Changyou International Group Limited — Proxy Solicitation & Information Statement 2018

Jun 15, 2018

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Fortunet e-Commerce Group Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchasers or the transferees or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchasers or the transferees.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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FORTUNET E-COMMERCE GROUP LIMITED 鑫網易商集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1039)

(1) GRANT OF SHARE OPTIONS AND

(2) NOTICE OF EXTRAORDINARY GENERAL MEETING

Capitalised terms used in this cover page shall have the same meanings as those defined in this circular.

A letter from the Board containing its recommendation to the Shareholders is set out on pages 3 to 8 of this circular.

A notice convening the EGM to be held at 11:00 a.m. on Tuesday, 31 July 2018 at Room 1001-1009, 10/F, Sun Hung Kai Centre, 30 Harbour Road, Wan Chai, Hong Kong is set out on pages EGM-1 to EGM-2 of this circular. A proxy form for use by the Shareholders for the EGM is enclosed with this circular.

Whether or not you are able to attend the EGM in person, you are requested to complete the enclosed proxy form in accordance with the instructions printed thereon and return the same to the Company’s Hong Kong share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof (as the case may be). Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjourned meeting thereof (as the case may be) should you so wish, and in such event, the instrument appointing a proxy shall be deemed to be revoked.

15 June 2018

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

DEFINITIONS

In this circular, unless the context requires otherwise, capitalised terms used shall have the following meanings:

• “associate” has the meaning ascribed to it under the Listing Rules

• “Announcement” the announcement of the Company dated 4 May 2018 in relation to the grant of the Options

• “Board” the board of Directors

• “Business Day” a day (other than a Saturday, Sunday or public holiday) on which commercial banks are open for general business in Hong Kong

• “Company” Fortunet e-Commerce Group Limited（鑫網易商集團有限 公司）, a company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the Main Board of the Stock Exchange

• “Director(s)” director(s) of the Company

• “EGM”

• an extraordinary general meeting of the Company to be convened and held at 11:00 a.m. on Tuesday, 31 July 2018 to consider, and if thought fit, approve, the grant of the Options to Mr. Cheng

• “Existing Options” the share options granted and yet to be exercised under the Option Scheme as at the Latest Practicable Date

• “HK$” Hong Kong dollar, the lawful currency of Hong Kong

• “Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China

• “Latest Practicable Date”

• 11 June 2018, being the Latest Practicable Date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

• “Mr. Cheng”

• Mr. Cheng Jerome, the chairman of the Company and an executive Director

• “Options”

• 72,000,000 share options to subscribe for a total of 72,000,000 Shares to be granted under the Option Scheme

– 1 –

	DEFINITIONS
“Option Scheme”	the share option scheme of the Company adopted on 28
	June 2010
“Share(s)”	the ordinary share(s) of par value US$0.01 each in the
	share capital of the Company
“Shareholders”	the shareholders of the Company
“Scheme Mandate Limit”	has the meaning ascribed to it under the section headed
	“2. Grant of Options” in this circular
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“US$”	United States dollar, the lawful currency of the United
	States of America
“%”	per cent

– 2 –

LETTER FROM THE BOARD

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FORTUNET E-COMMERCE GROUP LIMITED 鑫網易商集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1039)

Executive Directors: Mr. Cheng Jerome (Chairman) Mr. Yuan Weitao

Non-executive Director:

Mrs. Guo Yan

Registered Office: Royal Bank House 3rd Floor 24 Shedden Road P.O. Box 1586 Grand Cayman, KY1-1110 Cayman Islands

Independent non-executive Directors:

Mr. Wong Chi Keung Mr. Liu Jialin Mr. Chan Chi Keung, Alan

Principal place of business in Hong Kong: Room 1001-1009 10/F, Sun Hung Kai Centre 30 Harbour Road Wan Chai Hong Kong

15 June 2018

To the Shareholders

Dear Sir or Madam,

(1) GRANT OF OPTIONS AND

(2) NOTICE OF EXTRAORDINARY GENERAL MEETING

1. INTRODUCTION

Reference is made to the Announcement in relation to the grant of the Options to Mr. Cheng.

The purpose of this circular is (i) to provide the Shareholders with information regarding the grant of the Options; and (ii) to give the Shareholders a notice of the EGM and other information in accordance with the requirements of the Listing Rules.

– 3 –

LETTER FROM THE BOARD

2. GRANT OF OPTIONS

On 4 May 2018, the Board (including the independent non-executive Directors) resolved to offer the grant of the Options to Mr. Cheng under the Option Scheme, subject to acceptance by Mr. Cheng, approval by the Shareholders and compliance with applicable laws and regulations. If any grant of the Options as detailed below has not been accepted by Mr. Cheng, has not been approved by the Shareholders or is not otherwise in compliance with applicable laws and regulations, such grant would not proceed or be effective for legal and regulatory purposes. The following are the details of the Options granted:

Date of grant	:	4 May 2018
Exercise price of Options	:	HK$1.21 per Share
granted
		(being not less than the highest of (i) US$0.01, being
		the nominal value of each Share; (ii) HK$1.072,
		being the average of the closing prices of the Shares
		as stated in the daily quotations sheet issued by the
		Stock Exchange for the five business days
		immediately preceding the date of grant; and (iii)
		HK$1.08, being the closing price of the Shares as
		stated in the daily quotations sheet issued by the
		Stock Exchange on the date of grant)
Number of options	:	72,000,000
granted
Closing price of the	:	HK$1.08 per Share
Shares on the date of
grant
Validity period of the	:	4 May 2018 to 3 May 2023 (five (5) years), both
Options		days inclusive, subject to the terms and conditions of
		the Option Scheme
Vesting period of the	:	There is no minimum period for which the Options
Options		must be held before the Options can be exercised.
		The Options shall be exercisable immediately upon
		approval by the Shareholders
Consideration for the	:	HK$1.00 to be paid by Mr. Cheng upon acceptance
grant		of the Options granted
Performance targets	:	No performance targets have been set as a condition
		to the exercise of the Options

– 4 –

LETTER FROM THE BOARD

Other rights attaching to : Other than the right to subscribe for Shares, the the Options Options themselves do not carry any right to voting, dividend, transfer or any other rights (including those arising on a liquidation of the Company) before the Options are exercised and the underlying Shares are issued

The Options granted to Mr. Cheng represents approximately 3.97% of the total issued share capital of the Company as at the Latest Practicable Date. The Shares to be allotted upon the exercise of an Option shall be subject to all the provisions of the articles of association of the Company and shall rank pari passu in all respects with and shall have the same voting, dividend, transfer and other rights (including those arising on liquidation of the Company) as attached to the fully-paid Shares in issue on the date of issue and rights in respect of any dividend or other distributions paid or made on or after the date of issue.

Under the Option Scheme, the Directors are authorised to grant share options to eligible participants to subscribe for Shares thereunder and to allot, issue and deal with Shares pursuant to the exercise of the share options granted under the Option Scheme. As at the Latest Practicable Date, there were 75,000,000 share options outstanding. Among the 75,000,000 share options granted, 15,000,000 share options were granted to Mr. Cheng on 3 October 2016. Such options are valid for a term of three (3) years up to and including 2 October 2019, and shall be exercisable one year after the date of grant at an exercise price of HK$1.41 per Share. Please refer to the announcement of the Company dated 3 October 2016 for further details.

After the refreshment of the mandate limit of the Option Scheme on 29 May 2017, the Company may grant share options entitling subscription of up to 182,313,027 Shares, representing 10% of the issued share capital of the Company as at the date of the annual general meeting held on 29 May 2017 (“ Scheme Mandate Limit ”). Up to the Latest Practicable Date, save and except for the Options disclosed in this circular, no share options have been granted under the Option Scheme after the refreshment of the Scheme Mandate Limit.

The Shares to be issued upon full exercise of the Options will be made under the Scheme Mandate Limit.

The Company will consider to grant further share options up to the Scheme Mandate Limit to eligible participants from time to time, including but not limited to officers, directors, employees, advisors, consultants, agents or such other persons who, in the opinion of the Board, will contribute or have contributed to the Group in accordance with the terms of the Option Scheme and the Listing Rules.

3. REASONS FOR GRANTING THE OPTIONS

Mr. Cheng is the chairman of the Company and an executive Director. Mr. Cheng has working experience of over 24 years in the information technology industry, serving the AXA Group and Oracle Corporation, both of which are among the Fortune 500 companies. He has also worked for BEA Systems, Inc., a company specialising in enterprise

– 5 –

LETTER FROM THE BOARD

infrastructure software products which was acquired by Oracle Corporation in 2008. In particular, Mr. Cheng has gained experience in system development, system integration and big data, fintech and blockchain technology. Since Mr. Cheng joined the Group in 2015, he has been responsible for the strategic development of the IT department, product innovation, research and development, upgrade and enhancement of core technologies (including websites and mobile applications), and the overall planning, supervision and management of the technological aspects of the Group’s projects. Given Mr. Cheng’s strong technical background, relevant expertise and management skills as described above, the Board considers that Mr. Cheng’s experience will benefit the development of the future business of the Company, including but not limited to the development of blockchain, the connection and integration of technological digital membership points and platforms of business partners into the “Changyou” platform, and other technological and operational aspects of the “Changyou” business of the Group. The grant of the Options serves to further align the interests of Mr. Cheng with the interests of the Company and the Shareholders, to recognize Mr. Cheng’s past contributions to the Group, and to provide incentive for Mr. Cheng’s continued commitment and contribution to the Group in the future.

In view of the above, the Directors are of the view that the grant of the Options to Mr. Cheng is in the interests of the Company and the Shareholders as a whole.

4. SHAREHOLDING STRUCTURE OF THE COMPANY

As at the Latest Practicable Date, Mr. Cheng does not have any shareholding in the Company.

The following table shows the changes in the shareholding structure of the Company (i) as at the Latest Practicable Date; (ii) assuming the Existing Options are exercised in full; and (iii) assuming the Existing Options and the Options granted to Mr. Cheng are exercised in full:

Century Investment (Holding) Limited (“CIH”) (Note 1) Starr International Foundation (Note 2) Mr. Cheng Other eligible participants under the Option Scheme Other public Shareholders Total	As at the Latest Practicable Date No. of Shares Approximate % 598,885,818 33.02% 224,710,691 12.39% – – – – 989,912,763 54.59% 1,813,509,272 100.00%	Assuming full exercise of the Existing Options No. of Shares Approximate % 598,885,818 31.71% 224,710,691 11.90% 15,000,000 0.79% 60,000,000 3.18% 989,912,763 52.42% 1,888,509,272 100.00%	Assuming full exercise of the Existing Options and the Options No. of Shares Approximate % 598,885,818 30.55% 224,710,691 11.46% 87,000,000 4.44% 60,000,000 3.06% 989,912,763 50.49% 1,960,509,272 100.00%	Assuming full exercise of the Existing Options and the Options No. of Shares Approximate % 598,885,818 30.55% 224,710,691 11.46% 87,000,000 4.44% 60,000,000 3.06% 989,912,763 50.49% 1,960,509,272 100.00%
				100.00%

– 6 –

LETTER FROM THE BOARD

Notes:

1. CIH is wholly owned by Ms. Pun Tang. A charge over the 109,343,662 Shares held by CIH had been created in favour of Chance Talent Management Limited. Chance Talent Management Limited is wholly owned by CCBI Investments Limited, which is in turn wholly owned by CCB International (Holdings) Limited. CCB International (Holdings) Limited is wholly owned by CCB Financial Holdings Limited, which is in turn wholly owned by CCB International Group Holdings Limited. CCB International Group Holdings Limited is wholly owned by China Construction Bank Corporation, which is owned as to 57.11% by Central Huijin Investment Ltd.

2. Starr Investments Cayman II, Inc. and Starr Investments Cayman V Inc. are the beneficial owners of Shares as to 6.33% and 6.06% respectively. Starr Investments Cayman II, Inc. is wholly-owned by Starr International Cayman, Inc., which is in turn wholly-owned by Starr Insurance and Reinsurance Ltd.. Starr Insurance and Reinsurance Ltd. and Starr Investments Cayman V, Inc. are wholly-owned subsidiaries of Starr International Investments Ltd., which is in turn wholly-owned by Starr International Company Inc.. Starr International Company Inc. is wholly-owned by Starr International AG, which is wholly-owned by Starr International Foundation, a charitable foundation established in Switzerland.

5. LISTING RULES IMPLICATIONS

The grant of the Options has been approved by the independent non-executive Directors in accordance with Rule 17.04(1) of the Listing Rules and the Option Scheme.

Pursuant to Rule 17.03(4) of the Listing Rules and the Option Scheme, where the Shares issued and to be issued upon exercise of the share options granted to a person (including exercised and outstanding options) in any 12-month period exceed 1% of the relevant class of Shares in issue, such grant must be approved by shareholders in general meeting.

As the grant of the Options to Mr. Cheng would result in the total number of Shares issued and to be issued upon exercise of the Options granted to Mr. Cheng to exceed 1% of the Shares in issue, the grant of Options to Mr. Cheng is conditional upon the approval by the Shareholders at the EGM with Mr. Cheng and his associates abstaining from voting at the EGM in accordance with the Note to Rule 17.03(4) of the Listing Rules and the Option Scheme, and such grant shall not take effect or be exercisable until such approval is obtained. As at the Latest Practicable Date, none of the associates of Mr. Cheng held any Shares. Accordingly, Mr. Cheng shall abstain from voting at the EGM.

6. EGM

The EGM will be convened and held at 11:00 a.m. on Tuesday, 31 July 2018 at Room 1001-1009, 10/F, Sun Hung Kai Centre, 30 Harbour Road, Wan Chai, Hong Kong to consider and, if thought fit, approve the grant of the Options to Mr. Cheng. The voting on such resolution will be conducted by way of poll at the EGM in accordance with Rule 13.39(4) the Listing Rules.

A proxy form for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM in person, you are requested to complete the enclosed proxy form in accordance with the instructions printed thereon and return the same to the Company’s Hong Kong share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible and in

– 7 –

LETTER FROM THE BOARD

any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof (as the case may be). Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjourned meeting thereof (as the case may be) should you so wish, and in such event, the instrument appointing a proxy shall be deemed to be revoked.

7. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

8. RECOMMENDATION

Having considered the terms of the proposed grant of the Options, the Directors consider that the grant of the Options is fair and reasonable and is in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (including the independent non-executive Directors) recommend that all Shareholders to vote in favour of the resolution proposed at the EGM to approve the grant of the Options to Mr. Cheng.

Yours faithfully By order of the Board Fortunet e-Commerce Group Limited Mr. Cheng Jerome Chairman

– 8 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

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FORTUNET E-COMMERCE GROUP LIMITED 鑫網易商集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1039)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (“ EGM ”) of Fortunet e-Commerce Group Limited (“ Company ”) will be held at 11:00 a.m. on Tuesday, 31 July 2018 at Room 1001-1009, 10/F, Sun Hung Kai Centre, 30 Harbour Road, Wan Chai, Hong Kong, or at any adjournment thereof, to consider and, if thought fit, pass the following resolution, with or without amendments, as ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT the grant of options to Mr. Cheng under the share options scheme adopted by the Company on 28 June 2010 to subscribe for an aggregate of 72,000,000 ordinary shares of US$0.01 each in the share capital of the Company at the exercise price of HK$1.21 per share and on the terms and conditions as set out in the circular to the shareholders of the Company dated 15 June 2018 be and is hereby approved and that any one director of the Company is hereby authorized to do all such further acts or things and to sign and execute all such documents and to take all such steps which in his/her opinion may be necessary, appropriate, desirable or expedient for the purposes of, or in connection with, implementing and/or giving full effect to such grant and exercise of the options.”

By order of the Board Fortunet e-Commerce Group Limited Mr. Cheng Jerome Chairman

Hong Kong, 15 June 2018

Notes:

1. A member of the Company entitled to attend and vote at the EGM by the above notice is entitled to appoint one or more proxies to attend and, on a poll, vote instead of him. A proxy need not be a member of the Company.

1. Where there are joint holders of any share of the Company, any one of such joint holder may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at the EGM, 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 of the Company in respect of the joint holding.

– EGM-1 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

1. In order to be valid, a form of proxy together with the power of attorney or other authority (if any) under which it is signed or a certified copy thereof shall be deposited at the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong not less than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. The proxy form will be published on the website of the Stock Exchange.

As at the date of this notice, the executive Directors are Mr. Cheng Jerome and Mr. Yuan Weitao; the non-executive Director is Mrs. Guo Yan; and the independent non-executive Director are Mr. Wong Chi Keung, Mr. Liu Jialin and Mr. Chan Chi Keung Alan.

– EGM-2 –