of Beneficiary: Beijing AirInBox Information Technologies Co.,Ltd Opening Bank: Xin Jie Kou Branch, Industrial and Business Bank of China Account No.:0200001309006796982 7. Liability for Breach (1) If any party's breach of this Agreement causes this Agreement unenforceable, the non-breaching party shall be entitled to terminate this Agreement and require compensation for any losses thus incurred. (2) If any party's breach causes adverse social impact or economic losses on the other party, the non-breach party shall be entitled to hold the breaching party liable and demand corresponding economic compensation, or even terminate this Agreement. 8. Disputes Settlement (1) If any dispute arises relating the performance of this Agreement, the parties shall settle it through friendly consultation; (2) If the consultation fails to resolve the dispute, either party may file to the Beijing Arbitration Commission upon its arbitration rule. The award of the arbitration shall be final and with binding force upon both parties. 9. Term of This Agreement (1) This Agreement shall become effective as of the date of its execution and be effective for one year. (2) The term of this Agreement may be automatically renewable for another year unless otherwise terminated by one party giving a written notice to the other party at least one month prior to its expiration. (3) This Agreement may be automatically terminated upon agreement by both parties during the term of this Agreement. (4) If the occurrence of any force majeure events makes it impossible to continue performance of this Agreement, this Agreement may be automatically terminated upon settlement of all outstanding bills by both parties. (5) If the occurrence of a certain event makes it impossible for one party to continue performance of this Agreement, and if such event is foreseeable, such party shall notify such event to the other party within five working days after its reasonable forecast of such event, and cooperate with the other party to complete all outstanding matters. If such party fails to notify the other party of such event and thus make the other party suffer losses, such party shall indemnify the other party correspondingly. 10. Miscellaneous (1) Attachment to this Agreement, Monternet(TM). SP Cooperation Administrative Measures, MMS Business Handbook, has the same legal effect with this Agreement. (2) Any outstanding matter shall be addressed by both parties through friendly negotiation. (3) If any dispute arises relating the content or performance of this Agreement, the parties shall settle it through friendly consultation; if the consultation fails to resolve the dispute, either party may bring lawsuit before a Chinese court with due jurisdiction. (4) This Agreement is made in duplicate and each party shall hold one copy. Each copy shall have the same legal effect. Party A: China Mobile Telecommunications Group Corporation. Authorized Agent: (signature) Date: /s/ Ye Bing Party B: Beijing AirInBox Information Technologies Co., Ltd Authorized Agent: (signature) Date: /s/ Yunfan Zhou EX-10.21 26 u98939exv10w21.txt EX-10.21 BUSINESS COOPERATION MAY 1, 2004 EXHIBIT 10.21 BUSINESS COOPERATION AGREEMENT ON MONTERNET SHORT-MESSAGING SERVICES Agreement code: Execution date: PARTY A: BEIJING MOBILE TELECOMMUNICATIONS CO., LTD Legal representative: Yuejia Sha Mail address: No. 58, Dong Zhong Street, Dongcheng District, Beijing, 100027, China Tel: 65546699 Fax: 65541330 Opening bank: Bank account: PARTY B: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD Legal representative: Yunfan Zhou Mail address: Yuetan Tower A-809, No. 2, North Yuetan Street, Xicheng District, Beijing, 100047, China Tel: 68081818 Fax: 68083118 Opening bank: Xinjiekou Branch, Dewai office of ICBC Bank account: 0200001309006796982 BEIJING MOBILE TELECOMMUNICATIONS CO., LTD (hereinafter referred to as "Party A"), as the mobile communication operator and mobile data service operator, provides open and premium-based communication channels for the application providers. BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD (hereinafter referred to as "Party B"), as a company engaged in the value-added communication services approved by the competent telecom authorities, provides value-added short-message services to MP users of China Mobile. To provide better application services to users, the parties agree as follows as to the joint development of Monternet short-message services upon adequate consultation in the principle of equality, mutual benefit and concerted growth. ARTICLE 1 BASIC DESCRIPTION OF COOPERATION 1. Party B shall be fully compliant with the requirement of Internet Content/Application Service Management Methods of the State Council Order (No.292), be granted with License for the Value-added Telecommunications Services (business scope defined as Wireless Network Value-added Telecommunications Services) and License for Telecommunications and Information Services (business scope defined as Internet Information Services), be able to provide comprehensive after service system, and have legal and reliable information/message sources and other legal business operation conditions. 2. In case Party B is the local partner of Party A, Party B shall provide Monternet short-message services only to China Mobile MP users in Beijing region via the short-message channels of Party A. 3. Party B shall conduct its short-message value-added services in compliance with the Monternet SP Cooperation Regulations (including but not limited to the Short-Message Value-added Services SP Cooperation Administration Guideline promulgated by Beijing Mobile and China Mobile Telecommunications Group Corp.). 4. Party A shall conduct regular evaluation of Party B based on the Monternet SP Cooperation Regulations, and is entitled to terminate the cooperation with Party B in case that Party B fails to pass such examination. ARTICLE 2 RIGHTS AND OBLIGATIONS 1. Party A's rights and obligations 1.1 Party A allows Party B to provide short-message value-added services to users via the short-message gateway of Party A. Party A is entitled to adjust the short-message traffic volume according to the capacity of the short-message center. If such adjustment shall impact on the business of Party B, Party A shall promptly notify Party B thereof. 1.2 Party A shall provide comprehensive GSM mobile communication system, and ensure smooth and stable information transmission. Upon the notification of Party B of any communication failure, Party A shall promptly settle the failure to avoid impairment of Party B's business. 1.3 Party A shall make available the technical protocol, standard and interface standard relevant to the short-message gateway platform to Party B. Party A shall provide the technical documentation for mutual communication, and promptly address communication problems of Party B. 1.4 Party A shall supply the hardware/software system for the short-message platform, and bear the relevant operation cost. 1.5 Party A shall renovate its own billing system, including the commission-based collection system of the banks, and bear the cost of necessary hardware and software. 1.6 Party A shall undertake the billing and payment collection on behalf of Party B. Party A is entitled to check the business of Party B to ensure the accurate billing data. Party A shall issue explicit information premium invoice to users and the information premium bill at the request of the user. 1.7 When applicable, Party A shall provide the relevant data of Monternet invalid users (number canceling, service discontinuance and overdue information premium) to Party B to facilitate Party B to dispose of such invalid Monternet users promptly. 1.8 Party A shall be responsible for the handling of customer enquiries and complaints resulted from telecommunications network failures. 2. Party B's rights and obligations 2.1 Party B shall undertake the building and maintenance of its own software and hardware, including but not limited to all hardware, system commissioning, cutover, system maintenance, routine business management and marketing efforts/cost of the subject project. 2.2 Party B shall provide the agreed contents and application services to China Mobile users. Party B shall ensure the legal, prompt and reliable information sources. Party B shall guarantee that its information and content are compliant with applicable policies, laws and regulations, and be liable for any consequence arising out of illegal contents. 2.3 Party B's Website with customization interface for users is: http://www.kongzhong.com, inform users of the contents and service provided by Party B. The customization interface of Party B shall provide basic service functions like authentication, adding, deleting, modifying and searching, and allow users to inquire about the information premium list. Party B shall provide explicit premium standards to users with the premium standard changing frequency not less than 6 months. That is to say, the premium standard of a service (new service or changed service) shall not be changed within the first 6 months. Party B shall keep complete use records of all users of at least 3 months, keep the user ordering data permanently, and provide the interface to Party A to inquire about the service records. 2.4 Party B shall take necessary measures to effectively control invalid Monternet users. To ensure normal operation of Monternet business, Party B shall not send any information to invalid Monternet users it get to know. 2.5 In case the system failure of Party B impairs the communication system of Party A, Party B shall submit to the adjustment arrangement of Party A to the short-message traffic volume to ensure normal and stable short-message service, and settle any user complaint thus incurred at its own cost. 2.6 Party B shall not send ads and other irrelevant information to users via the communication channels of Party A during the term of this agreement. Party B shall strengthen the check of the short-message contents, restrict the group-calling numbers (at most 2 each time) and sending times in each time unit (not over 100 each hour). Party B shall take technical measures against illegal attack, unauthorized use of passwords, unauthorized convoking of web pages and other illegal acts impairing Monternet business information security. 2.7 Party B shall be responsible for the handling of customer enquiries as to bills, of customer enquiries and complaints with regards to the contents and/or application services provided by Party B, and such handling should be finished within a stated time frame with a fair and honest solution. 2.8 During the term of this Agreement, Party B is obligated to furnish the monthly report within the first 5 days each month as requested by Party A to Party A, stating the user development, user categories, user habits, business forecast and others, the monthly report format as set out in Exhibit 1 hereto. Party A shall keep the confidentiality of such data according to Article 8 hereto. 2.9 Party B is obligated to market and promote Monternet services. ARTICLE 3 DISTRIBUTION OF RIGHTS AND OBLIGATIONS 1 Party B shall address the user disputes arising out of contents, services or transmission failure between the parties. Party A shall address the user disputes arising out of the short-message gateway and center, with the maintenance labor-division as follows: (Graph omitted) 2 The contents or applications provided by Party B shall be within the business scope mutually agreed, otherwise Party A is entitled to terminate this Agreement with Party B liable to the default penalty. Party A is entitled to supervise the business development of Party B, Party B shall assist the efforts of Party A in this regard in an effort to avoid negative impact on normal business of Party A by the business of Party B. In case the business development of Party B negatively impairs the normal business of Party A due to the violation against this Agreement, Party A is entitled to terminate this Agreement with Party B liable for the default liability. 3 Party B shall apply to Party A in writing or through SP Management Website, with the official request chopped with company seal prior to adding or withdrawing any services hereunder or changing the price of some services. In case of approving the change of certain service prices, Party A shall notify Party B of such approval in writing or through SP Management Website. In case of Party A's written consent of adding certain services by Party B, Party B shall test the added services and submit to Party A test reports. Party B shall not provide such new services to users prior to Party A's acceptance of the sophistication of such services. Details refer to Exhibit 1 hereto. ARTICLE 4 REVENUES OF THE PARTIES 1 Party A shall charge mobile phones users communication premium generated while using short-message services according to information charges standard. In principle, Party B shall determine the information service premium for the services hereunder used by the MP users subject to the approval of China Mobile Corporation. Party A suggests the upper threshold of the information service premium (maximum RMB 2 yuan/message, RMB 30 yuan/month for monthly services). Party B shall submit the premium standards to the price administration authorities, and promptly notify Party A accordingly. 2 Party A shall provide the billing service and premium collection service to Party B. All information service premium of Beijing region users of each billing month shall be the due information service premium in Beijing. Party A shall pay 85% of the due information service premium of Beijing to Party B, and be liable to the risk of overdue payment of local users. In case Party B is the full-network partner of Party A, i.e. Party B provide Monternet short-message value-added services to nationwide China Mobile users in China, then all information service premium of non-Beijing users recorded in each billing month shall be the due information service premium of non-Beijing regions, which shall be collected by local subsidiaries of China Mobile. Relevant local subsidiaries of China Mobile will credit 85% local due information service premium to Party A, which shall then be transferred to Party B by Party A in full. 3 In case the monthly short-message entries (downlink) sent by Party B to nationwide users as recorded in the gateway billing data exceeds those sent by users to Party B (uplink), thus resulting in ill-balanced communication premium of Party B (the balance of downlink messages and uplink messages is the ill-balance communication), Party A shall charge RMB 0.05-0.10 yuan/message for the ill-balance communication as follows:

ARTICLE 5 SETTLEMENT MODEL 1 Settlement point: determined by Party A. 2 Settlement methods 2.1 Party B shall link with the short-message center of Party A via the short-message gateway of Party A, which shall record the billing data as final. The monthly settlement from the 15th day to the 20th day each month shall cover the premium of the last month from the 1st day to the last day. After the normal billing accounting period, Party A shall calculate the current-month information service premium of Party B and the ill-balance communication premium payable to Party A, which shall serve as the basis of settlement between the parties. 2.2 The parties shall make the account settlement of the current-month information service premium according to the records of the billing system of Party A, Party A shall pay the balance of 85% information service premium minus the ill-balance communication against the formal service invoices. In case the balance is above zero, Party A shall pay the balance to Party B. In case the balance is below zero, Party B shall pay the balance to Party A against the invoices furnished by Party A. The payment collecting party shall mail the invoice within three (3) days after the receipt of the payment (by local post stamp). 2.3 The parties shall make the settlement and payment strictly according to the regulations of settlement model and schedule. In case either party delays the due payment beyond the stipulated time (the 20th day each month), the party shall pay to the other party the delay penalty at the daily rate of 1% of the delayed payment. In case either party fails to make payment overdue for over 2 months after the notice of the other party, the conforming party is entitled to lodge an action against the default party with the legal liability borne by the default party. ARTICLE 6 MARKETING AND PROMOTION 1 The parties shall engage in joint marketing and promotion with their respective resources in the principle of mutual benefit. 2 Party A in general shall market/promote Monternet and the major categories of application services instead of the cooperative Monternet services separately. 3 Party B shall market/promote its brand and relevant Monternet services as well as the brand of Monternet. Party B shall strictly abide by the brand/marks regulations of Party A in use of Monternet LOGO without unauthorized distortion or color change with prior approval of Party A prior to any use thereof. 4 Party B shall not use Monternet brand for any purpose other than the marketing/promotion of Monternet services, otherwise Party A is entitled to require Party B to stop the use thereof and bear any liability thus incurred, or even claim the legal liability for severe violations. 5 Party B must obviously mark the customer service phone or customer service Website, compliant email on any promotional material and media ads. of Monternet business. Party B shall not adopt the similar products of China Mobile rivals as the promotional gifts of Monternet business. ARTICLE 7 CUSTOMER SERVICES 1 The Monternet short messages received by users must be those upon their request or customization. Party B shall ensure the wholesomeness and legality of the short messages sent to users, Party A is entitled to supervise the short message contents of Party B, and strengthen the management thereof, specific regulations as provided for in Exhibit 2. 2 Party B shall fully inform users of the basic elements of Monternet services prior to any ordering, including price, sending frequency/times, use model, major contents and etc. 3 Party A's customer service center 1860 and the major outlets will handle the customer inquiries and complaints about Monternet services, and transfer any customer problem about information content and services to the customer service center of Party B. 4 Party B shall maintain 7x24 hotlines, both a direct-dialing fixed line and a mobile one, while the fixed line can't be an extension line and the mobile phone can't be switched off or to be diverted. Numbers of such hotlines should be given to customers through Web pages or marketing materials. 5 Party B shall assign regular staff to handle user complaints, and respond to customer complaint within one (1) day thereafter. 6 To ensure the users' understanding of Party B's services, Party B must process the service recommendations, customer service instructions and the downlink information of user passwords free of charge, and send the service prompt information (e.g. price, customization confirmation, customer service hotline, subscription cancellation and etc.) free of information service premium. 7 The subscription for customized short-message services shall take effect 72 hours after the submission of the subscription. Charges for services within 72 hours could be done on per message basis, no monthly-payment service fees should be charged unless customers re-subscribe for monthly-payment short-message services. 8 For monthly-payment short-message services, Party B may charge the monthly premium at the user for the use of the service between half a month to a month, and charge no premium at the user for the use of the service below half a month. 9 For users in request of customized services via Internet, Party B shall obviously mark the basic business information on the Web page prior to the user confirmation of the customization. After successful customization, Party B shall send the prompt information to users, stating "thanks to you", "successful confirmation of the customization", "service information premium standard", "sending frequency/times", "order withdrawal method", "customer service phone/Website". 10 For users of customized services via mobile phones, Party B shall return the prompt information via short message to the users (including premium users and third-party users) immediately, stating "thanks to you", "successful confirmation of the customization", "service information premium standard", "sending frequency/times", "order withdrawal method", "customer service phone", "Website" (optional). 11 To the initial ordering intentions acquired in the non-online marketing (e.g. filling out forms), Party B shall send the second confirmation message (basic service information), and confirm the actual order after user confirmation of the password. ARTICLE 8 TERMINATION OF CORPORATION 1. Party B shall not send any information to invalid Monternet users. In case Party B knowingly send information to invalid Monternet users, Party A is entitled to require Party B to indemnify the economic loss incurred from user overdue payment, and is entitled to terminate this Agreement and the cooperation hereunder. 2. Party B is obligated to ensure the compliance of its information content with Telecom Regulations of PRC, Internet Information Service Regulations and other applicable laws, regulations and policies, not distribute any illegal and obscene information undermining the national security and interest, Party B shall ensure that its information content shall not impair the corporate image of China Mobile. Without written consent of Party A, Party B shall not send ads and other irrelevant information to mobile users via the short-message ports furnished by Party A. Otherwise, Party B shall indemnify Party A for any loss thus incurred, and Party A is entitled to terminate this Agreement and the cooperation hereunder. 3. Upon the receipt of user complaint for receiving any un-requested message from Party B, Party A shall notify Party B accordingly, and Party B shall investigate the reasons. In this case, Party A shall not charge user any premium, and return any premium collected back to the users, and Party A is entitled to terminate this Agreement and the cooperation hereunder according to the current-month severity of customer complaints. 4. In case Party A transfers customer complaints to Party B, Party B shall respond to the customer service department of Party A within two (2) hours with an initial reply, and investigate the reasons/handle the complaint within one (1) working day. For legitimate complaints caused by Party B, Party A is entitled to deduct RMB 500 yuan per each customer complaint from the current-month due payment to Party B as the default compensation; for complaints submitted to the relevant authorities or media, Party A is entitled to deduct no less than RMB 10,000 yuan per each customer complaint as the default compensation. And, Party A is entitled to terminate this Agreement and the cooperation hereunder according to the default severity. 5. Party B shall ensure that a 100% response rate as to monthly customer complaints (complaints handled by Party B and transferred back to Party A/total complaints transferred to Party B by Party A = 100%) shall be achieved, that complaints caused by SP are less than the standard number of complaints ( which equals to Beijing Mobile's monthly number of users of Monternet short-message services x 1.5 /10000 x Party B's monthly number of users of Monternet short-message services/Monthly accumulated number of users of Monternet short-message services of SPs accessed through Beijing Mobile), that customer satisfaction (number of complaints settled with customers' satisfaction/total number of complaints transferred to Party B by Party A) is over 80%. Party A shall conduct monthly evaluation as to Party B's handling of complaints. In case Party B fails in such evaluations, Party A is entitled to deduct default compensation from the due payment to Party B according to the default severity; if Party B fails such evaluations for three (3) consecutive months, then Party A is entitled to terminate this Agreement and the cooperation. 6. To ensure the normal marketing of Monternet services, Party B shall not directly or indirectly provide cross-operator short-message services, including domestic cross-operator short-message services and international short-message services, and shall not carry out commission-based premium collection services (referring to using Monternet short-message network to collect premiums that are not generated or realized through such network) via the short-message system of Party A. Otherwise, Party B shall indemnify Party A for any loss thus incurred, and Party A is entitled to terminate this Agreement and the cooperation hereunder. 7. In the event Party B fails to pay Party A the due payment for three consecutive months and fails to pay off the unpaid balance and default compensation, with 15 days of the delivery of past due notice, Party A shall have the right to close the short message gateway, and terminate this Agreement and the cooperation hereunder. 8. In the event that Party B fails to correct any breach of this Agreement or any violation of relevant measures (including but not limited to Short-Message Value- Added Services SP Cooperation Administration Guideline promulgated by Party A and China Mobile Telecommunications Group Corp.), after warning or request by Party A, Party A shall have the right to close the short message gateway, and terminate this Agreement and the cooperation hereunder. 9. In the event that this Agreement is terminated pursuant to any of the above provisions, Party B shall be responsible for all damages sustained by any third party. ARTICLE 9 CONFIDENTIALITY 1 Proprietary Information refers to any valuable information developed, created, found or disclosed to the receiving party by the disclosing party. Proprietary Information includes but not limited to the trade secrets, intellectual property rights (IPR) and technical secrets. 2 The parties shall protect the IPR and other Proprietary Information among other trade secrets of its own and the other party. Without written consent of the other party, either party shall keep the confidentiality of the Proprietary Information of the other party, and shall not disclose any Proprietary Information involving with the trade secrets and technical secrets of the other party to any third party. 3 The parties shall keep the confidentiality of this cooperation and this Agreement. Without prior written consent of the other party, either party shall disclose the details of the cooperation and this Agreement to any third party. ARTICLE 10 DEFAULT LIABILITY Failure of either party to perform any provision hereunder shall be deemed as default. Upon receipt of the other party's written notice of the default, the default party, if confirming the default, shall correct the default within twenty (20) days thereafter with written notice to the other party. It the notified party denies the default, it shall inform the other party thereof within twenty (20) days or sate the reasons therefor. In this case, the parties shall settle the dispute via consultation, or resort to the dispute settlement provisions hereunder for any dispute failing friendly consultation, the default party shall be liable for the loss thus incurred to the conforming party. ARTICLE 11 LIABILITY LIMITATION In case both party or either party fails to perform, partly or as a whole, the obligations hereunder due to force majeure event, neither party shall be held liable for the default liability. However, the affected party or the parties shall notify the other party within fifteen (15) days thereafter and furnish relevant supporting evidence. Either party or both parties shall resume the performance of this Agreement after the elimination of the force majeure. ARTICLE 12 DISPUTE SETTLEMENT The parties may settle the dispute arising out of the performance hereunder via friendly consultation. Either party may submit the dispute failing friendly consultation to Beijing Arbitration Committee for arbitration according to its rules. The arbitration award is final and binding upon the parties. ARTICLE 13 EFFECTIVENESS, MODIFICATION, TERMINATION AND RENEWAL OF AGREEMENT 1 This Agreement shall become effective on May 1, 2004 and expire on October 31, 2004; provided however, this Agreement shall not become effective prior to procurement by Party B of qualifications contemplated in section 1 of Article 1 of this Agreement. In case the parties do not terminate this Agreement upon the expiration, this Agreement shall automatically renew for another 6 months. The party rejecting the renewal shall notify the other party thirty (30) days in advance of the expiration in writing or through email thereabout. 2 This Agreement, 14 pages, is made in four (4) copies with each party holding two (2) copies of equal validity. It shall take effect upon execution and stamp of the duly authorized representatives of the parties. 3 The exhibits hereto constitute an integral part of this Agreement with equal legal validity. 4 During the term of this Agreement, the parties may modify the provision hereunder or terminate this Agreement upon friendly consultation. Either party intending to change or modify this Agreement shall notify the other party in writing thirty (30) days in advance. The party unilaterally terminating this Agreement shall indemnify all loss thus incurred to the other party. Party A (seal): /s/ Xu Suming Beijing Mobile Telecommunications Co., Ltd. Party B (seal): /s/ Li Luyi Beijing AirInBox Information Technologies Co., Ltd. EX-10.22 27 u98939exv10w22.txt EX-10.22 COOPERATION AGREEMENT DEC 9, 2003 EXHIBIT 10.22 COOPERATION AGREEMENT MOBILE CONTENT This Agreement are finally subscribed on the subscription (effective) date by the two parties as follows: Party A: Motorola (China) Co., Ltd. Address: 108# Jian Guo Road, Chao Yang District, Beijing Party B: Beijing AirInBox Information Technologies Co., Ltd Address: Room 809, Block A, Yue Tan Building, Yue Tan Bei Jie, Xi Cheng District, Beijing Whereas Party A and Party B agree to take advantage of resources of each Party to establish a strategic cooperation friendship. In the principle of equality, mutual benefits and development, advantage sharing, and making compensation for equal value, regards to the mobile short message, MMS message, Java, and other wireless content, both parties enter into a cooperation agreement as below: Scope of Cooperation Party B shall supply to the mobile phone users of Party A the services as follows: 1) Wireless contents, including short message and the other wireless contents; 2) Wireless value-added services. The Appendix of this Agreement provided the cooperation scope (viz. wireless contents and wireless value-added services). Party A shall provide Party B with the training of mobile application download and the technical support. The detailed rules of this training and technical support refer to Appendix 2 of this Agreement. The Rights and Obligations of Both Parties Party A may promote and advertise the wireless content and the wireless value-added services provided by Party B under this Agreement to the extent of Party A's operation. Party B shall be responsible for the smooth access to the wireless channel, technical maintenance, system enlargement, fee settlement, customer services and the market promotion not stipulated in Article 2.1.Party B guarantees that the wireless content and the wireless services be in compliance with the related laws, regulations, decrees and administrative orders, and solely assume the corresponding legal liability. Party B shall provide Party A with the special massage code (335511) when supplying the wireless content and the wireless value-added services, and shall submit users' statistics of the wireless content and the wireless value-added services to Party A in a fix time every month (the detailed requirement of statistics refer to Appendix 4). Party B shall supply to Party A its search interface to the fee calculation platform (only including the short message services currently) as to insure Party A may search the detailed income and outcome information of users from use the wireless content and the wireless value-added services in any time by multi-method, say time, information category, users' mobile number and etc. Party A is entitled to keep all the materials as the auditing basis. Party B shall be responsible to supply all customers' services relating to the wireless content and the wireless value-added services, including but not limited to consultation through hot line or on the Internet. Party B is responsible for all user complains arising from the operation of this Agreement. Income Allocation Based on the cooperation of this agreement, both parties will allocate the income arising from the wireless content and the wireless value-added services stipulated in Article 1.1. This Article will be survived after the expiration or termination of this Agreement. The detailed income allocation is provided in Appendix 3 of this Agreement. Both parties shall assume all taxes, not including Party A's sales tax (5.5%) arising from this Agreement, which are levied by P.R.C. Government, or any authorized agent, or any local tax agent pursuant to the tax law. If necessary, Party B shall be on behalf of the tax authorities to deduct a corresponding amount from the income allocation to Party A and on behalf of Party A to pay such taxes. Technology Test Both parties shall test and debug all the related technologies and contents under this cooperation Agreement. The standards and the training of the technology test and acceptance are stipulated in the Appendix 2 of this Agreement. Audit Party A may audit the operation records of wireless contents and wireless value-added services provided by Party B when the notice reaches Party three days in advance. Party A is entitled to select an independent qualified audit office to audit the said records. If the user number or the charge amount as indicated in the auditing result is less than the user number or the charge amount reported by Party B, and if the deficiency exceeds 5% of the actual user number or the charge amount, Party B shall assume all the expenses in Party A's auditing, and Party B shall refund Party A in the amount equal to two times of such deficiency. Intellectual Property Any party of this Agreement shall not hold or posses the copyright, patent, trademark or any other intellectual property rights belonging to the other party due to the subscription of this Agreement. Unless the prior written notice from the counter-party, any party of this Agreement shall not use the name, trademark, logo, design, or commercial packaging belonging to the other party, including the commercial or corporation name, trade or service logo. Guarantee, Indemnity, Waiver, Limited Liability Party B shall guarantee it posses the legal right and competency to provide the wireless contents and the wireless value-added services, which shall not infringe any third party's intellectual property and not violate the related laws or regulations. And Party B meanwhile guarantee to provide the wireless contents and the wireless value-added services upon the standards both parties agree. If any action arises from the wireless contents and the wireless value-added services, which infringe the copyright or any other intellectual property right, Party B shall, in the event of notification of this action to Party B, agree to defend for Party A and assume the litigation fees and to pay any expense and indemnity fees judged in this action, and guarantee Party A shall not be damaged. Under the request of and in the expenses of Party B, Party A shall reasonably assist Party B in the litigation. If, according to the result of the judgment, the wireless content and the wireless value-added services stipulated in this agreement are forbidden, Party B may select to provide Party A's user with the free wireless content and the free wireless value-added services, or may provide Party A's user with the equal and substituted wireless content and wireless value-added services, and the above guarantee shall be extended to this substituted wireless content and wireless value-added services. Parties shall announce and guarantee (1) the party be authorized to reach this agreement and unnecessary to acquire the ratification and agreement otherwise;(2) the representatives assigned by each party are authorized and subscribe this agreement in its duty;(3) the party know the articles under this agreement are enforceable. Parties announces to its counter-party that the information related to this Agreement known and believed by him is actual and accurate, however, no party will assume the liability not due to its willful fault or absence. Except for the above announcement and guarantees, any information in this agreement shall be provided originally, any party will not make any express or implied announcement or guarantee to such information. In order for the unrestrictive purpose to establish a sample, any party shall not announce or guarantee the merchantability of the information for the special purpose and the non-infringement of the information to any intellectual property rights. Unless violating the confidential clause or breach of the agreement, any party shall not assume the collateral, special, indirect, resulting or penitentiary indemnity, including but not limited to the loss or the income reduction, regardless of breach or tort. Term and Expiration The effective period of this Agreement is one year. Both parties may negotiate the renew or the modification of this Agreement within 30 days before the expiration date. If any party (unperformed party) cannot perform its main duty under this agreement, except for any other executable remedies, the other party (performed party) may terminate this Agreement by written notification to the unperformed party, which shall be sent out no less than 7 days in prior and indicate the breach of the unperformed party unless the breach act is redressed and acknowledged by the performed party. If the Agreement is terminated upon this Article, the unperformed party is responsible to minimize the users' loss, and shall assume the liabilities thereof. The expiration or termination of this Agreement shall not affect the rights provided in Article 3 of this Agreement. When this Agreement is terminated and expired, based on the provision of Article 10 of this Agreement, any party shall return the confidential information in its possession to the other party immediately. Confidentiality Confidential information indicates to the information disclosed by one party (discloser) to the other party (receiver). If the information is tangible, it shall be marked with the words as "Confidential" or "Exclusive Possession". If it is the visual or the oral information, which is said to be confidential when disclosing, the discloser shall make a written summery and deliver it to the receiver in 30 days after the initial disclosure. Within 5 years after the initial disclosure of the confidential information by discloser, the receiver shall not disclose to any third party this confidential information, unless it is necessary for the employee, consultant, or contract party of the receiver (the precondition is that employee, consultant, or contract party agrees to protect this confidential information in writing) to know or understand such confidential information, but such information shall be protected as the own confidential information by the means of reasonable protection measures. Receiver agrees not to split, edit, or counter-engineer any confidential information of Motorola. The receiver understands the use or the release of Motorola's confidential information without authorization will cause economic loss to Motorola. The duty provided in this article will be effective for 5 years after the termination or expiration of this Agreement. Any party will not be responsible for the disclosure of confidential information in the following situations: The receiver obtains the confidential information in the case that there is no duty of confidentiality for him. The confidential information is known to the public, and that knowledge is not coming from any act of receiver. The discloser agrees in writing that such information shall not be kept in secret. The information comes from the third party without the duty of confidentiality. The confidential information is developed solely and independently by the receiver. The information is disclosed upon the order of authorities. The receiver only releases the information the order require to disclose, and the receiver shall notify the discloser of the order of authorities so as that the protection order may be obtained from the related authorities by discloser. If this Agreement is terminated by any reasons, both parties may immediately return to the other party or destroy the confidential information and make a written confirm. General Rules This Agreement including appendixes thereof constitute the entire Agreement, which will substitute the prior written or oral communication, negotiation, understandings, agreement or express. Both parties recognize that they have sufficient chances to acquire the legal assist and this Agreement is the result of the negotiation by two parties. Any party shall not be deemed as the initial drafter of this Agreement. Any ambiguity of the agreement shall not be deemed as the reason to oppose the other party. Unless the formal authorized representatives ratifies and subscribes in writing, no modification or amendment shall be made. This Agreement is governed and interpreted by the law of P.R.C. Both parties shall make best effort to settle the disputes through friendly negotiation, if any disputes are arising from this Agreement, or the appendix thereto. If the disputes cannot be settled by friendly negotiation within 90 days after the written notice of the disputes is sent out, any party may file the disputes to the China International Economic and Trade Arbitration Commission to arbitrate under its arbitration rules. The forum comprises three arbitrators, two of which are appointed by each party respectively. And the third arbitrator is elected by these two parties as the chief arbitrator. Arbitrators shall consider the intents of both parties. The award shall be made upon the applicable law of P.R.C. and the standards and guideline accepted by the international arbitration forum when treating the similar cases. The arbitration award is final and binding to both parties, and any party shall not bring action to the court afterwards. Both parties shall perform the arbitration award without any delay. The findings shall include the fee, expenses, and the related issues. The arbitration fee shall be paid by the party indicated in the final arbitration award. During the arbitration, except for the parts affected by the arbitration, the provisions and appendixes are still effective, and both parties shall still perform this agreement. The title used in this Agreement is only for the convenience of agreement writing, and shall not be used to interpret the rights and obligations under this agreement. Without the written consent of the counter-party, any party shall not disclose any clauses or conditions in this Agreement to the third party. Neither party will be responsible for the delivery or performance delay caused by the following events out of human beings' control: War or military acts; Natural calamity, including but not limited to flood, drought, typhoon, earthquake, fire and etc; Strikes or riots; International boycott; Any other unforeseeable act or event; All the notices, requests, requirements, claims and any other communication related to this Agreement shall be made in written forms, and may deliver personally or send by express, registered mail or confirmed facsimiles and get the return receipt. The delivery to the following address is deemed as receipt. Party A: Motorola(China) Co., Ltd. Address: 108# Jian Guo Road, Chao Yang District, Beijing Post Code:100022 Liaison Officer: Hanqiu Luo Tel.: 010-65642475 Fax.:010-65668466 Party B: Beijing AirInBox Information Technologies Co., Ltd Address: Room 809, Block A, Yue Tan Building, Yue Tan Bei Jie, Xi Cheng District, Beijing Post Code:100022 Liaison Officer: Xin Liu Tel.: 010-68081818 Fax.:010-68083118 Either party may change its address after the written notice is made. Without the consent of the counter-party, neither party shall transfer or sub-transfer this Agreement or the rights and obligations under this agreement. This Agreement can be subscribed for one original copy or may have several copies of duplicates, and the facsimile subscription will have the equal effect to the original subscription. Both parties shall be the independent Agreement party. The partnership, cooperation, joint venture or any other legal relationship does not occurs under this agreement. Neither party may restrict the other party so as to assume the responsibility of the third party. If any provisions under this agreement cannot be deemed to be effective and enforceable due to any reason, the other provisions in this Agreement shall not be affected. If the modification and substitution to the ineffective and unenforceable provisions are deemed as depriving one party's main interest, the Agreement shall be terminated as soon as possible, and the ineffective and unenforceable provisions shall be substituted by the effective and enforceable provisions, which may actually reflect the intents of both parties. This Agreement becomes effective on the date of the subscription by the authorized representatives hereby Party A: Authorized Agent: (signature) Name: /s/ C So Title: Date: Party B: Authorized Agent: (signature) Name: /s/ Li Luyi Title: Date: Appendix 1 The Wireless Content and the Wireless Value-added Services

Appendix 2 Detailed Rules of Training and the Technical Support In order to complete the cooperation of two parties in the field of mobile wireless application, Party A shall supply to Party B the technical support and services as follows: Party A provide Party B with the technical materials necessary to the information services development of Party A, including the end equipment, memory capability, technical size, the supported format of ring, screen saver, wallpaper and etc. In order to assist Party B to debug the program, Party A shall provide Party B the sample files of ring, screen saver, wallpaper and etc. for test and debug. In order to assist Party B to develop the information services based on Party A's end equipment, Party A shall provide Party B with develop tools, including Java program software package, TEHME, file transfer and production tools for ring, screen saver, wallpaper. Party A shall provide Party B the testing phone, and the handbook thereof. After obtaining the technique materials, tool software and the testing phone, Party A will train the engineers from Party B. During the development of the information services of Party B, Party A shall supply the consultation to the engineers from Party B, if necessary, shall assist the engineers from Party B to test or debug the application program. Appendix 3 Income Allocation 1. Party B agrees to pay Party A according to the "Percentage of Income Allocation" stipulated in appendix 1 the part that shall be received by Party A from the total income of wireless content and wireless value-added services. 2. Both parties agree that after the termination or expiration of this agreement, if the users in the term of this Agreement still use the wireless content and wireless value-added services, and Party B still have the income from them, Party B shall pay Party A according to Article 3 of this Agreement, and Party A will enjoy all the rights in this appendix. 3. Both parties agree to calculate the total income in the method as follows: 3.1 Total income of SMS=the base income value of Party B(according to the success state report responded by operator, 98% recorded) *the Allocation Ratio between Party B and operator Where The Allocation Ratio between Party B and operator (1) China Mobile: 85% China Unicom: not applicable by this agreement 3.2 Total income of WAP=All the bookkeeping account receivable of Party B's WAP*95%* The Allocation Ratio between Party B and operator Where The Allocation Ratio between Party B and operator (1) China Mobile: 85% China Unicom: not applicable by this agreement 3.3 Total income of MMS= the base income value of Party B(according to the success state report responded by operator, 90% recorded) *the Allocation Ratio between Party B and operator Where The Allocation Ratio between Party B and operator (1) China Mobile: 85% China Unicom: not applicable by this agreement 3.4 The total income of Party B is the sum of the above income deducting the sales tax 4. Both parties agree to balance the income every month. Within 30 days after the end of the month, Party B shall pay Party A's money to the account appointed by Party A, and Party A shall make out an invoice to Party B. After Party B received the bills from China Mobile and China Unicom, the fee list of the cooperation project (this fee list is calculated by Party B according to the bills provided by China Mobile and China Unicom, so Party B shall supply vouchers as basis) and the copy of the bills from China Mobile and China Unicom (to verify the actual fee settlement ratio between Party and China Mobile or China Unicom) shall be sent to Party A for verifying. If China Mobile and China Unicom cannot provide the fee bills, the data from Party B shall be used, and Party A may audit any data Party B provide. If the fee standards of China Mobile and China Unicom are changed, Party B shall immediately notify Party A in written form. Both parties shall confirm the income allocation calculating method in writings pursuant to the related provisions of China Mobile or China Unicom. The new method of calculation shall be executed from the next month when Party A received notice from Party B. EX-10.23 28 u98939exv10w23.txt EX-10.23 COOPERATION AGREEMENT AUG 29, 2002 EXHIBIT 10.23 COOPERATION AGREEMENT ON SHORT-MESSAGING SERVICES PARTY A: GUANGDONG MOBILE TELECOMMUNICATIONS CORPORATION PARTY B: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD Guangdong Mobile Telecommunications Corporation (hereinafter referred to as "Party A") is a network operation company that has been approved by the Chinese authority in charge of information industry under the State Council to provide mobile network telephone services (including voice message, data and multimedia) to the general public within Guangdong province. Beijing AirInBox Information Technologies Co.,Ltd. (hereinafter referred to as the "Party B") uses wireless interconnections as its major platform to provide a range of mobile message services to customers who can access the Internet via mobile terminals or PCs. For the purposes of giving full play of the advantage of each Party in its service area and providing Monternet WAP services to its subscribers in Guangdong and other users permitted by Party A, the parties have reached the following agreement with respect to SMS cooperation in accordance with the principles of equal benefit, advantage sharing, and mutual development. ARTICLE 1 CONTENT OF THE COOPERATION PROJECT 1. As a provider of the platform for the delivery of SMS, Party A will provide networking channel to Party B for a fee. 2. Party B shall, through Party A's SMS platform, provide the following information and application services to Party A's subscribers of Gotone and M-Zone in Guangdong and other subscribers agreed by Party A. Party B shall, according to subscribers' customization requirements, provide subscribers with timely information services with sound quality and quantity. 3. Party A shall use its billing and business supporting system to provide Party B with paid business billing and fee collection service. ARTICLE 2 PARTY A'S RIGHTS AND OBLIGATIONS 1. Party A shall have the right to verify operation license for internet information services or operation license for telecom value-added services, credit certificate, business license, source of information and bank account and other materials relating to the normal operation of business provided by Party B. 2. Party A shall provide Party B with the connection point for SMS service and SMS service volume control. Party A has the right to adjust SMS service volume according to the capacity of its SMS center. 3. Any expansion of Party B's business offerings or its application to alter its business shall be subject to Party A's review within 10 days upon submission of related materials by Party B. 4. Party A shall have the ownership of its subscribers and the right to know about Party B's business. Party A has the right to request Party B to provide Party A with customer information, business profile, log and statistics relating to Party B's Monternet services. 5. Party A shall have the right to stipulate measures for the management of the Monternet services and to examine the performance standards and the documentation with respect to customer services; Party A also have the right to require Party B to observe and implement the above mentioned measures and standards. Party A shall carry out 1-2 performance reviews on Party B each year according to the management requirements mentioned above. 6. Party A shall provide Party B with a system to identify and verify user registration and log-on information, which system shall be connected with Party B's content service system, and the subscriber data recorded by such system shall be the controlling information on the subscribers' usage of Party B's services. 7. Party A shall provide Party B with a customer service number for the customer to make complaint and enquiry calls. Party A's customer service center shall be the party to make final confirmation and distribution of Monternet customer service problems, Party B's customer service personnel or customer service system shall assist Party A to analyze and deal with complaints and enquiries relating to relevant customer services. Party A has the right to forward such customer complaints and enquiries not arising from network communication problems. Party A shall be liable for such customer enquiries and complaints due to network communication problems. 8. Party A shall collect the service fee from subscribers for Party B based on Party A's billing information. 9. Party A shall provide to Party B volume information at its SMS gateway recording the amount of SMS sent by Party B; Party A's information will be the basis for the settlement of SMS communication network fee. 10. Party A has the right to verify the profit forecast of the parties provided by Party B to Party A prior to the activation of the service to be provided by Party A. 11. Party A and Party B can jointly engage in marketing and customer advertisement. Party A has the right to request Party B to identify the brand of "MONTERNET" upon Party A's examination and approval. In the event that Party B's promotion and advertisement involves the corporate name and other brand specifications of Party A, it shall be subject to Party A's prior examination and approval. ARTICLE 3 PARTY B'S RIGHTS AND OBLIGATIONS: 1. Party B shall provide Party A with true and reliable operation license for internet information services or operation license for telecom value-added services, credit certificate, business license, source of information and bank account and other materials relating to the normal operation of business, and guarantee that the billing for such information services is in compliance with relevant provisions of the State pricing authority. 2. Party B shall ensure content compliance with regulations and the nine categories of illegal information listed in Information Source Networking Information Safety and Security Liability Statement (Exhibit 4). Party B shall be responsible for filtering the content (including the information edited by the user through Party A's network) of information provided by users, prohibiting any kinds of unhealthy and illegal information. 3. Party B shall provide Party A with its preliminary response within 2 hours of receiving customer complaints and verify the reasons for the problems underlying such complaints within one working day. 4. Party B shall verify the true identity of users and display calling number along with the SMS. Any information directly being sent to other users' Mobile phone only with anonymous and pet name will not be allowed (excluding the chatting business of fictitious community). 5. Party B shall strictly control the function of group SMS service and ensure a piece of SMS can be reached by at most 1-2 calling numbers. 6. During the term of this agreement, Party B shall not provide any third parties the same information services that it provides to Party A through any channels or any means; Party B must create a separate database for Party A's subscribers(135 -- 139) that is separate from that for the subscribers of any third parties. Further, Party B shall not provide any Monternet services to any third parties any time through any means (including chatting through SM, self-editing SM and sending SM through network). 7. Party B shall not publish advertisement or other non-relevant information on its website. Any supplement to Party B's business and application for business alteration shall be subject to Party A's review and approval, and shall be verified by Party A's billing examination. Party B shall timely deliver to Party A such business materials that require Party B's resolution. (As of the date of this Agreement, basic information provided by Party B are listed as Exhibit 3 hereto.) 8. Party B shall provide Party A with reports on the customer development, customer category, customer habit, business forecast and subscriber information necessary for the administration of Party B's services, and ensure timely upgrade of Party A's customer database. Party A shall keep such information confidential in accordance with Article 7 "Confidential Information." Party B shall be responsible for providing system to keep a log of the required information mentioned above and shall keep historical records for at least one month. 9. Party B shall ensure that customers are informed of the price, content and the manner through which its services are provided prior to the delivery of its services. 10. Party B shall obtain customer's consent before providing its services and shall, according to subscribers' customization requirements, provide subscribers with timely, quality and the correct quantity of information services. 11. Party B shall observe Party A's measures with respect to the management of the Monternet services and standards of customer service and documentation; in addition, Party B shall be subject to Party A's inspection and supervision. If, for whatever reason, Party B withdraws from providing WAP services to Party A, Party B must provide a one-month grace period to continue its service and make a website announcement on its website (WWW/WAP) or other channels to keep Party A's subscribers informed. 12. Party B shall handle customer enquiries and complaints not resulting from network communication problems and establish effective channels for complaints that will be directed to Party A's customer service center. Party B shall assume the ultimate liability to customers for such customer complaints for which neither Party A nor Party B can give a reasonable explanation. 13. Party B shall fill out the number of billable characters in each delivered message as required by Party A, and the form of the bill must conform to the date format provided by Party A. 14. Party B shall be solely liable for tax payment on its profit. 15. Party B shall issue a formal invoice to Party A for such information service fees collected from Party A. 16. Party B shall actively engage itself in marketing and customer promotion. The content of Party B's promotion and advertisement materials shall include the "MONTERNET" brand as required by Party A. 17. Within 6 months after the effectiveness of the Agreement, Party B shall not conduct the same or similar WAP services within Guangdong province with any third party. ARTICLE 4 MAINTENANCE RESPONSIBILITIES 1. Responsibilities for maintenance shall be divided at the point where the equipment of the parties connects; each Party shall perform its respective obligations to ensure the normal operation of their services. 2. Detailed responsibilities of the parties are listed in Exhibit 1 hereto. ARTICLE 5 BILLING AND SETTLEMENT 1. Party A shall be entitled to the network fees arising from customers' use of SMS services. Party A and Party B together shall share in the information service fees paid by customers in accordance with a pre-determined percentage. 2. If subscribers refuse to pay the information service fees due to problems with the quality of Party B's service, such unpaid amount shall be deducted from Party B's share of the information fees. 3. If Party B fails to transmit its information services in accordance with the format requirements of Party A (i.e., by including in each message certain wordings regarding information service fees), Party A will not include such amount in the information fees collected for Party B and Party B shall be solely liable for any consequence arising therefore. 4. Detailed method for billing and settlement is set forth in Exhibit 2 hereto. ARTICLE 6 REWARD AND PUNISHMENT PROVISIONS 1. With the occurrence of any of the following circumstances, Party A has the right to require Party B to reform and reorder immediately, and even has the right to deduct from the information service fee collected by Party A according to different circumstances. Party A has the right to terminate the agreement immediately in very serious circumstances. 1.1 Party B is in violation of laws, regulations, measures or policies concerning China's telecommunications or Internet information. 1.2 The content provided by Party B is in violation of applicable laws, regulations and policies of state, Party B send illegal information set forth in Information Source Access Network Safeguard Duty (Schedule 4) through the Party's A system. 1.3 Party B acts substantially reckless in the collection of fees from the users. 1.4 Severe complaint from customers with respect to the quality of Party B's services. 1.5 Party B fails to observe the standards in using Party A's corporate name and other brands as provided in this Agreement and such failure has resulted in bad influence on the society. 1.6 Realizing inter-connection by using data application services provided by Party A, or causing inter-connection between third parties using Monternet services using services including short-messaging chatting, self-edited short-messaging or Internet disseminated short-messageing. 1.7 Party A's network system is damaged due to Party B's system testing, activation and modification. Other conduct of Party B in violation of this Agreement. 1.8 Party B's customers are seriously affected by Party B's system testing, activation and modification, which results in strong complaints from the customers. 1.9 Other behavior violated the agreement committed by Party B. 2. With the occurrence of any of the following circumstances, Party A has the right to terminate the corporation or deny to renew the agreement. 1) Party B fails to provide Party A with true and reliable operation license for internet information services or operation license for telecom value-added services, credit certificate, business license, source of information and bank account and other materials relating to the normal operation of business, and the billing for such information services isn't in compliance with relevant provisions of the State pricing authority. 2) Party lies in the late 5 for consecutive two times during Party A's review, and the reform has no effect. 3) Party A's written warn has no effect when Party B fails to prior deliver the expected revenue date of both parties during the period of corporation. 4) Party B has other serious fraud behavior during the period of corporation. 3. If Party B lies in the top 10 for the Party A's review, Party A will prevail to provide resources and assist Party B for advertising, and will firstly take Party B's other requirement into consideration. 4. If Party B has effectively performed the obligations under the agreement, and the claims rate from users is relatively law, then Party A will prevail to consider to renew the agreement with Party B. ARTICLE 7 CONFIDENTIALITY 1. Both parties shall be responsible to keep confidential all the customer materials obtained from such services. 2. Proprietary information received by one Party from the other Party (the "Disclosing Party") that is developed, created, discovered or learned by the Disclosing Party, or transferred to the Disclosing Party, and is of commercial value to the business of the Disclosing Party, including but not limited to relevant commercial secret, computer program, design techniques, idea, know-how, process, data, business and product development plan, customer information relating to the business of the Disclosing Party and other information, or confidential information that the Disclosing Party receives from another party, shall remain the property of the Disclosing Party, the other Party shall keep confidential any and all proprietary information, and without prior written consent of the Disclosing Party, shall not use or disclose such proprietary information to any individual or entity, except for the purpose of normal performance of the obligations hereunder. 3. Both parties shall be responsible to keep confidential this cooperation and the terms and conditions of this Agreement. Without prior written consent of the other Party, neither Party shall disclose to any third party details of the cooperation between the parties and the terms and conditions of this Agreement. ARTICLE 8 LIABILITY FOR BREACH 1. If this Agreement cannot be performed due to any Party's violation of this Agreement, the other Party shall have the right to terminate this Agreement. 2. If any party breaches any obligations under this Agreement and incurs bad social impact or economic losses to the other party, the other party shall have the right to hold the breaching party responsible for such breach, requires the breaching party to reverse such impact and make corresponding compensations, and to terminate this Agreement. ARTICLE 9 FORCE MAJEURE Any party hereto shall not be held responsible for the other party's economic losses or the failure or delay to perform all or any part of this Agreement due to force majeure events that could not be predicted and the result of which cannot be controlled or prevented. However, the party affected by such force majeure events shall promptly provide the other party with written notice of such occurrence and, within 15 days thereafter, send a valid certificate issued by the relevant authority explaining the details of such events and the reason for its failure or delay to perform all or any part of this Agreement. Both Parties shall negotiate the performance or termination of this Agreement according to the degree of impact on the performance hereof caused by such events. ARTICLE 10 AMENDMENT OR MODIFICATION 1. During the cooperation between the parties, relevant business management requirements and relevant customer management requirements stipulated by Party A for the Monternet shall be incorporated as a supplement hereto. If there is any conflict between the provisions of this Agreement and the management requirements, the management requirements shall prevail. Both parties agree to negotiate on the conflicting provisions, and execute a supplemental agreement. 2. If any party hereof intends to modify or terminate this Agreement, it shall provide written notice to the other party at least 15 day prior thereto. Notice in oral form shall be invalid. Any dispute arising from the termination of this Agreement shall be negotiated in order to reach a resolution between the parties. 3. Any issues not included in this Agreement shall, upon agreement through amicable negotiations between the parties, be included as a written supplement hereto. 4. This Agreement shall be governed by the laws of the People's Republic of China. If the Parties hereto fail to reach an agreement in the event of any dispute, either Party may file a lawsuit before the court of the place where Party A is located. 5. This Agreement shall become effective after it is signed by the representative of the Parties and affixed with the official seal of the Parties, the term hereof shall be one year, which is renewable upon agreement by both Party A and Party B through consultation. 6. This Agreement and Exhibits hereto are in four originals, each of Party A and Party B holds two originals thereof, with the equal legal effect. EXHIBIT 1: MAINTENANCE RESPONSIBILITIES EXHIBIT 2: BILLING AND SETTLEMENT EXHIBIT 3: PARTY B'S BUSINESS AND PRICE EXHIBIT 4: INFORMATION SOURCE NETWORKING INFORMATION SAFETY AND PARTY A: GUANGDONG MOBILE TELECOMMUNICATIONS CORPORATION /s/ Lin Zhenhui PARTY B: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD. /s/ Yunfan Zhou STATEMENT HEREBY, WE PROVE THAT THE RENEWAL OF SMS COOPERATION AGREEMENT BETWEEN OUR CORPORATION AND BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO.,LTD IS STILL IN PROCESS, AND THE COORATION IS STILL EFFECITIVE. GUANGDONG MOBILE COMMUNICATIONS CORPORATION (SEAL) EX-10.24 29 u98939exv10w24.txt EX-10.24 LEASE AGREEMENT AUG 30, 2002 EXHIBIT 10.24 LEASE AGREEMENT OF YUETAN BUILDING This Agreement is entered into by and between two parties as of August 30, 2002, in Beijing. Lessor (Party A) Name: Beijing Yue Tan Building Real Estate Development Co. Ltd. Registered Country: China Registered Address: 2# Yue Tan Bei Jie, Xi Cheng District, Beijing Tel.: 68083100 Fax: 68083333 Legal Representative: Rong Jiang Lessee (Party B) Name: KongZhong Information Technology (Beijing) Co.,Ltd Registered Country: China Registered Address: 12th floor, No 6, Zhong Guan Cun Nan Da Jie, Hai Dian District, Beijing Tel.: 62016505 Fax: 62012955 Legal Representative: Yunfan Zhou Through friendly negotiation, regarding to the leasing and renting of the real estate, which is located in Room 809, 8th floor, Block A, 2# Yue Tan Bei Jie, Xi Cheng District, Beijing, Party A and Party B reach an Agreement as below. Article 1 The Room 1.1 The total acreage of this room is 900.57 sq.m. 1.2 The ichnography of this room pls. refers to Appendix 1 of this Agreement. Article 2 The Use of the Room 2.1 Party B agrees only to utilize this room as office room. Article 3 The Term of the Leasing 3.1 Time Period of the term Both parties agree that the term of this Agreement is 2 year(s), leasing from the date of September 10, 2002. Party A deliver this room to Party from the leasing date as above. 3.2 Free Leasing Period After the subscription of this Agreement, the free leasing period is calculating from the date of September 10, 2002. The total free leasing Period is 2 months, viz. from the date of September 10, 2002 to November 9, 2002. During the free leasing period, Party A shall not ask for renting fee, meanwhile Party B shall pay the related fee (refer to the Appendix 2 of this Agreement) according to the provisions of the Party A's authorized agent (Real Estate Management Company) 3.3 Reletting This Agreement is terminated when the term is expired. If Party B desires to relet the room, with the consent of Party A, Party B shall put forward its request 3 months before expiration and renew this Agreement. Article 4 Renting Fee and Payment 4.1 Party B agrees to pay Party A the renting fee 17.8 USD/Month/Sq.M. according to the structure acreage (including the management fee 3.2 USD/Month/Sq.M.), the total amount of each month in words is ONE HUNDRED THIRTY TWO THOUSAND SEVEN HUNDRED TWENTY NINE YUAN AND SIX JIAO RMB (viz. RMB 132729.6 Yuan) 4.2 The renting fee shall be prepaid in USD each month, and Party B shall pay Party A the renting fee 5 working days after every leasing date monthly into the banking account appointed by Party A or attorney authorized by Party A. The first payment shall be paid to Party A before the date of September 10, 2002. If Party B desires to pay the renting fee in RMB, the payment shall be based on the middle price of the exchange ratio between USD and RMB announced by the People's Bank of China. Name of the Company: Beijing Yue Tan Building Real Estate Development Co. Ltd. Bank of Deposit: Xuanwu Subbranch Bank, Beijing Branch Bank, Pudong Development Bank of Shanghai Account: 6214135001106 Article 5 Down Payment for Agreement Establishment. 5.1 Party B agrees to pay THIRTY THOUSAND RMB in words before the date of subscription, viz. August 30, 2002, as the down payment to the room leasing. The renting fee payment will be offset from the down payment in the first renting fee payment. Article 6 Guaranty Money 6.1 Party B agrees to pay into the banking account appointed by Party A three-month renting fee before the date of September 10, 2002, totally in words THREE HUNDRED NINETY EIGHT THOUSAND ONE HUNDRED EIGHTY EIGHT YUAN AND EIGHT JIAO RMB (viz. RMB 398188.8 Yuan ), which shall be kept by Party A to the end of expiration.(the exchange ratio refers to Article 4 section 2) 6.2 During the time of the leasing period, if Party B violates the provisions and cause damages to Party A, Party A (or the authorized agent of Party A) shall have right to deduct parts of or entire down payment in accordance to this Agreement, and shall notice Party B in writing after the deduction date. If the down payment is not sufficient, Party A may notify Party B to make up the margin, and Party B shall remit such amount to the banking account appointed by Party B in 15 days. 6.3 Where this agreement is expired, Party B shall deliver the room to Party A (or the Party A's authorized agent) neat and tidy, and shall return the down payment to Party B in 20 working days after Party B pays up all the expenses, renting fees, and damages; if Party B cannot pay up the expenses, renting fees and damages under the items of this Agreement, Party A is entitled to return the balance of down payment to Party B, after deducting the relevant fees therefrom. Article 7 Real Estate Management and Fees Related 7.1 Pursuant to the provisions of the authorized agent (the real estate management company) and the requirement of other department, Party B shall timely pay the real estate management fees, energy fees, telephone line leasing guaranty money, telephone expenses and other expenses arising from the house leasing during such leasing period. 7.2 The taxes arising from the house leasing shall be born respectively by each party according to the provisions of the related department. The insurance of relevant properties in this room shall be determined by Party B itself. Article 8 Rights and Obligations of Party B 8.1 Party B shall pay the down payment and renting fees according to this Agreement. 8.2 Party B shall provide its business license (photocopy thereof) and its introduction for Party B. 8.3 If the room is damaged by Party B during utilization, management, and maintenance, Party B shall immediately notice Party A or its authorized agent (real estate management company) and assume the mending expenses and compensation fees. 8.4 Without Party A's written consent, Party B shall not transfer to, relet to, exchange or share with the others the house. 8.5 Without Party A's written consent, Party B shall not make any restructure to the house, shall not move or remove any fix fittings or equipment in the room, and shall not allocate, pile up, or hang any objects, whose weight is out of the bearing limit of the house. The arrangement by Party B shall not damage the structure or the equipment. 8.6 Party B agrees that Party A (or the its authorized agent), with the prior notice (or without any notice in case of urgency), may enter into the room to inspect or exam conditions of the house or treat with the urgent cases in any reasonable time. If anything shall be repaired by Party B, Party B shall pay the related fees and mend them in accordance with the demand of Party A or its authorized agent, or else Party A has right to repair instead and Party B shall assume the fees related. 8.7 Any delinquency, breach, infringement, which is caused by the employee, visitor, and licensee during the use, management, and maintenance of the house, shall be deemed as the act of Party B itself, and the liability related shall be born by Party B. If the above acts affect the daily work of Party A or causes any damages to Party A, Party B shall compensate all the loss. Article 9 Rights and Obligations of Party A 9.1 Party A agrees that Party B may arrange on the roof of the building no more than eight sets of air-conditioner's out-setting machine, which is necessary for Party B to use this house. However, Party B shall pay the real estate management company RMB 6000 Yuan as management fees. If the air-conditioner's out-setting machine is unnecessary to fit, such fees will not be paid. 9.2 If the ceiling, main structure, drainpipe, cable, and any other fix fittings and equipment are damaged not due to Party B, Party A shall be responsible to bear the related mending fees. However, if any damages occurs, Party B shall immediately notify Party A's authorized agent, and the real estate management company will arrange the repairs. 9.3 Party A has right to appoint its agent and the authorized agent may deliver and take back the house, receive the renting fees, or any other rights entitled by Party A. 9.4 If Party B has not clearly put forward its request to relet or purchase the house, Party A may accompany the personnel, who desire to lease or purchase the house, to enter into the house for visit three months before the expiration of the Agreement. 9.5 Party A shall insure the safety of the house. If Party A's authorized agent (the real estate company) causes any personal harm, property damages, or other situations that are affected the daily work of Party B by the reason of itself, the real estate company shall compensate all losses. 9.6 If Party B does not move its own property, equipment or any other objects out of the house within 10 days after the expiration or termination of this Agreement, which is deemed as the disposal right abandon, Party A or its authorized agent(real estate management company) has right to assign some persons to dispose the said property and objects without any compensation to Party B. 9.7 Party A shall, as soon as practicable, deal with any matters which Party shall be responsible for maintaining or repairing after coming to knowledge or receipt of notice by Party B. Article 10 Breach Liabilities 10.1 Both parties shall observe the provisions under this Agreement, any party who violates the provisions shall assume the liabilities. If any damages occurs, the compensation shall be made within 5 days. 10.2 If Party A terminates this Agreement unilaterally from the time of subscription to the leasing date, Party A shall return the double payment as the down payment stipulated in Article 5. If Party B terminates this Agreement unilaterally, the down payment will not be returned. 10.3 If Party A terminates this Agreement unilaterally after the leasing date, Party A shall return the double payment as guaranty money provided in Article 6 Section 1. If Party B terminates this Agreement unilaterally, the guaranty money will not be returned. 10.4 If Party A cannot deliver the house to Party B within 30 days after the leasing date, Party B has right to rescind this Agreement or ask for postponing the leasing date. If Party B choose to cancel this Agreement, Party A shall pay back Party B all the money and interests (calculating upon call rate) within 20 days after receipt of written notice. 10.5 If Party B delay to pay the renting fee or the guaranty money, Party B shall pay Party A 0.5% of such amount per delaying day. If Party B does not pay such amount of the delayed payment fee, or does not make up such margin after 20 days when receive the notice, unless the renting fee or the guaranty money is supplemented, Party A shall have right to cancel this Agreement, which is deemed as the unilateral termination of this Agreement, and the guaranty money will not return. 10.6 If Party B transfer, relet to or exchange with the third party the house, without Party A's consent, the Party B shall pay Party A 3-month renting fees as the breach of contract damages, and the Party A shall have right to rescind this Agreement, unless such income returns to Party A. 10.7 If Party B violates the provisions under this Agreement and does not correct after the written notice is received, Party A shall have right to rescind this Agreement (the date of rescinding the Agreement is the date when the written notice from Party A or its authorized agent serves to Party B), which is deemed as the unilateral termination of this Agreement. Where Party A cancels this Agreement due to Party B's fault, Party A shall pay back Party B's payment deducting the leasing fees, expenses, compensation, and breach of contract damages (calculating as the 3-month renting fee) within 10 days after this Agreement is canceled. If the guaranty money paid by Party B cannot make up the margin receivable by Party A, Party A has its right to recourse from Party B. Article 11 Priorities 11.1 Within three months before the expiration, Party B may request to renew the lease. If Party A plans to relet this house and Party B does not materially breach the contract in the term of this agreement, under the equal condition, Party B shall have the right of priority to subscribe the leasing agreement at least one year. 11.2 If Party A needs to sell this house and Party B does not materially breach the contract Within the leasing period or after the expiration, under the equal condition, Party B shall have the right of priority to purchase. 11.3 If Party A sell the house to the third party within the leasing period, Party A shall be responsible to urge the buyer to reach a written agreement with Party B as to accept this Agreement. If this buyer does not accept this agreement, Party A shall compensate Party B's losses based on the agreement of both parties. Article 12 Force Majeure 12.1 In the event of earthquake, typhoon, rainstorm, conflagration, war, and any other events , which are beyond the party's reasonable control and cannot be prevented or escape from with reasonable care, if any party cannot perform this Agreement, this party shall notify the other party by telegram or facsimile, and provide the details and the authentication files that can prove the impossibility of performance, partly impossibility of performance and the performance delay within 15 days. These file shall be supplied by authentic agent in the area where force majeure occurs. To the extent of its affect, parties shall determine to cancel, to reduce the parts of the performance liabilities, or to postpone this Agreement. Article 13 Applicable Law 13.1 The establishment, effectiveness, interpretation, performance, dispute settlement of this Agreement shall be governed by current laws of P.R.C. Article 14 Disputes Settlement 14.1 Any disputes arising from the performance of this agreement, both parties shall be settle the disputes through friendly negotiation. If not, any party may file the action to the people's court in the jurisdiction where the real estate located. Article 15 Miscellaneous 15.1 The notice under this agreement shall be sent in writings except for some provisions stipulated otherwise. The notice can be served by fax, post, deliver face to face to the address set forth in this Agreement above (the post to Party B as well may be sent to this address). If the service is made by facsimile, the time when the fax sends out shall be the service date; if the service is made by face-to-face delivery, the time of receipt shall be the service date; if the service is made by post (including the express delivery), the 15th day after the post delivers shall be the service date. 15.2 Chinese shall be prevailing language in this agreement, any other language shall only be deemed to be the reference. 15.3 This Agreement is effective on the date of subscription. 15.4 There are 4 original copies of this Agreement, each party hold one copy, and the other two copies shall be files to the related administrative department for records. PARTY A: BEIJING YUE TAN BUILDING REAL ESTATE DEVELOPMENT CO. LTD. LEGAL REPRESENTATIVE (SIGNATURE): /s/ Rong Jiang --------------------- CORPORATION SEAL: DATE: PARTY B: LEGAL REPRESENTATIVE (SIGNATURE): /s/ Yunfan Zhou ---------------------- CORPORATION SEAL: DATE: EX-10.25 30 u98939exv10w25.txt EX-10.25 LEASE AGREEMENT MAY 27, 2004 EXHIBIT 10.25 No.: TD0131 Lease Agreement LESSOR: BEIJING GAOLING ESTATE DEVELOPMENT CO., LTD LESSEE: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD The Tengda Building to be rented by the lessee is owned by the lessor. Through friendly negotiation and according to < The Contract Law of The People's Republic of China> and related regulations, the two parties reach the agreement as below to define the rights and obligations of the lessor and lessee. Article 1 Renting Fee, Real Estate Management Fee and Guaranty Money 1.1 The lessor agrees to lease to the lessee the rooms on 35th Floor of Tengda Building admitted by the parties (for short "the house" as follows) with the total acreage of 1,504 sq.m to be utilized as office room.( The ichnography of this room pls. refers to Appendix 1 of this Agreement for details , the ichnography is simply supplied to confirm the location.) 1.2 The term of the lease is 2 years, leasing from the date of May 28, 2004 to May 27, 2006. 1.3 The renting fee is USD 14.9 dollars/Month/Sq.M. (RMB 4.12 YUAN/Day/Sq.M) while the Management Fee is USD 3.6 dollars /Month/Sq.M. (RMB 1 Yuan/Day/Sq. M). So the total amount (including the management fee) of each month is USD 27,824.00 dollars (RMB 230,939.20 Yuan). Every month is calculated as 30 days in this agreement. The renting fee and management fee shall be prepaid every month, which means the lessee shall pay the renting fee and management fee of next month on the 18th day of every previous month. The payment shall be made in RMB and effected by the time of the receipt by the lessor. 1.4 When the term of the agreement is more than 2 years, the lessor reserves the right to adjust the renting fee and management fee after two years. 1.5 The lessee shall give three months' renting fee and management fee to the lessor , which amount to USD 83,472.00 dollars (RMB 692,817.60 Yuan, totally in words SIX HUNDRED AND NINETY TWO THOUSAND AND EIGHT HUNDRED AND SEVENTEEN YUAN AND SIXTY CENTS, to serve as guaranty for duly performance of the agreement .(hereafter as "guaranty money"). 1.6 The lessee can rescind the agreement by written notice if the lessor, without any fault or negligence, cannot deliver the house to lessee after two months since the leasing date. Under such circumstances, the lessor shall return the renting fee and management fee having received back to the lessee.(the interests not included ) 1.7 During the period of the lease, if the lessee violates the provisions and conditions of the agreement(including defaulting renting fee, management fee ,damages and defective performance of the agreement ) and cause damages to the lessor , the lessor shall have right to deduct part of or entire guaranty money to compensate the loss the lessor has suffered and the expense the lessee shall have paid. If the guaranty money is less than the amount required in Clause 5 above, the lessee shall make it up within three days since receiving the written notice of the lessor, Otherwise, the lessor has right to take such measures as shutting off power and telephone, even releasing the agreement and claiming for the losses it has suffered for the insufficient guaranty money. 1.8 On condition that lessee fully performs provisions of agreement , the lessor shall return the entire guaranty money to the lessee in 30 days since the house is returned and the related fees are all paid up. 1.9 Without the consent of the lessor, the lessee cannot assign the right of claim for the return of the guaranty money to a third party or serve it as guaranty Article 2 The Release of the Agreement by the Lessee in the Term of validity of the Agreement The lessee could release the agreement during the term of validity of the agreement with written notice to the lessor, on the condition that the lessee has paid up all the guaranty money to the lessor. Article 3 The Equipments and Reconstruction of the Rented House 3.1 The lessor shall furnish the house with the following equipments: 1. Central air-conditioner and ceiling (including intake, automatic smoke sensor, gushing machine, daylight lamp) 2. 220v electrical source, communication circuitry, faucet for antenna of secondary planet TV. 3.2 Before making any fitments and reconstruction of the house, the lessee shall produce the blueprint and scheme for the lessor, as well as the introduction of the construction enterprises and its personnel. The construction enterprise is obligated to pay management fee RMB 30000.00 Yuan (as words: RMB thirty thousand Yuan) to the lessor. Only after the payment of guaranty money for construction and management fee could the construction enterprise get the written consent from the lessor to make the construction. The construction will be inspected and accepted by the lessor to confirm that it is carried out according to the blueprint and budget approved by the lessor without any ruin on the establishment and equipments of the building. The guaranty money will not return to the construction enterprise until the check and acceptance of the lessor. The cost of the construction and taxes on the additional fitments and equipments by the lessee shall be borne by the lessee, without reference to the name on the bill or its nominal name. 3.3 In case that the lessee rents the beeline telephone number (open an account in the name of the lessor in the telecom company) from the lessor who will pay the telephone fee instead of the lessee, the lessee should pay RMB 5,000Yuan/each line (as words: RMB five thousand Yuan each line)as guaranty money of the telephone fee and RMB 300 Yuan /Year/Line(as words :RMB three hundred Yuan every year for each line) as circuitry maintenance fee . The lessee has right to choose the number of the telephone after the payment of the above fees. The lessor shall take charge of the affairs of the installations. The telephone fee should be paid by the lessee within in 7 days after receipt of the written notice from the lessor. The guaranty money will be returned back to the lessee without any interests after expiration. In case that the lessee brings the beeline telephone number itself or open an account in the name of the itself in the telecom company, it shall pay the lessor RMB 200Yuan/each line (as words: RMB two hundred Yuan each line) at one time as circuitry occupation fee , RMB 5 Yuan/each line (as words: RMB five Yuan each line) as transfer fee and RMB 100Yuan/each line (as words: RMB one hundred Yuan each line) as circuitry maintenance fee. The lessor shall produce assistance for the installation. Article 4 the Renewal of the Lease After the expiry of the lease, the lessee has the right of priority to extend the term of the agreement in the same circumstances. The lessee shall notify the lessor in written notice three months before the expiry of the agreement, although the terms and conditions for the renewal shall be negotiated by the partied (the range for the adjustments of the price shall be made according to the rise or drop of Beijing real estate index and the general leasing price of the whole building). If the lessee does not make the above notification in that period, it will be regarded that it will not lease the house any more and shall move out of the house before the termination date of the agreement. Article 5 the Return of the House 5.1 After the expiry of the agreement, the lessee shall return the house according to the time notified by the lessor. If the house cannot be returned on time for the reason of the lessee and there exists a new lessee, the lessor has right to request the lessee to leave the house in 3 days and deduct part of or entire guaranty money of the lessee. In case the guaranty money is not sufficient for the compensation of the losses, which the lessor has suffered, the lessor is entitled to claiming for the insufficient part. If the house has not been rented to other lessees, the lessor will deem that the lessee will renew the house. In this case, the renewal procedure shall be made by the lessee; otherwise the lessor will have right to request the lessee to leave the house and deduct part of or entire guaranty money. 5.2 When the lessee returns the house after expiration, the rented house shall be in good state. (natural abrasion excepted);The lessor has right to deduct the guaranty money to compensate the corresponding losses when it finds that the house and equipments is tainted for the reason of the lessee. The lessee is obligated to make up the margin in case that the guaranty money is insufficient for the losses. 5.3 As to accession made by the lessee to the house(shall be approved by the lessor), the lessor is not certainly to request the lessee to restore it to the original conditions. The lessor shall not pay the expenses back for the accession even if the lessee does not make the restoration. Article 6 the Obligations of the Lessee The lessee agrees to abide by the following provisions: 6.1 The lessee shall abide by all the rules and regulations stipulated by the lessor and its authorized agent. 6.2 The lessee cannot take and allow others intentionally take any activities that will make the insurance of the house and the building invalid or possibly invalid, or will increase the insurance premium. Within the term prescribed by the lessor, the lessee shall make payment of the corresponding increase for the premium and other related expenses for the violation of the stipulations of this clause which induce the repurchase of the insurance by the lessor. 6.3 The lessee shall not take the following activities 1. To utilize the house for illegal activities. 2. To assign the rights of lessee under the agreement to others or use the rights as guaranty. 3. To lease part of or the entire house to others or let others use the house. 4. To use the house with a third party (not including affiliated enterprises of the lessee which means the parent company, subsidiary, branch company of the lessee or the company which shares the common investment party and legal representative with the lessee) or make the disclosure in others' names. 5. To transfer the ownerships of the ornaments, equipments and articles in the house to the third party or use them as security. 6.4 The lessor shall take charge of the safety during the term of the lease while the loss and damages of the articles in the house shall be borne by the lessee. In case of fire, the lessee shall make compensation according to its corresponding liabilities under the specific circumstances. Article 7 the Obligations of the Lessor The lessor agrees to abide by the following provisions: 7.1 The lessor shall guaranteed the public establishments (including illumination, air-conditioner, automatic smoke sensor, shower, WC and elevator, etc.) are in good conditions. The repairs shall be made immediately after receiving the written notice of the lessee in case of any trouble. 7.2 Twenty-four hours' security measures shall be strictly implemented. 7.3 The lessor shall bear the corresponding losses, which the lessee has suffered, if the house cannot be ordinarily used for the reason of quality. (the cases stipulated in Article 9 of this agreement and the losses incurred by the quality for the reason of reconstruction by the lessee is not included) Article 8 Damages and Breaching Liabilities 8.1 If the lessor suffers losses for the reason of the lessee or because of the intentional or negligent act of the lessee's agent or employee during performance of the obligations, the lessee must compensate the corresponding losses. On the other side, if the lessee suffers losses for the reason of the lessee or because of the intentional or negligent act of the lessor's agent or employee during performance of the obligations, the lessee must compensate the corresponding losses. 8.2 If the lessee breaches the agreement and stipulations in the appendixes and supplementary agreement and cannot make the rectification within 7 days since the lessor issues the written notice, the agreement is automatically terminated within 14 days since the written notice is issued. The lessee shall leave the house within 5 days since the issues of the written notice after the agreement is automatically terminated; at the same time, the lessor is entitled to claim for damages with the amount of three months' renting fees and management fees; the lessee also agrees to bear losses and expenses incurred. The lessor shall deduct the guaranty money for the compensation if the amount of the guaranty money the lessee has paid is the same as the damages. Otherwise, the lessee is obligated to make up the margin. The measures prescribed here are not the solitary measures. The lessor is entitled to take other measures in case of the breach. Article 9 Exemption from Liabilities The lessor is exempted from liabilities in the following cases: 1. The temporary ceasing for the utilization of the public establishments for the necessary maintenance of the building or not for the reason of the lessor. 2. The loss the lessee suffers is incurred in the event of the earthquake, typhoon and other events which belong to Force Majeure. 3. The lessee suffers the losses for the reason of other lessees or the third parties (but the lessor is responsible to assist the lessee for the reimbursement from the infringers). Article 10 Abandonment of the Rights The abandonment for any right stipulated by the agreement shall be based on the written signature of the lessor. The facts that the renting fee or other items the lessee paid is insufficient to the amounts stipulated by the agreement, or with the consent of the lessor, do not have any influence on the right of the lessor to claim for the arrearage and the rights to take other measures according to the agreement or laws and regulations. Article 11 the Service of the Notice All the notices required by the agreement shall be issued in written form. The invoices, bill of documents and other notices issued by the lessor to the lessee shall be marked with the lessee as addressee. The written notice is regarded as having served if it is delivered to the leased house, sent by the registered mail or delivered to the address of the lessee in Beijing. The notice issued by the lessee to the lessor will be regarded as having served if it is delivered to the following address and accepted with signature: Beijing Gaoling Real Estate Development Co.Ltd, No.168, Xi Zhi Men Wai Avenue, Hai Dian District, Beijing, China Article 12 Disputes The agreement shall be governed and explained by the law of PRC. Any party may file the action to the people's court in the jurisdiction if the lessor and lessee cannot settle the disputes which arise from the agreement with negotiation. Article 13 Business License and Language The lessee shall produce business license and the authorization letter for the authorized representative to sign the agreement on behalf of the lessee. The copy of the duplicate of the business license and the original authorization letter will be enclosed of the agreement. As an important part of the agreement, the appendix will be effective at the same time and have the same legal effect with the agreement. The agreement and its appendix shall be written in Chinese or English with the same legal effect. The agreement has two original copies while the lessor and lessee will hold one of them. Article 14 Supplementary Agreement The parties of the agreement can conclude supplementary agreement through negotiation on other related matters. The supplementary agreement with the same legal effect of the agreement will be annexed to the agreement as an important part of the agreement. The agreement is effective on the date of the subscription as well as the guaranty The agreement is effective on the date of the subscription as well as the guaranty is fully paid. Appendix One: Ichnography of the Leased House Appendix Two: Appendix Three: Supplementary Agreement LESSOR: BEIJING GAOLING ESTATE DEVELOPMENT CO., LTD ADDRESS: NO. 168, XI ZHI MEN WAI AVENUE, HAI DIAN DISTRICT, BEIJING, CHINA POST CODE: 100044 LEGAL REPRESENTATIVE OR AUTHORIZED REPRESENTATIVE (SIGNATURE): /s/ Chuanhui Xu TEL: 8838-3388 ACCOUNTING BANK: DATE: May 27, 2004 LESSEE: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD ADDRESS: POST CODE: LEGAL REPRESENTATIVE OR AUTHORIZED REPRESENTATIVE (SIGNATURE): /s/ Guijun Wang TEL: ACCOUNTING BANK: DATE: May 27, 2004 THE SUPPLEMENTARY AGREEMENT TO LEASE AGREEMENT. NUM. TD 0131 LESSOR: BEIJING GAOLING ESTATE DEVELOPMENT CO., LTD LESSEE: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD The lessor and lessee reach the following supplementary agreement as to . Num. TD 0131(hereafter simplified as ): 1. Free Leasing Period: 3 months and a half altogether, in the following period. (1) May 28, 2004 to July 27.2004 (2) May 28.2005 to June 27. 2005 (3) May 13.2006 to May 27.2006 During the free leasing period, the lessee shall only pay 1.00 Yuan/day/Sq.M. as the management fee and other related fees. If is terminated before the expiration, the free period after the termination date will not come into effect any more and the lessor shall not make compensation to the lessee. The lessee shall make up for all the renting fee according to the stipulations of if the renting term is less than one year. 2. A piece of addition is made to the Article 1.1: The renting fee and management fee should be calculated in USD and received in RMB, the exchange rate between the USD and RMB is fixed at 1:8.3. 3. The lessor agrees to add roof-inhaled air-condition while the specific construction method shall be approved in advance by the lessor. The expenses of the reconstruction for the air-condition shall be borne by the lessee. When the lessee remove the ceiling and air-condition at the time of the termination of and returns the rented house, the lessee shall restore the ceiling and air-condition system back to the original state while the expenses shall be borne by the lessee. 4. The lessee shall produce blueprint in advance to the lessor and get the consent from the lessor and the fire control department for carrying out the construction if the lessee plans to make secondary fitments and reconstructions to the rented house. The lessee should not tie up the fire control channels and alter the fire control subarea of the rented house. The modification for the liquid, ventilation and fire control system shall be carried out by the construction company appointed by the lessor. The fitments and modification to the common area of the building shall be restored to the original state at the time of leave. And the lessee shall bear the expenses. 5. The lessor shall increase the electric power. The modification for electric power in the rented area shall be organized and performed by the lessor. The lessee shall bear the related expenses which will be paid by the lessor before the modification is carried out. 6. The lessee shall fully paid up the item "for three months' fee as guaranty money and one month's fee as payment" within in 3 working days since the conclusion of the agreement , totally as RMB 923,756.80 Yuan (as words: RMB NINE HUNDRED AND TWENTY THREE THOUSAND SEVEN HUNDRED AND FIFTY SIX YUAN AND EIGHTY CENTS) 7. The supplementary agreement is the supplements and alteration for < the Agreement > and has the same legal effect with < the Agreement >. This agreement will prevail as to any conflict between the supplementary agreement and < the Agreement >. Others will be executed by < the Agreement >. 8. The agreement has two original copies while the lessor and lessee will hold one of them. The agreement is effective on the date of the subscription. LESSOR: BEIJING GAOLING ESTATE DEVELOPMENT CO., LTD LEGAL REPRESENTATIVE OR AUTHORIZED REPRESENTATIVE (SIGNATURE): /s/ Chuanhui Xu DATE: May 27, 2004 LESSEE: KONGZHONG INFORMATION TECHNOLOGIES (BEIJING) CO., LTD LEGAL REPRESENTATIVE OR AUTHORIZED REPRESENTATIVE (SIGNATURE): /s/ Guijun Wang DATE: May 27, 2004 EX-10.26 31 u98939exv10w26.txt EX-10.26 LEASE AGREEMENT MAY 27, 2004 EXHIBIT 10.26 No.: TD0130 Lease Agreement LESSOR: BEIJING GAOLING ESTATE DEVELOPMENT CO., LTD LESSEE: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD The Tengda Building to be rented by the lessee is owned by the lessor. Through friendly negotiation and according to and related regulations, the two parties reach the agreement as below to define the rights and obligations of the lessor and lessee. Article 1 Renting Fee, Real Estate Management Fee and Guaranty Money 1.1 The lessor agrees to lease to the lessee the rooms on 32nd Floor and 33rd Floor of Tengda Building admitted by the parties (for short "the house" as follows) with the total acreage of 4, 600 square meters to be utilized as office room. (The ichnography of this room please refer to Appendix 1 of this Agreement for details, the ichnography is simply supplied to confirm the location.) 1.2 The term of the lease is 2 years, leasing from the date of May 28, 2004 to May 27, 2006. 1.3 The renting fee is USD 14.9 dollars/Month/Sq. M. (RMB 4.12 YUAN/Day/Sq.M) while the Management Fee is USD 3.6 dollars/Month/Sq. M. (RMB 1 Yuan/Day/Sq. M). So the total amount (including the management fee) of each month is USD 57,276.00 dollars (RMB 475,390.80). Every month is calculated as 30 days in this agreement. The renting fee and management fee shall be prepaid every month, which means the lessee shall pay the renting fee and management fee of next month on the 18th day of every previous month. The payment shall be made in RMB and effected by the time of the receipt by the lessor. 1.4 When the term of the agreement is more than 2 years, the lessor reserves the right to adjust the renting fee and management fee after two years. 1.5 The lessee shall give three months' renting fee and management fee to the lessor , which amount to USD 171,828.00 dollars(RMB 1,426,172.40 Yuan, totally in words ONE MILLION FOUR HUNDRED AND TWENTY SIX THOUSAND AND ONE HUNDRED SEVENTY TWO YUAN AND FORTY CENTS, to serve as guaranty for duly performance of the agreement .(hereafter as "guaranty money"). 1.6 The lessee can rescind the agreement by written notice if the lessor, without any fault or negligence, cannot deliver the house to lessee after two months since the leasing date. Under such circumstances, the lessor shall return the renting fee and management fee having received back to the lessee. (the interests not included) 1.7 During the period of the lease, if the lessee violates the provisions and conditions of the agreement (including defaulting renting fee, management fee, damages and defective performance of the agreement ) and cause damages to the lessor , the lessor shall have right to deduct part of or entire guaranty money to compensate the loss, which the lessor has suffered, and the expense, which the lessee shall have paid. If the guaranty money is less than the amount required in Clause 5 above, the lessee shall make it up within three days since receiving the written notice of the lessor, Otherwise, the lessor has right to take such measures as shutting off power and telephone, even releasing the agreement and claiming for the losses it has suffered for the insufficient guaranty money. 1.8 On condition that lessee fully performs provisions of the agreement, the lessor shall return the entire guaranty money to the lessee in 30 days since the house is returned and the related fees are all paid up. 1.9 Without the consent of the lessor, the lessee shall not assign the right of claim for the return of the guaranty money to a third party or serve it as guaranty. Article 2 the Release of the Agreement by the Lessee in the Term of Validity of the Agreement The lessee could release the agreement during the term of validity of the agreement with written notice to the lessor, on the condition that the lessee has paid up all the guaranty money to the lessor. Article 3 the Equipments and Reconstruction of the Rented House 3.1 The lessor shall furnish the house with the following equipments: a. Central air-conditioner and ceiling (including intake, automatic smoke sensor, gushing machine, daylight lamp). b. 220v electrical source, communication circuitry and faucet for antenna of secondary planet TV. 3.2 Before making any fitments and reconstruction of the house, the lessee shall produce the blueprint and scheme for the lessor, as well as the introduction of the construction enterprises and its personnel. The construction enterprise is obligated to pay management fee RMB 30,000.00 Yuan (as words: RMB thirty thousand Yuan) to the lessor. Only after the payment of guaranty money for construction and management fee could the construction enterprise get the written consent from the lessor to make the construction. The construction will be inspected and accepted by the lessor to confirm that it is carried out according to the blueprint and budget approved by the lessor without any ruin on the establishment and equipments of the building. The guaranty money will not return to the construction enterprise until the check and acceptance of the lessor. The cost of the construction and taxes on the additional fitments and equipments by the lessee shall be borne by the lessee, without reference to the name on the bill or its nominal name. 3.3 In case that the lessee rents the beeline telephone number (opening an account in the name of the lessor in the telecom company) from the lessor who will pay the telephone fee instead of the lessee, the lessee should pay RMB 5,000 Yuan each line (as words: RMB five thousand Yuan each line) as guaranty money of the telephone fee and RMB 300 Yuan/Year/Line (as words: RMB three hundred Yuan every year for each line) as circuitry maintenance fee. The lessee has right to choose the number of the telephone after the payment of the above fees. The lessor shall take charge of the affairs of the installations. The telephone fee should be paid by the lessee within in 7 days after receipt of the written notice from the lessor. The guaranty money will be returned back to the lessee without any interest after expiration. In case that the lessee brings the beeline telephone number itself or open an account in the name of the itself in the telecom company, it shall pay the lessor RMB 200 Yuan/each line (as words: RMB two hundred Yuan each line) at one time as circuitry occupation fee, RMB 5 Yuan/each line (as words: RMB five Yuan each line) as transfer fee and RMB 100 Yuan/each line (as words: RMB one hundred Yuan each line) as circuitry maintenance fee. The lessor shall produce assistance for the installation. Article 4 the Renewal of the Lease After the expiry of the lease, the lessee has the right of priority to extend the term of the agreement in the same circumstances. The lessee shall notify the lessor in written notice three months before the expiry of the agreement, although the terms and conditions for the renewal shall be negotiated by the partied (the range for the adjustments of the price shall be made according to the rise or drop of Beijing real estate index and the general leasing price of the whole building). If the lessee does not make the notification in the above mentioned period, it will be regarded that it will not lease the house any more and shall move out of the house before the termination date of the agreement. Article 5 the Return of the House 5.1 After the expiry of the agreement, the lessee shall return the house according to the time notified by the lessor. If the house cannot be returned on time for the reason of the lessee and there exists a new lessee, the lessor has right to request the lessee to leave the house in 3 days and deduct part of or entire guaranty money of the lessee. In case the guaranty money is not sufficient for the compensation of the losses, which the lessor has suffered, the lessor is entitled to claiming for the insufficient part. If the house has not been rented to other lessees, the lessor will deem that the lessee will renew the house. In this case, the renewal procedure shall be made by the lessee; otherwise the lessor will have right to request the lessee to leave the house and deduct part of or entire guaranty money. 5.2 When the lessee return the house after expiration, the rented house shall be in good state (natural abrasion excepted); The lessor has right to deduct the guaranty money to compensate the corresponding losses when it finds that the house and equipments is tainted for the reason of the lessee. The lessee is obligated to make up the margin in case that the guaranty money is insufficient for the losses. 5.3 As to accession made by the lessee to the house (shall be approved by the lessor), the lessor is not certainly to request the lessee to restore it to the original conditions. The lessor shall not pay the expenses back for the accession even if the lessee does not make the restoration. Article 6 the Obligations of the Lessee The lessee agrees to abide by the following provisions: 6.1 The lessee shall abide by all the rules and regulations stipulated by the lessor and its authorized agent. 6.2 The lessee cannot take and allow others intentionally take any activities that will make the insurance of the house and the building invalid or possibly invalid, or will increase the insurance premium. Within the term prescribed by the lessor, the lessee shall make payment of the corresponding increase for the premium and other related expenses for the violation of the stipulations of this clause which induce the repurchase of the insurance by the lessor. 6.3 The lessee shall not take the following activities 1. To utilize the house for illegal activities. 2. To assign the rights of lessee under the agreement to others or use the rights as guaranty. 3. To lease part of or the entire house to others or let others use the house. 4. To use the house with a third party (not including affiliated enterprises of the lessee which means the parent company, subsidiary, branch company of the lessee or the company which shares the common investment party and legal representative with the lessee) or make the disclosure in others' names. 5. To transfer the ownerships of the ornaments, equipments and articles in the house to the third party or use them as security. 6.4 The lessor shall take charge of the safety during the term of the lease while the loss and damages of the articles in the house shall be borne by the lessee. In case of fire, the lessee shall make compensation according to its corresponding liabilities under the specific circumstances. Article 7 the Obligations of the Lessor The lessor agrees to abide by the following provisions: 7.1 The lessor shall guaranteed the public establishments (including illumination, air-conditioner, automatic smoke sensor, shower, WC and elevator, etc.) are in good conditions. The repairs shall be made immediately after receiving the written notice of the lessee in case of any trouble. 7.2 Twenty-four hours' security measures shall be strictly implemented. 7.3 The lessor shall bear the corresponding losses, which the lessee has suffered, if the house cannot be ordinarily used for the reason of quality. ( the cases stipulated in Article 9 of this agreement and the losses incurred by the quality for the reason of reconstruction by the lessee is not included) Article 8 Damages and Breaching Liabilities 8.1 If the lessor suffers losses for the reason of the lessee or because of the intentional or negligent act of the lessee's agent or employee during performance of the obligations, the lessee must compensate the corresponding losses. On the other side, if the lessee suffers losses for the reason of the lessee or because of the intentional or negligent act of the lessor's agent or employee during performance of the obligations, the lessee must compensate the corresponding losses. 8.2 If the lessee breaches the agreement and stipulations in the appendixes and supplementary agreement and cannot make the rectification within 7 days since the lessor issues the written notice, the agreement is automatically terminated within 14 days since the written notice is issued. The lessee shall leave the house within 5 days since the issues of the written notice after the agreement is automatically terminated; at the same time, the lessor is entitled to claim for damages with the amount of three months' renting fees and management fees; the lessee also agrees to bear losses and expenses incurred. The lessor shall deduct the guaranty money for the compensation if the amount of the guaranty money the lessee has paid is the same as the damages. Otherwise, the lessee is obligated to make up the margin. The measures prescribed here are not the solitary measures. The lessor is entitled to take other measures in case of the breach. Article 9 Exemption from Liabilities The lessor is exempted from liabilities in the following cases: 1. The temporary ceasing for the utilization of the public establishments for the necessary maintenance of the building or not for the reason of the lessor. 2. The loss, which the lessee suffers, is incurred in the event of the earthquake, typhoon and other events which belong to Force Majeure. 3. The lessee suffers the losses for the reason of other lessees or the third parties (but the lessor is responsible to assist the lessee for the reimbursement from the infringers). Article 10 Abandonment of the Rights The abandonment for any right stipulated by the agreement shall be based on the written signature of the lessor. The facts that the renting fee or other items the lessee paid is insufficient to the amounts stipulated by the agreement, or with the consent of the lessor, do not have any influence on the right of the lessor to claim for the arrearage and the rights to take other measures according to the agreement or laws and regulations. Article 11 the Service of the Notice All the notices required by the agreement shall be issued in written form. The invoices, bill of documents and other notices issued by the lessor to the lessee shall be marked with the lessee as addressee. The written notice is regarded as having served if it is delivered to the leased house, sent by the registered mail or delivered to the address of the lessee in Beijing. The notice issued by the lessee to the lessor will be regarded as having served if it is delivered to the following address and accepted with signature: Beijing Gaoling Real Estate Development Co. Ltd, No.168, Xi Zhi Men Wai Avenue, Hai Dian District, Beijing, China. Article 12 Disputes The agreement shall be governed and explained by the law of PRC. Any party may file the action to the people's court in the jurisdiction if the lessor and lessee cannot settle the disputes which arise from the agreement with negotiation. Article 13 Business License and Language The lessee shall produce business license and the authorization letter for the authorized representative to sign the agreement on behalf of the lessee. The copy of the duplicate of the business license and the original authorization letter will be enclosed of the agreement. As an important part of the agreement, the appendix will be effective at the same time and have the same legal effect with the agreement. The agreement and its appendix shall be written in Chinese or English with the same legal effect. The agreement has two original copies while the lessor and lessee will hold one of them. Article 14 Supplementary Agreement The parties of the agreement can conclude supplementary agreement through negotiation on other related matters. The supplementary agreement with the same legal effect of the agreement will be annexed to the agreement as an important part of the agreement. The agreement is effective on the date of the subscription as well as the guaranty The agreement is effective on the date of the subscription as well as the guaranty is fully paid. Appendix One: Ichnography of the Leased House Appendix Two: < Clients Handbook > Appendix Three: Supplementary Agreement LESSOR: BEIJING GAOLING ESTATE DEVELOPMENT CO., LTD ADDRESS: NO. 168, XI ZHI MEN WAI AVENUE, HAI DIAN DISTRICT, BEIJING, CHINA POST CODE: 100044 LEGAL REPRESENTATIVE OR AUTHORIZED REPRESENTATIVE (SIGNATURE): /s/ Chuanhui Xu TEL: 8838.3388 ACCOUNTING BANK: DATE: May 27, 2004 LEASEE: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD ADDRESS: POST CODE: LEGAL REPRESENTATIVE OR AUTHORIZED REPRESENTATIVE (SIGNATURE): /s/ Guijun Wang TEL: ACCOUNTING BANK: DATE: May 27, 2004 THE SUPPLEMENTARY AGREEMENT TO LEASE AGREEMENT NO. TD 0130 LESSOR: BEIJING GAOLING ESTATE DEVELOPMENT CO., LTD LESSEE: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD The lessor and lessee reach the following supplementary agreement as to Lease Agreement. Num. TD 0130(hereafter simplified as the Agreement): 1. Free Leasing Period: 3 months and a half altogether, in the following period. (1) May 28, 2004 to July 27, 2004 (2) May 28, 2005 to June 27, 2005 (3) May 13, 2006 to May 27, 2006 During the free leasing period, the lessee shall only pay 1.00 Yuan/day/Sq.M. as the management fee and other related fees. If the Agreement is terminated before the expiration, the free period after the termination date will not come into effect any more and the lessor shall not make compensation to the lessee. The lessee shall make up for all the renting fee according to the stipulations of the Agreement if the renting term is less than one year. 2. A piece of addition is made to the 1.1: the renting fee and management fee should be calculated in USD and received in RMB, the exchange rate between the USD and RMB is fixed at 1:8.3. 3. The lessor agrees to add roof-inhaled air-condition while the specific construction method shall be approved in advance by the lessor. The expenses of the reconstruction for the air-conditioner shall be borne by the lessee. When the lessee remove the ceiling and air-condition at the time of the termination of the Agreement and returns the rented house, the lessee shall restore the ceiling and air-condition system back to the original state while the expenses shall be borne by the lessee. 4. The lessee shall produce blueprint in advance to the lessor and get the consent from the lessor and the fire control department for carrying out the construction if the lessee plans to make secondary fitments and reconstructions to the rented house. The lessee should not tie up the fire control channels and alter the fire control subarea of the rented house. The modification for the liquid, ventilation and fire control system shall be carried out by the construction company appointed by the lessor. The fitments and modification to the common area of the building shall be restored to the original state at the time of leave. And the lessee shall bear the expenses. 5. About the advertisement location. (1) The lessor agrees to provide an advertisement location for the lessee at the top of the skirt building while the cost for the board of the advertisement and the construction of it shall be borne by the lessee. (2) The unit price for the advertisement location is RMB150.00Yuan/month/sq.M. The method for the payment is same to the renting fee and management fee. (3) The renting term for the advertisement location shall make corresponding alteration if the renting term of the Agreement is altered. The lessor shall not provide the advertisement location and corresponding service after expiration and in case of prior termination. (4) The expenses for the design, execution, and maintenance of the pictures (paintings, neon light and other technical execution) on the advertisement board for the lessee shall be borne by the lessor. The design and blueprint for the advertisement board shall be approved by the lessor in advance to guarantee the whole style of the building. (5) The electricity fee calculated by the actual expenses for the board shall be borne by the lessee who will set an independent ammeter. The lessee shall make the payment within 3 days since the receipt of the notice by the lessor in charge of checking the actual amount of the electricity. The unit price is 0.80 Yuan/Degree which will be adjusted according to the price administrated by the government. 6. In the renting period, the lessor provides three vehicle locations for free at 2nd floor underground. The renting term for the vehicle location shall make corresponding alteration if the renting term of the Agreement is altered. The lessor shall not provide the location and corresponding service after expiration and in case of prior termination. 7. The lessor shall increase the electric power. The modification for electric power in the rented area shall be organized and performed by the lessor. The lessee shall bear the related expenses which will be paid by the lessor before the modification is carried out. 8. The lessee shall fully paid up the item "for three months' fee as guaranty money and one month as fee as payment" within in 3 working days since the conclusion of the agreement, totally as RMB 1,901,563.20 Yuan (as words: ONE MILLION AND NINE HUNDRED AND ONE THOUSAND FIVE HUNDRED AND SIXTY THREE YUAN AND TWENTY CENTS ). 9. The supplementary agreement is the supplements and alteration for the Agreement and has the same legal effect with the Agreement. This agreement will prevail as to any conflict between the supplementary agreement and the Agreement. Others will be executed according to the Agreement. 10. The agreement has two original copies while the lessor and lessee will hold one of them. The agreement is effective on the date of the subscription. LESSOR: BEIJING GAOLING ESTATE DEVELOPMENT CO., LTD LEGAL REPRESENTATIVE OR AUTHORIZED REPRESENTATIVE (SIGNATURE): /s/ Chuanhui Xu DATE: May 27, 2004 LESSEE: BEIJING AIRINBOX INFORMATION TECHNOLOGIES CO., LTD LEGAL REPRESENTATIVE OR AUTHORIZED REPRESENTATIVE (SIGNATURE): /s/ Guijun Wang DATE: May 27, 2004 EX-10.27 32 u98939exv10w27.txt EX-10.27 FORM OF EMPLOYMENT AGREEMENT EXHIBIT 10.27 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), effective as of February 1, 2004, between KONGZHONG CORPORATION, an exempted company organized and existing under the laws of the Cayman Islands (the "COMPANY"), and ________________ (the "Executive"), residing at __________________________, Beijing, PRC. RECITAL The Executive and the Company deem it in their respective best interests to enter into an agreement providing for the Company's employment of Executive pursuant to the terms herein stated. WITNESSETH In consideration of the mutual promises and agreements contained herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT 1.1 TERM OF EMPLOYMENT The Company will employ the Executive, and the Executive will serve the Company, as the Company's _______ for a period beginning on the date hereof and ending two(2) years hereafter, unless earlier terminated pursuant to the terms hereof (the "Term of Employment"). 1.2 DUTIES Throughout the Term of Employment, the Executive will serve as the Company's _________ with responsibility for the business affairs and operations of the Company that are customarily assigned to such position at companies of similar operational and financial conditions in the same industry, to which he will devote his best efforts and all his business time and services, subject to the terms of this Agreement and the direction and control of the Board of Directors of the Company (the "Board"). The Executive will, during 1 the Term of Employment, serve the Company faithfully, diligently and competently and to the best of his ability and will hold, in addition to the office of _________ of the Company, such other executive offices in the Company to which he may be elected, appointed or assigned by the Board from time to time and will discharge such executive duties in connection therewith. 2. COMPENSATION AND BENEFITS 2.1 Executive shall be entitled to a base annual salary of USD _________ ("Annual Salary") during the Term of Employment, subject to adjustment to be decided and effected by the Board of the Company, which Annual Salary shall be paid at such times in consistent with the Company's present practice. 2.2 In addition to the Annual Salary, Executive shall be entitled to such benefits as made available by the Company to its employees or to personnel holding positions of similar level of responsibilities in the Company. 3. DEATH OR DISABILITY This Agreement shall be automatically terminated by the death of the Executive. This Agreement may be terminated at the discretion of the Board if, after undergoing a period of medical treatment, the Executive shall be rendered incapable by illness or any other non-work-related disability from complying with the terms, conditions and provisions on his part to be kept, observed and performed, or from performing other duties arranged by the Company during the Term of Employment ("Disability"). If this Agreement is terminated by reason of Disability of the Executive, the Company shall give written notice to that effect to the Executive thirty (30) days in advance of such termination in the manner provided herein. In the event this Agreement is terminated pursuant to this paragraph, Executive shall be entitled to benefits to be decided by the Board. 4. TERMINATION; RESIGNATION 4.1 TERMINATION OF EMPLOYMENT BY COMPANY (a) FOR CAUSE The Executive's employment with the Company may be terminated by the Company or the Board for "Cause", which shall mean (a) the Executive's conviction for a crime involving moral 2 turpitude, (b) the Executive's commission of an act of personal dishonesty or breach of fiduciary duty involving personal profit in connection with the Executive's employment by the Company, (c) the Executive's commission of an act which the Board shall have found to have involved willful misconduct or gross negligence on the part of the Executive in the conduct of his duties hereunder, (d) habitual absenteeism on the part of the Executive, or (e) the Executive's material breach of any material provision of this Agreement. In the event that the Company terminates the Executive's employment for Cause, the Executive shall not be entitled to receive any amounts or any rights of option due under the Option Agreement entered into pursuant to Section 2 hereof. (b) WITHOUT CAUSE Notwithstanding anything to the contrary in this Agreement, whether express or implied, the Company may, at any time, terminate Executive's employment for any reason other than Cause, Disability, or death by giving Executive at least thirty (30) days prior written notice of the effective date of termination. In event this Agreement is terminated pursuant this paragraph, in addition to any compensation and benefit that have become due and payable as of the date of such termination, Executive shall be entitled to a severance amount equal to 50% of such Executive's annual base salary effective as of the date of such termination. 4.2 TERMINATION OF EMPLOYMENT BY EXECUTIVE. The Executive may, at any time, terminate his or her employment for any reason by giving the Company at least thirty (30) days prior written notice. In the event this Agreement is terminated pursuant this paragraph, the Executive shall not be entitled to receive any severance or any amount of similar nature, except unpaid Annual Salary and other benefits that have become due and payable as of the date of the termination. 4.3 RESIGNATION In the event that the Executive's services hereunder are terminated under any of the provisions of this Agreement (except by death), the Executive agrees that he will deliver his written resignation as an officer of the Company to the Board, such resignation to become effective immediately. 3 4.4 DATA Upon expiration of the Term of Employment or prior termination pursuant to Section 3 or 4 hereof, the Executive or his personal representative shall promptly deliver to the Company all books, memoranda, plans, records, computer disks and written and electronic data of every kind relating to the business and affairs of the Company which are then in his possession. 5. CONFIDENTIAL INFORMATION AND NON-COMPETITION 5.1 The Company and the Executive agree that the services rendered by the Executive hereunder are unique and irreplaceable. Accordingly, the Executive hereby agrees that, during the Term of Employment and for a period of one (1) years thereafter, the Executive shall not disclose to others or use, whether directly or indirectly, any Confidential Information regarding the Company. Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. 5.2 "Confidential Information" shall mean information about the Company, its subsidiaries and affiliates, and their respective clients and customers that is not available to the general public and that was learned by Executive in the course of his employment by the Company, including, but not limited to, any proprietary knowledge, trade secrets, patents, copyright, data, formulae, information, and client and customer lists and all papers, resumes, records (including computer records) and the documents containing such Confidential Information. 6. OWNERSHIP OF RIGHTS; PROPRIETARY INFORMATION 6.1 Company shall own all right, title and interest (including patent rights, copyrights, trade secret rights, mask work rights, trademark rights, sui generis database rights and all other intellectual and industrial property rights of any sort throughout the world) relating to any and all inventions (whether or not patentable), works of authorship, mask works, designations, designs, know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by Executive (collectively, "Inventions") and Executive will promptly disclose and provide all Inventions to Company. All Inventions are work made for hire to the extent allowed by law and, in addition, Executive 4 hereby makes all assignments necessary to accomplish the foregoing ownership. Executive shall further assist Company, at Company's expense, to further evidence, record and perfect such assignments, and to perfect, obtain, maintain, enforce, and defend any rights assigned. Executive hereby irrevocably designates and appoints Company as its agent and attorney-in-fact to act for and in Executive's behalf to execute and file any document and to do all other lawfully permitted acts to further the foregoing with the same legal force and effect as if executed by Executive. 6.2 The Executive agrees that the Company is the sole, absolute owner of all Inventions and hereby grants to the Company, exclusively and perpetually, all rights of every kind or nature, throughout the universe, whether now known or hereafter devised, in any and all languages, in and to such Inventions, all ancillary rights therein and all of the results and proceeds of the services rendered by Executive hereunder. To the extent, if any, that any Inventions intended to be assigned to the Company pursuant to this Section 6 are at any time determined in any jurisdiction not to belong to the Company, then Executive hereby grants an exclusive, royalty-free license to the Company, (transferable by the Company without limitation) to exploit such Inventions and all rights therein in such jurisdiction. Such exclusive license shall continue in effect for the maximum term as may now or hereafter be permissible under applicable law. Upon expiration, such license, without further consent or action on the part of the Executive, shall automatically be renewed for the maximum term as is then permissible under applicable law, unless, within the six-month period prior to such expiration, Company and Executive have agreed that such license will not be renewed. 7. REMEDIES The Executive acknowledges that irreparable damage would result to the Company if the provisions of Sections 5 or 6 were not specifically enforced, and agrees that the Company shall be entitled to enforce this Agreement by injunction, specific performance or any other appropriate legal, equitable relief, without bond and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement. The Executive acknowledges and agrees that its sole remedy for breach of any of Company's obligations under this Agreement shall be limited to an action for damages and Executive acknowledges that such damages are fully adequate 5 to compensate the Executive hereunder. In no event shall Executive seek or be entitled to rescission, injunctive or other equitable relief. 8. INSURANCE The Executive agrees that the Company shall have the right at its own costs and expense to apply for and to secure in its own name, or otherwise, life, health or accident insurance or any or all of them covering the Executive, and the Executive agrees to submit to the usual and customary medical examination and otherwise to cooperate with the Company in connection with the procurement of any such insurance, and any claims thereunder. 9. ASSIGNMENT Neither party hereto may not assign his or its rights or delegate his or its duties under this Agreement without the prior written consent of the other party; provided, however, that this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company upon any sale of all or substantially all of the Company's assets or upon any merger or consolidation of the Company with or into any other corporation, all as though such successors and assigns of the Company and their respective successors and assigns were the Company. 10. MISCELLANEOUS (a) REPRESENTATIONS AND WARRANTIES. (i) Executive represents and warrants to the Company that he has the authorization, power and right to deliver, execute and fully perform his obligations under this Agreement in accordance with its terms. Executive further represents and warrants that this Agreement does not require any authorization, consent, approval, exemption or other action by any other party and does not (A) conflict with or result in the breach of the terms, conditions or provisions of, (B) constitute a default under, or (C) result in a violation of any agreement, instrument, order, judgment or decree to which Executive is subject. Executive will, to the fullest extent permitted by applicable law, as from time to time in 6 effect, indemnify the Company and hold the Company harmless for any breach of the representations set forth in this subparagraph (i). (ii) The Company represents and warrants to Executive that it has the authorization, power and right to deliver, execute and fully perform its obligations under this Agreement in accordance with its terms. The Company further represents and warrants that this Agreement does not require any authorization, consent, approval, exemption or other action by any other party and does not (A) conflict with or result in the breach of the terms, conditions or provisions of, (B) constitute a default under, or (C) result in a violation of any agreement, instrument, order, judgment or decree to which the Company is subject. The Company will, to the fullest extent permitted by applicable law, as from time to time in effect, indemnify Executive and hold Executive harmless for any breach of its representations set forth in this subparagraph (ii). (b) DIVISIBILITY OF THE AGREEMENT. If any provision of this Agreement or any portion thereof is declared invalid, illegal, or incapable of being enforced by any court of competent jurisdiction, the remainder of such provisions and all of the remaining provisions of this Agreement shall continue in full force and effect. (c) CHOICE OF LAW. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of New York. (d) NOTICES. All notices, requests and other communications pursuant to this Agreement shall be in writing and shall be deemed to have been duly given, if delivered in person or by courier, telegraphed, telexed or by facsimile transmission or sent by registered or certified mail, postage prepaid, addressed as follows: If to the Executive: [ ] ABC Inc. Beijing, China 100045 Tel.: (010) 7 Fax: (010) If to the Company: ABC Inc. Beijing, PRC Attn.: Chairman of the Board of Directors Tel.: (010) Fax: (010) Any party may, by written notice to the other, change the address to which notices to such party are to be delivered or mailed. (e) HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. (f) WAIVER. Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. (g) EXECUTIVE'S ACKNOWLEDGMENT. Executive acknowledges (i) that he has consulted with or has had the opportunity to consult with independent counsel of his own choice concerning this Agreement and has been advised to do so by the Company, and (ii) that he has read and understands the Agreement, is fully aware of its legal effect, and has entered into it freely based on his own judgment. (h) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 8 (i) ENTIRE AGREEMENT; AMENDMENT. This Agreement (i) contains a complete statement of all the arrangements between the parties with respect to Executive's employment by the Company, (ii) supersedes all prior and existing negotiations and agreements between the parties concerning Executive's employment and (iii) can only be changed or modified pursuant to a written instrument duly executed by each of the parties hereto. [Remainder of page intentionally left blank] 9 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ABC INC. By: ------------------------------------- Title: ACCEPTED AND AGREED TO: By: ------------------------------------- EX-10.28 33 u98939exv10w28.txt EX-10.28 FORM OF NON-COMPETE AGREEMENT EXHIBIT 10.28 NON COMPETE AGREEMENT NON COMPETE AGREEMENT (this "Agreement"), effective as of ____________, 2004, between KongZhong Corporation, an exempted company organized and existing under the laws of the Cayman Islands (the "Company"), and ________________________, residing at __________ ________________________________(the "Executive"). RECITAL The Executive and the Company has entered into an agreement providing for the Company's employment of Executive (the "Employment Agreement") and deem it in their respective interests to enter into an agreement providing the obligation of non-compete for the Executive. WITNESSETH In consideration of the mutual promises and agreements contained herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. COVENANT NOT TO COMPETE Executive hereby agrees that, during the term of employment under the Employment Agreement and for a period of one (1) year thereafter, the Executive shall not: 1.1 engage or participate in, directly or indirectly (whether as an officer, director, employee, partner, consultant, holder of an equity or debt investment, lender or in any other manner or capacity), or lend his name (or any part, variant or formative thereof) to, any wireless date service business which is, or as a result of the Executive's engagement or participation would become, competitive with any significant aspect of the 1 business of the Company, which, measured by revenue generated, accounts at least 10% of the Company's business; 1.2 solicit any officer, director, employee or agent of the Company to become an officer, director, employee or agent of the Executive, his respective affiliates or anyone else; 1.3 engage in or participate in, directly or indirectly, any business conducted under any name that shall be the same as or similar to the name of the Company or any trade name used by it that is (i) directly or indirectly competitive with the business of the Company or (ii) engaged in any related activity where the use of such name is reasonably likely to result in confusion; and 1.4 transfer, sell, assign, pledge, hypothecate, give, create a security interest in or lien on, place in trust (voting or otherwise), or in any other way dispose of more than 1% of total outstanding shares of the Company as of the date of said disposition in one or a series of related transactions directly owned of record by the Executive to any person which is competitive with any significant aspect of the business of the Company, which, measured by revenue generated, accounts at least 10% of the Company's business. 2. VIOLATION OF THIS AGREEMENT 2.1 In the event that the Executive do not comply with the terms of this Agreement, any profit sharing or stock options to which the Executive would otherwise be entitled shall be subject restriction, forfeiture or other dispositions to be decided by the Board of Directors of the Company. 2 In the event the Executive does not comply with the terms of this Agreement, the Company reserves the right to discharge the Executive as an employee. Furthermore, the Company reserves the right to recover monetary damages from the Executive, and the Company may also recover punitive damages to the extent permitted by law. In the event that monetary damages are an inadequate remedy for any harm suffered by the Company as a result of a breach of this Agreement by the Executive, the Company may also seek other relief, including an order of specific performance or injunctive relief. 2.3 The Executive further agree to indemnify and hold the Company harmless from any damages, losses, costs or liabilities (including legal fees and the costs of enforcing this indemnity agreement) arising out of or resulting from failure of the Executive to abide by the terms of this Agreement. 3. ACKNOWLEDGMENT 3.1 The Executive agree that, in light of the substantial benefits the Executive will receive as the Company's employee, the terms contained in this Agreement are necessary and reasonable in all respects and that the restrictions imposed on the Executive are reasonable and necessary to protect the Company's legitimate business interests. Additionally, the Executive hereby acknowledge and agree that the restrictions imposed on the Executive by this Agreement will not prevent the Executive from obtaining employment in its field of expertise or cause the Executive undue hardship. 3.2 By accepting this Agreement, the Executive acknowledge that, given the nature of the Company's business, the provisions contained in this Agreement contain reasonable limitations as to time, geographical area and scope of activity to be restrained, and do not impose a greater restraint than is necessary to protect and preserve the Company and to protect the Company's legitimate interests. If, however, the provisions of this Agreement are determined by any court of competent jurisdiction or any arbitrator to be unenforceable by reason of its extending for too long a period of time or over too large a geographic area or by reason of its being too extensive in any other respect, or for any other reason, it 3 will be interpreted to extend only over the longest period of time for which it may be enforceable and over the largest geographical area as to which it may be enforceable and to the maximum extent in all other aspects as to which it may be enforceable, all as determined by such court or arbitrator in such action. 4. MISCELLANEOUS 4.1 This Agreement shall be governed by and construed in accordance with the laws of the Cayman Islands, without regard to any conflicts of laws provision thereof. 4.2 If any provision of this Agreement or any portion thereof is declared invalid, illegal, or incapable of being enforced by any court of competent jurisdiction, the remainder of such provisions and all of the remaining provisions of this Agreement shall continue in full force and effect. 4.3 Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 4.4 Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 4.5 Executive acknowledges (i) that he has consulted with or has had the opportunity to consult with independent counsel of his own choice concerning this Agreement and has been advised to do so by the Company, and (ii) that he has read and understands the Agreement, is fully aware of its legal effect, and has entered into it freely based on his own judgment. 4.6 This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the 4 same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ABC INC. By: -------------------------------- Title: ACCEPTED AND AGREED TO: By: -------------------------------- Name: 5 EX-10.29 34 u98939exv10w29.txt EX-10.29 CONSULTING AGREEMENT OCT 2, 2002 EXHIBIT 10.29 CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (the "Agreement") is made on this 1st day of October, 2002 in Beijing, People's Republic of China ("PRC") by and between Communication Over The Air Inc, an exempted company formed pursuant to the laws of the Cayman Islands ("Party A") and Mobileren Inc., a company formed pursuant to the laws of the British Virgin Island ("Party B" and individually a "Party" and together with Party A the "Parties"). WHEREAS A. Party A, through its subsidiaries, is engaged in the business of development of technologies and provision of services relating to communications over electronic infrastructures, as well as the development and application of Internet software and online databases and, has accumulated operational and managerial expertise and advanced technologies in these areas. B. Party B has obtained expertise in advising companies engaging in businesses similar to those of Party A. C. Party B desires to provide services, support and assistance to Party A in respect of Party A's business operations and Party A desires to retain Party B to provide the foregoing services and support. NOW, THEREFORE, in consideration of the terms and agreements herein contained, the parties hereby agree as follows: 1. Content of Services Party B shall, upon request from Party A, advise and provide Party A with consulting services with respect to web site technology; website server application software; systems solutions; short message services; training of technical and management personnel; value-added information and telecommunication services operation and other technical and business consultation that Party A may reasonably request in connection with the operation of its main businesses. The term of this consulting service is 6 months. 2. Service Fee 2.1 During the term of this Agreement, in consideration of the provision by 1 Party B of the consulting services set forth above, Party A shall pay Party B a consulting fee ("Consulting Fee") of USD90,000. The Consulting Fee shall be paid in two parts. The first part shall be paid at $60,000 within one week after signing of this agreement. The rest shall be paid in 6 installments at $5,000 per month and shall be paid in the last week of each month for such month. 3. Representations and Warranties 3.1 Each Party represents and warrants that as of the date of signing hereof: 3.1.1 It has full power and authority (corporate or otherwise) to execute and deliver this agreement as an independent legal person and to carry out its responsibilities and obligations outlined herein; and 3.1.2 It has executed and delivered all necessary documentation and secured or engaged in all necessary activities to enable it to perform this agreement. 3.1.3 This agreement, upon execution and delivery, constitutes legal, valid and enforceable obligations of each party in accordance with the terms and conditions herein. 4. Confidentiality 4.1 Provided that the appropriate written permission has been acquired from the other Party, each Party shall ensure that it only discloses such commercial secrets to its respective employees, advisors, agents or contractors for the purposes of performing this Agreement. Furthermore, each Party guarantees to the other Party that any such employees, advisors, agents or contractors will maintain the confidentiality of such commercial secrets thus disclosed, failing of which shall make such Party liable for the corresponding damages. 4.2 Each Party shall, upon the other Party's request, return, destroy, or otherwise dispose of by other means all documents, information or software containing commercial secrets relating to the other Party, and cease to use such commercial secrets. 5. Breach 5.1 In the event that either Party breaches or fails to fully carry out any of its representations, warrants, agreements or obligations hereunder, or fails to 2 do so in the manner agreed upon in this Agreement, the non-breaching Party May send a written notice to the breaching Party, demanding that the breaching Party corrects within ten (10) days thereof such breach, continues to perform the Agreement and takes sufficient, effective and timely measures to clear up any consequences of such breach, as well as to compensate the non-breaching Party for any losses that it May have sustained as a consequence of such breach. 5.2 In the event that the breaching Party is liable for compensating the non-breaching Party for any losses that the latter has sustained due to the breach, then the total amount of compensatory damages shall be equivalent to the total losses sustained as a result of said breach, including contractual interests that the non-breaching party would have been able to obtain if the Agreement being performed. However, the compensation shall not exceed the value of the losses that is actually been foreseen or reasonably foreseeable by the Parties to be likely ensuing from the breach of this Agreement. 6. Force Majeure 6.1 "Force Majeure " refers to any event, including, but not limited to, wars or natural disasters, that is unforeseeable, the occurrence and effect of which is unavoidable and insurmountable. 6.2 Should a Party, due to the occurrence of Force Majeure, fail to perform this Agreement in full or in part, such Party shall, in light of the effect of the Force Majeure, be exempted from all or some of its responsibilities hereunder, except where PRC laws provide otherwise. 6.3 Should a Party fail to perform on time its duties under this Agreement and subsequently Force Majeure were to occur, such Party shall not be exempted from any of its liabilities hereunder as a result of its failure to perform said duties. 6.4 Should a Party be unable to perform this Agreement as a result of Force Majeure, it shall inform the other Party, as soon and as quickly as possible following the occurrence of such Force Majeure, of the situation and the reason(s) for the nonperformance, so as to minimize any losses incurred by the other Party as a consequence thereof. Furthermore, within a reasonable period of time after the notification of Force Majeure has been provided, the Party encountering Force Majeure shall provide a legal certificate issued by a public notary (or other appropriate organization) of the place wherein the Force Majeure occurred, in witness of the same. 3 6.5 The Party affected by Force Majeure may suspend the performance of its obligations under this Agreement until any disruption resulting from the Force Majeure has been resolved. However, such Party shall make every effort to eliminate any obstacles resulting from the Force Majeure, thereby minimizing to the greatest extent possible its adverse effects, as well as any resulting losses. 7. Amendments and Termination 7.1 This Agreement shall not be amended or assigned, except by means of a written instrument executed by the duly authorized representatives of both Parties. 8. Settlement of Disputes and Applicable Law 8.1 Should a dispute arise between the Parties in connection with the interpretation or performance of this Agreement, they shall attempt to resolve such dispute through friendly consultations between themselves. If the dispute cannot be resolved within thirty (30) days after the commencement of such consultations, then either Party may submit it to the China International Economic and Trade Commission in Beijing for arbitration in accordance with its current effective arbitration rules. 8.2 The execution, validity, interpretation and performance of this Agreement shall all be subject to the laws of New York, as shall the resolution of any disputes arising in respect of this Agreement. 8.3 During an arbitration, the Parties shall, to the extent possible, continue to implement those parts of this Agreement unrelated to such arbitration. 9. Miscellaneous 9.1 Failure or delay on the part of either Party to exercise any right hereunder shall not operate or be interpreted as a waiver thereof, nor shall any single or partial exercise of any right preclude any other future exercise thereof. 9.2 The invalidity of any provision of this Agreement shall not affect the validity of any other provision hereof. 9.3 Any matter not specified in this Agreement shall be handled through discussions between the Parties and resolved in accordance with the laws of PRC. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the year and day first above written. COMMUNICATION OVER THE AIR INC. /s/ Nick Yang - ---------------------------------------------- Signature of authorised representative Name: Nick Yang MOBILEREN INC. /s/ Yunfan Zhou - ---------------------------------------------- Signature of authorised representative Name: Yunfan Zhou 5 EX-21.1 35 u98939exv21w1.txt EX-21.1 LIST OF SUBSIDIARIES OF THE REGISTRANT . . . Exhibit 21.1 List of subsidiaries of KongZhong Corporation

EX-23.1 36 u98939exv23w1.txt EX-23.1 CONSENT OF DELOITTE TOUCHE TOHMATSU Exhibit 23.1 [DELOITTE TOUCHE TOHMATSU LETTERHEAD] To the Board of Directors of KongZhong Corporation: We consent to the use in the Registration Statement of KongZhong Corporation on Form F-1 of our audit report dated March 18, 2004, appearing in the prospectus, which is part of this Registration Statement. We also consent to the reference made to us under the section entitled "Experts" in this prospectus. /s/ Deloitte Touche Tohmatsu Hong Kong June 3, 2004 EX-23.3 37 u98939exv23w3.txt EX-23.3 CONSENT OF MAPLES AND CALDER ASIA Exhibit 23.3 MAPLES AND CALDER CAYMAN EUROPE ASIA KongZhong Corporation 8/F, Tower A, Yuetan Building No. 2 Yuetan North Street Beijing, China 100045 3rd June, 2004 Dear Sirs: KONGZHONG CORPORATION We have acted as Cayman Islands legal advisers to KongZhong Corporation (the "Company") in connection with the Company's registration statement on Form F-1 (the "Registration Statement"), to be filed with the Securities and Exchange Commission under the U.S. Securities Act of 1933, as amended, relating to the offer of American Depositary Shares of the Company. We hereby consent to the reference to our name under the headings "Risk Factors", "Enforceability of Civil Liabilities" and "Taxation" in the prospectus included in such Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the regulations promulgated thereunder. Yours faithfully, /s/ MAPLES and CALDER Asia MAPLES AND CALDER ASIA 1504 One International Finance Centre, 1 Harbour View Street, Hong Kong Telephone: (852) 2522 9333 Facsimile: (852) 2537 2955 Email: hkinfo@maplesandcalder.com www.maplesandcalder.com Resident Hong Kong Partners: Christine Chang (England and Wales), Linda Martin (England and Wales), Spencer Privett (England and Wales). GRAPHIC 41 u98939kzhong.jpg GRAPHIC begin 644 u98939kzhong.jpg M_]C_X``02D9)1@`!`@``9`!D``#_[``11'5C:WD``0`$````9```_^X`#D%D M;V)E`&3``````?_;`(0``0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$! 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Cayman Islands	7374	Not Applicable
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(IRS Employer Identification Number)






	Proposed Maximum
Title of Each Class of	Aggregate Offering	Amount of
Securities to be Registered	Price⁽¹⁾⁽²⁾	Registration Fee


Ordinary shares par value $0.0000005 per share⁽³⁾	$100,000,000	$12,670


	Per ADS	Total


Initial public offering price	$	$

Underwriting discounts and commissions	$	$

Proceeds, before expenses, to us	$	$

Proceeds, before expenses, to the selling shareholders	$	$


The Offering		ADSs, representing ordinary shares.

ADSs		Each ADS represents ordinary shares that will be held by Citibank, N.A., as depositary. At the request of our investors or their representatives, the ADSs will be evidenced by American Depositary Receipts, or ADRs. As an ADR holder, you will not be treated as one of our shareholders. You will have rights as provided in the deposit agreement. Under the deposit agreement, you may instruct the depositary to vote the shares underlying the ADRs. The depositary will pay you the cash dividends or other distributions it receives on shares after deducting fees and expenses. You must pay a fee for each issuance or cancellation of an ADS, distribution of securities by the depositary or any other depositary service. You may turn in your ADRs at the depositary’s office and, after payment of some fees and expenses, the depositary will deliver the deliverable shares underlying your ADSs to you. 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.

Ordinary Shares		Shares in our registered capital, par value of $0.0000005 per share.

Over-allotment Option		To the extent that the underwriters sell more than ADSs, they have the option to purchase up to an additional ADSs from us and our current shareholders at the initial public offering price less underwriting discounts and commissions.

Price per ADS in the Offering		We currently estimate that the initial public offering price per ADS will be between $ and $ . The initial public offering price per ADS is payable in U.S. dollars.

Use of Proceeds		Our net proceeds from this offering are expected to be approximately $ million (assuming an initial public offering price of $ , the mid-point of the range shown on the front cover page). We anticipate using these net proceeds for acquisitions or investments in businesses that we believe are complementary to our existing business,


Directed Share Program		At our request, the underwriters have reserved at the initial public offering price up to 5% of the ADSs for sale to certain of our business associates, friends and family of our employees and directors and other persons associated with us who have expressed an interest in purchasing our ADSs in this offering.

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.

ADSs Offered by Us		ADSs

ADSs Offered by Our Selling Shareholders		ADSs

Ordinary Shares Outstanding After the Offering		ordinary shares.

ADS Equivalents Outstanding After the Offering		ADSs

Listing		We have applied to have our ADSs included for quotation on the Nasdaq National Market.

Proposed Nasdaq Symbol for Our ADSs		“KONG”


Chun Wei, Esq. Sullivan & Cromwell LLP 28th Floor Nine Queen’s Road Central Hong Kong		Jonathan H. Lemberg, Esq. Morrison & Foerster LLP 425 Market Street San Francisco, California 94105-2482 U.S.A.


Prospectus summary			1
Risk factors			13
Special note regarding forward-looking statements			28
Our corporate structure			29
Use of proceeds			33
Dividend policy			34
Dilution			35
Capitalization			37
Exchange rate information			38
Selected consolidated financial and operating data			39
Management’s discussion and analysis of financial condition and results of operations			41
Industry overview			59
Business			64
Management			83
Regulation			88
Related party transactions			93
Principal and selling shareholders			98
Description of share capital			101
Description of American Depositary Shares			109
Shares eligible for future sale			120
Taxation			122
Underwriting			128
Legal matters			134
Experts			134
Expenses related to this offering			135
Where you can find more information			136
Enforceability of civil liabilities			137
Index to financial statements			F-1


		For the						For the		For the
		period from			For the			three months		three months
		May 6, 2002 to			year ended			ended		ended
Consolidated statements of operations data		December 31, 2002			December 31, 2003			March 31, 2003		March 31, 2004



		(in thousands of U.S. dollars, except share and per share data)
Gross revenues		$	200.3		$	7,806.7		$	703.0	$	7,147.6
Cost of revenues			(84.3	)		(2,284.0	)		(146.5)		(2,239.0	)

Gross profit			116.0			5,522.7			556.5		4,908.6

Operating expenses:
	Product development		164.2			1,369.5			176.2		716.5
	Sales and marketing		128.9			841.4			140.7		294.1
	General and administrative		317.3			882.7			142.4		675.7
	Amortization of deferred stock compensation		—			22.0			—		80.8

Total operating expenses			610.4			3,115.6			459.3		1,767.1

Income (loss) from operations			(494.4	)		2,407.1			97.2		3,141.5
Other expenses			—			—			—		(0.7	)
Interest income, net			0.5			1.0			(0.1)		1.3

Net income (loss) before income taxes			(493.9	)		2,408.1			97.1		3,142.1
Income tax expense			—			—			—		—

Net income (loss)		$	(493.9	)	$	2,408.1		$	97.1	$	3,142.1

Net income (loss) per share:
	Basic		(0.12) cent			0.51 cent			0.02 cent		0.67 cent

	Diluted		(0.12) cent	⁽¹⁾		0.22 cent			0.01 cent		0.29 cent

Shares used in calculating net income (loss) per share:
	Basic		415,547,794			469,000,000			469,000,000		469,000,000

	Diluted		415,547,794	⁽¹⁾		1,094,824,434			1,090,364,373		1,098,206,555

Pro forma net income (loss) per share (unaudited)
	Basic		(0.08) cent			0.23 cent			0.01 cent		0.30 cent

	Diluted		(0.08) cent	⁽¹⁾		0.22 cent			0.01 cent		0.29 cent

Shares used in calculating pro forma net income (loss) per share
	Basic		622,124,999			1,050,000,000			1,050,000,000		1,050,000,000

	Diluted		622,124,999	⁽¹⁾		1,094,824,434			1,094,824,434		1,098,206,555

Net income (loss) per ADS equivalent
	Basic	$			$			$		$

	Diluted	$			$			$		$


(1)	Anti-dilutive preferred shares and options were excluded from the weighted average ordinary shares outstanding for the diluted per share calculation. For 2002, basic loss per share did not differ from diluted loss per share.



	As of

	December 31,		December 31,		March 31,		March 31,
Consolidated balance sheet data	2002		2003		2004		2004


							Pro forma
	(in thousands of U.S. dollars)				(unaudited)		(unaudited)⁽¹⁾
Cash and cash equivalents	$	2,646.2	$	3,742.6	$	5,736.2	$	5,736.2
Accounts receivable	$	132.3	$	1,703.9	$	3,268.8	$	3,268.8
Property and equipment, net	$	251.0	$	848.5	$	1,104.2	$	1,104.2
Total assets	$	3,101.3	$	6,567.5	$	10,518.1	$	10,518.1
Total current liabilities	$	75.0	$	1,047.3	$	1,654.4	$	1,654.4
Series B redeemable convertible preferred shares	$	2,970.0	$	2,970.0	$	2,970.0	$	—
Total shareholders’ equity	$	56.3	$	2,550.1	$	5,772.9	$	8,742.9
Total liabilities and shareholders’ equity	$	3,101.3	$	6,567.5	$	10,518.1	$	10,518.1


(1)	The unaudited pro forma balance sheet information as of March 31, 2004 assumes the conversion upon completion of the initial public offering of all shares of convertible preferred shares outstanding as of March 31, 2004 into ordinary shares.


(1)	Includes WAP, MMS and Java^TM. We began to provide WAP, MMS and Java^TM services on a paid basis in September 2002, April 2003 and November 2003, respectively.

(2)	Total number of paid monthly subscriptions in the relevant period.

(3)	Total number of paid downloads in the relevant period, excluding downloads made pursuant to subscriptions.

(4)	Includes SMS, IVR and CRBT. We began to provide SMS, IVR and CRBT services on a paid basis in July 2002, December 2003 and October 2003, respectively.



		For the three months ended

		June 30,			September 30,			December 31,			March 31,			June 30,			September 30,			December 31,			March 31,
Consolidated statements of operations data		2002⁽¹⁾			2002			2002			2003			2003			2003			2003			2004



		(in thousands of U.S. dollars)

Gross revenues		$	—		$	43.2		$	157.1		$	703.0		$	1,226.4		$	2,030.8		$	3,846.5		$	7,147.6
Cost of revenues			—			(18.2	)		(66.1	)		(146.5	)		(330.7	)		(651.1	)		(1,155.7	)		(2,239.0	)

Gross profit			—			25.0			91.0			556.5			895.7			1,379.7			2,690.8			4,908.6

Operating expenses:
	Product development		(27.6	)		(37.1	)		(99.5	)		(176.2	)		(271.3	)		(390.2	)		(531.8	)		(716.5	)
	Sales and marketing		(7.1	)		(15.0	)		(106.8	)		(140.7	)		(212.6	)		(203.7	)		(284.4	)		(294.1	)
	General and administrative		(44.6	)		(70.2	)		(202.5	)		(142.4	)		(175.0	)		(262.7	)		(302.6	)		(675.7	)
	Amortization of deferred stock compensation		—			—			—			—			—			(8.8	)		(13.2	)		(80.8	)

Total operating expenses			(79.3	)		(122.3	)		(408.8	)		(459.3	)		(658.9	)		(865.4	)		(1,132.0	)		(1,767.1	)
Income (loss) from operations			(79.3	)		(97.3	)		(317.8	)		97.2			236.8			514.3			1,558.8			3,141.5
Other expenses			—			—			—			—			—			—			—			(0.7	)
Interest income, net			0.2			—			0.3			(0.1	)		(0.3	)		0.7			0.7			1.3

Net income (loss) before income taxes			(79.1	)		(97.3	)		(317.5	)		97.1			236.5			515.0			1,559.5			3,142.1
Income tax expense			—			—			—			—			—			—			—			—

Net income (loss)		$	(79.1	)	$	(97.3	)	$	(317.5	)	$	97.1		$	236.5		$	515.0		$	1,559.5		$	3,142.1


(1)	We commenced operations in May 2002.

(2)	Includes WAP, MMS and Java^TM. We began to provide WAP, MMS and Java^TM services on a paid basis in September 2002, April 2003 and November 2003, respectively.

(3)	Total number of paid monthly subscriptions in the relevant period.

(4)	Total number of paid downloads in the relevant period, excluding downloads made pursuant to subscriptions.

(5)	Includes SMS, IVR and CRBT. We began to provide SMS, IVR and CRBT services on a paid basis in July 2002, December 2003 and October 2003, respectively.


†	levying fines;

†	confiscating our or our operating companies’ income;


PRELIMINARY PROSPECTUS	Subject to Completion	, 2004


(1)	Other investors include Global Lead Technology Limited, Draper Fisher Jurvetson ePlanet Ventures L.P., Draper Fisher Jurvetson ePlanet Partners Fund, LLC, Draper Fisher Jurvetson ePlanet Ventures GmbH KG & Co., Lucky Dragon Holdings Group Ltd., eGarden I, Calver Investments Limited, eGarden Ventures (HK), Ltd., Yin Alice Chau and CENO Investment Limited.

(2)	We provided loans to each of the shareholders of Beijing AirInbox for their equity contributions into the registered capital of Beijing AirInbox.

(3)	We do not have any ownership interest in Beijing AirInbox or Beijing Boya Wuji. We and our subsidiary, KongZhong Beijing, have entered into a series of contractual arrangements with these companies and their respective shareholders.


Assumed initial public offering price per ADS			$
	Pro forma net tangible book value per ADS as of December 31, 2003	$
	Increase in net tangible book value per ADS attributable to the sale of our ADSs	$

Pro forma net tangible book value per ADS after this offering			$

Dilution in net tangible book value per ADS to new investors			$



			As of March 31, 2004

									Pro forma
			Actual			Pro forma			as adjusted



			(in thousands of U.S. dollars,
			except share data)
Minority interest			$	120.8		$	120.8		$

Series B preferred shares, net of issuance costs of $30,000 ($0.0000005 par value; 350,000,000 shares authorized, 350,000,000 issued and outstanding in 2003; redeemable in 2007 at $0.0085715 per share) (nil issued and outstanding on a pro forma and pro forma as adjusted basis) (liquidation value $4,499,950)			$	2,970.0		$	—		$

Shareholder’s equity:
	Series A preferred shares ($0.0000005 par value; 231,000,000 shares authorized, 231,000,000 shares issued and outstanding in 2003) (nil issued and outstanding on a pro forma and pro forma as adjusted basis) (liquidation value $550,011)		$	0.1		$	—		$
	Ordinary shares ($0.0000005 par value; 999,419,000,000 shares authorized, 469,000,000 shares issued and outstanding in 2003) (1,050,000,000 shares issued and outstanding on a pro forma basis as of March 31, 2004)⁽¹⁾( shares issued and outstanding on a pro forma as adjusted basis)			0.2			0.5
	Additional paid-in capital			3,020.9			5,990.7
	Deferred stock compensation			(2,303.2	)		(2,303.2	)
	Accumulated other comprehensive loss			(1.5	)		(1.5	)
	Retained earnings			5,056.4			5,056.4

		Total shareholders’ equity	$	5,772.9		$	8,742.9		$



	Noon Buying Rate
	RMB per $1.00

Period	High		Low


October 2003		8.2776		8.2765
November 2003		8.2772		8.2766
December 2003		8.2772		8.2765
January 2004		8.2772		8.2767
February 2004		8.2773		8.2769
March 2004		8.2774		8.2767
April 2004		8.2772		8.2768
May 2004		8.2773		8.2768


	Average Noon
	Buying
	Rate
	RMB per $1.00


1999		8.2785
2000		8.2784
2001		8.2772
2002		8.2772
2003		8.2771
2004 (through May 28, 2004)		8.2769


		For the period from
		May 6, 2002 to			For the year ended			For the three months
Consolidated statements of operations data		December 31, 2002			December 31, 2003			ended March 31, 2004



		(in thousands of U.S. dollars)
Gross revenues		$	200.3		$	7,806.7		$	7,147.6
Cost of revenues			(84.3	)		(2,284.0	)		(2,239.0	)

Gross profit			116.0			5,522.7			4,908.6

Operating expenses:
	Product development		164.2			1,369.5			716.5
	Sales and marketing		128.9			841.4			294.1
	General and administrative		317.3			882.7			675.7
	Amortization of deferred stock compensation		—			22.0			80.8

Total operating expenses			610.4			3,115.6			1,767.1

Income (loss) from operations			(494.4	)		2,407.1			3,141.5
Other expenses			—			—			(0.7	)
Interest income, net			0.5			1.0			1.3

Net income (loss) before income taxes			(493.9	)		2,408.1			3,142.1
Income tax expense			—			—			—

Net income (loss)		$	(493.9	)	$	2,408.1		$	3,142.1

Net income (loss) per share:
	Basic		(0.12) cent			0.51 cent			0.67 cent

	Diluted		(0.12) cent	⁽¹⁾		0.22 cent			0.29 cent

Shares used in calculating net income (loss) per share:
	Basic		415,547,794			469,000,000			469,000,000

	Diluted		415,547,794	⁽¹⁾		1,094,824,434			1,098,206,555

Pro forma net income (loss) per share (unaudited)
	Basic		(0.08) cent			0.23 cent			0.30 cent

	Diluted		(0.08) cent	⁽¹⁾		0.22 cent			0.29 cent

Shares used in calculating pro forma net income (loss) per share
	Basic		622,124,999			1,050,000,000			1,050,000,000

	Diluted		622,124,999	⁽¹⁾		1,094,824,434			1,098,206,555

Net income (loss) per ADS equivalent
	Basic	$			$			$

	Diluted	$			$			$



	For the period from								For the three				For the three
	May 6, 2002 to				For the year ended				months ended				months ended
	December 31, 2002				December 31, 2003				March 31, 2003				March 31, 2004

			Percentage				Percentage				Percentage				Percentage
	Amount		of revenue		Amount		of revenue		Amount		of revenue		Amount		of revenue



	(in thousands of U.S. dollars, except percentages)
2.5G services⁽¹⁾		$131.3		66%		$5,956.0		76%		$346.0		49%		$5,244.4		73%
2G services⁽²⁾		69.0		34%		1,850.7		24%		357.0		51%		1,903.2		27%

Total gross revenues		$200.3		100%		$7,806.7		100%		$703.0		100%		$7,147.6		100%


(1)	Includes WAP, MMS and Java^TM.

(2)	Includes SMS, IVR and CRBT.


	For the period						For the			For the
	from May 6,			For the year			three months			three months
	2002 to			ended			ended			ended
	December 31,			December 31,			March 31,			March 31,
	2002			2003			2003			2004



	(in thousands of U.S. dollars)
Net cash provided by (used in) operating activities	$	(579.7	)	$	1,959.8		$	(246.6	)	$	2,243.7
Net cash used in investing activities		(292.3	)		(863.9	)		(69.4	)		(370.8	)
Net cash provided by financing activities		3,520.3			—			—			120.8
Effect of exchange rate changes		(2.0	)		0.6			0.3			(0.1	)
Net increase in cash and cash equivalents		2,646.2			1,096.4			(315.7	)		1,993.6
Cash and cash equivalents, beginning of period		—			2,646.2			2,646.2			3,742.6
Cash and cash equivalents, end of period	$	2,646.2		$	3,742.6		$	2,330.5		$	5,736.2



	Payments due by period

			Within
	Total		2004		2005		2006		Thereafter



	(in thousands of U.S. dollars)
Short-term debt	$	—	$	—	$	—	$	—	$	—
Operating lease obligations		243		225		18		—		—
Other contractual commitments*		13		13		—		—		—

Total	$	256	$	238	$	18	$	—	$	—



	As of or for the year ended December 31,


	2000					2001					2002					2003

			Penetration					Penetration					Penetration					Penetration
	Amount		rate⁽¹⁾			Amount		rate⁽¹⁾			Amount		rate⁽¹⁾			Amount		rate⁽¹⁾


	(in millions, except per capita amounts and percentages)
Population		1,267.4					1,276.3					1,284.5					1,292.3
GDP per capita		$856.1					$924.4					$988.8					$1,091.1
Mobile phone users		84.5		6.7	%		145.2		11.3	%		206.0		16.1	%		268.7		20.8	%
Fixed-line phone users		144.8		11.4	%		180.4		14.1	%		214.2		16.1	%		263.3		20.4	%
Internet users		22.5		1.8	%		33.7		2.6	%		59.1		4.6	%		79.5		6.2	%


(1)	Determined by dividing the number of users by the total population of China.



	As of or for the year ended December 31, 2002

			GDP		Mobile		Mobile
	Population		per capita		subscribers		penetration


	(in millions)		(in thousands)
India		1,046.1	$	480		10,480		1.0%
Indonesia		214.2		807		11,573		5.4%
Brazil		172.5		2,500		33,188		19.2%
Philippines		84.5		993		15,280		18.1%
United States		287.7		36,406		141,477		49.2%
Japan		127.5		31,457		73,243		57.4%
South Korea		47.6		10,739		32,342		67.9%
Germany		82.4		24,301		59,159		71.8%
United Kingdom		60.1		26,002		50,934		84.7%
Hong Kong		6.8		23,730		6,219		91.6%
Singapore		4.2		20,921		3,245		78.0%


†	We were able to become profitable in less than one year from inception;



		As of or for the three months ended

		March 31,		June 30,		September 30,		December 31,		March 31,
		2003		2003		2003		2003		2004



		(in thousands)
2.5G⁽¹⁾
	Registered users⁽²⁾		597		1,295		2,403		4,086		6,049
	Active users⁽³⁾		520		930		1,590		2,580		4,093
	Subscriptions⁽⁴⁾		1,042		1,674		2,594		3,710		5,508
	Downloads⁽⁵⁾		—		276		674		1,772		2,334
2G⁽⁶⁾
	Registered users⁽²⁾		449		734		1,158		2,089		3,321
	Active users⁽³⁾		440		460		570		1,189		1,704
	Subscriptions⁽⁴⁾		253		304		403		966		2,194
	Downloads⁽⁵⁾		2,069		827		1,805		1,427		1,635
Total
	Registered users⁽²⁾		1,046		2,029		3,561		6,175		9,370
	Active users⁽³⁾		960		1,390		2,160		3,769		5,797
	Subscriptions⁽⁴⁾		1,295		1,978		2,997		4,676		7,702
	Downloads⁽⁵⁾		2,069		1,103		2,479		3,199		3,969


(1)	Includes WAP, MMS and Java^TM. We began charging for our MMS services in April 2003 and Java^TM services in November 2003.

(2)	Total number of users of our services that have registered with us since our launch of such services in May 2002, irrespective of activity level.

(3)	Total number of users who utilized our services during the relevant period.

(4)	Total number of paid monthly subscriptions in the relevant period.

(5)	Total number of paid downloads in the relevant period, excluding downloads made pursuant to subscriptions.

(6)	Includes SMS, IVR and CRBT. We began charging for our IVR services in December 2003 and CRBT services in October 2003.



	Fees we charge to users				Fees we pay to mobile operators

			Monthly					Net transmission
	Transaction		subscription		Service fees to			charge per
	fee per unit⁽¹⁾		fee		mobile operators			message⁽²⁾



	(in RMB⁽³⁾, except percentages)
WAP		0.50-2.00		3.00- 8.00		15	%		None
MMS		1.00-3.00		8.00-28.00		15	%		0.20-0.30⁽⁴⁾
Java^TM		3.00-6.00		4.00- 8.00		15	%		None
SMS		0.10-2.00		3.00-30.00		15	%		0.05-0.08
IVR		0.30-1.00		N/A		30	%		None
CRBT		0.50-2.00		N/A		15	%		None


(1)	Transaction fees are based on units of downloads for WAP, MMS, Java^TM, SMS and CRBT and minutes for IVR.

(2)	A transmission fee is assessed for each message we send in excess of the number of messages we receive. The amount of the transmission fee for each month depends on the volume of messages sent in that month. While no transmission fees are assessed for IVR services, users pay an airtime fee in addition to the content fees on a per minute basis.

(3)	Our content fees are charged in Renminbi. The noon buying rate certified by the Federal Reserve Bank of New York was RMB8.2770 = $1.00 on March 31, 2004.

(4)	During the period from November 2003 to March 2004, we received a 50% promotional discount on transmission fees for MMS as a strategic partner of China Mobile.


Name	Age		Position


Yunfan Zhou		29	Chairman of the Board of Directors and Chief Executive Officer
Nick Yang		28	Director, President and Chief Technology Officer
Fan Zhang		31	Director
Charlie Y. Shi		42	Independent Director
Yongqiang Qian		31	Independent Director
Richard Wei		41	Chief Financial Officer
Xianghong Chen		33	Marketing Director


(1)	The exercise price of the stock options is $0.25 per ordinary share.

(2)	The options will vest periodically, starting from February 18, 2005.