##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F
 (Mark
One)
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE
ACT OF 1934
 or
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009.
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 or
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 Date of event requiring this shell company report
 Commission file number: 001-34454
 Shanda Games Limited
 (Exact name of Registrant as specified in its charter)
 N/A  (Translation of Registrants name into English)
 Cayman Islands  (Jurisdiction of incorporation or organization)
 No. 1 Office Building
No. 690 Bibo Road
Pudong New Area
Shanghai, China 201203
The Peoples Republic of China  (Address of principal executive offices)
 Qunzhao
Tan, Chief Executive Officer
No. 1 Office Building
No. 690 Bibo Road
Pudong New Area
Shanghai, China 201203
The Peoples Republic of China
Telephone: +(86 21) 5050-4740
Facsimile: +(86 21) 5080-5132
 (Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
 Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredClass A ordinary shares, par value US$0.01 per share
    
    The NASDAQ Stock Market*(The NASDAQ Global Select Market)
 *
    
    Not for trading, but only in connection with the listing on the
NASDAQ Global Select Market of American Depositary Shares representing
such Class A Ordinary Shares Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
 (Title of Class)  Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
 (Title of Class)
  o Yes þ No
 o Yes þ No
 þ Yes o No
 o Yes o No
  o Large accelerated filer
    

o Accelerated filer
    
    þ Non-accelerated filer
  þ U.S. GAAP
    

o
International Financial Reporting Standards as issued by the International Accounting Standard Boards
    
    o Other
 o o
 o Yes þ No




---



##### 



TABLE OF CONTENTS
 PageSpecial Note Regarding Forward-Looking Statements
    
    
    3Certain Conventions
    
    
    3Part IItem 1. Identity of Directors, Senior Management and Advisors
    
    
    5Item 2. Offer Statistics and Expected Timetable
    
    
    5Item 3. Key Information
    
    
    5Item 4. Information on the Company
    
    
    35Item 4A. Unresolved Staff Comments
    
    
    50Item 5. Operating and Financial Review and Prospects
    
    
    50Item 6. Directors, Senior Management and Employees
    
    
    67Item 7. Major Shareholders and Related Party Transactions
    
    
    71Item 8. Financial Information
    
    
    75Item 9. The Offer and Listing
    
    
    75Item 10. Additional Information
    
    
    76Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    81Item 12. Description of Securities Other Than Equity Securities
    
    
    82Part IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    82Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    82Item 15. Controls and Procedures
    
    
    83Item 16A. Audit Committee Financial Expert
    
    
    83Item 16B. Code of Ethics
    
    
    83Item 16C. Principal Accountant Fees and Services
    
    
    83Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    83Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    84Item 16F. Change in Registrants Certifying Accountant
    
    
    84Item 16G. Corporate Governance
    
    
    84Part IIIItem 17. Financial Statements
    
    
    84Item 18. Financial Statements
    
    
    84Item 19. Exhibits
    
    
    85Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 15.1Exhibit 15.2
   2




---



##### Table of Contents



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    our goals and strategies;
 
    
    our future business development, financial condition and results of operations;
 
    
    our projected revenues, earnings, profits and other estimated financial information;
 
    
    expected changes in our margins and certain costs or expenditures;
 
    
    expected continued acceptance of our new revenue model;
 
    
    our plans to expand and diversify the sources of our revenues;
 
    
    expected changes in the respective shares of our revenues from particular sources;
 
    
    our plans for staffing, research and development and regional focus;
    
    the projected economic lifespan of our current games, and our plans to launch games and
to develop new games in-house or license additional games from third parties, including the
timing of any such launches, development or licenses;
    
    our plans for strategic partnerships with other businesses;
    
    our acquisition strategy, and our ability to successfully integrate past or future
acquisitions with our existing operations;
 
    
    competition in the PRC online game industry;
 
    
    the outcome of ongoing, or any future, litigation or arbitration;
 
    
    the outcome of our annual PFIC evaluation;
    
    the expected growth in the number of Internet and broadband users in China, growth of
personal computer penetration and developments in the ways most people in China access the
Internet;
    
    changes in PRC governmental preferential tax treatment and financial incentives we
currently qualify for and expect to qualify for; and
    
    PRC governmental policies relating to media and the Internet and Internet content
providers and to the provision of advertising over the Internet.
  
 CERTAIN CONVENTIONS
  
 
  3




---



##### Table of Contents




 
 
 
 
 
 
    4




---



##### Table of Contents



PART I
 
 Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
  
 Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 Item 3. KEY INFORMATION
 A. SELECTED FINANCIAL DATA
 For the Year Ended December 31,2007
    
    
    2008
    
    
    2009(in millions)RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)Consolidated Statements of
Operation and
Comprehensive Income Data:Net revenues:MMORPG revenues
    
    
    2,016.1
    
    
    
    2,987.8
    
    
    
    4,476.7
    
    
    
    655.8Advanced casual game revenues
    
    
    280.4
    
    
    
    358.9
    
    
    
    310.4
    
    
    
    45.5Other revenues
    
    
    26.3
    
    
    
    30.1
    
    
    
    19.6
    
    
    
    2.9Total net revenues
    
    
    2,322.8
    
    
    
    3,376.8
    
    
    
    4,806.7
    
    
    
    704.2Cost of revenues:Third parties
    
    
    (492.0
    )
    
    
    (768.3
    )
    
    
    (1,049.3
    )
    
    
    (153.8
    )Related parties
    
    
    (769.1
    )
    
    
    (721.1
    )
    
    
    (884.2
    )
    
    
    (129.5
    )Total cost of revenues
    
    
    (1,261.1
    )
    
    
    (1,489.4
    )
    
    
    (1,933.5
    )
    
    
    (283.3
    )Gross profit
    
    
    1,061.7
    
    
    
    1,887.4
    
    
    
    2,873.2
    
    
    
    420.9Operating expenses:Product development
    
    
    (136.4
    )
    
    
    (238.8
    )
    
    
    (339.8
    )
    
    
    (49.8
    )Sales and marketingThird parties
    
    
    (125.4
    )
    
    
    (124.4
    )
    
    
    (206.7
    )
    
    
    (30.3
    )Related parties
    
    
    
    
    
    
    (80.1
    )
    
    
    (226.2
    )
    
    
    (33.1
    )General and administrative
    
    
    (175.2
    )
    
    
    (287.2
    )
    
    
    (366.1
    )
    
    
    (53.6
    )Total operating expenses
    
    
    (437.0
    )
    
    
    (730.5
    )
    
    
    (1,138.8
    )
    
    
    (166.8
    )Income from operations
    
    
    624.7
    
    
    
    1,156.9
    
    
    
    1,734.4
    
    
    
    254.1Interest income
    
    
    26.3
    
    
    
    33.4
    
    
    
    26.3
    
    
    
    3.9Investment income
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    *Other income, net
    
    
    28.7
    
    
    
    6.1
    
    
    
    169.4
    
    
    
    24.8Income before income tax
expenses, equity in earnings
(loss) of affiliated companies
    
    
    679.7
    
    
    
    1,196.4
    
    
    
    1,930.3
    
    
    
    282.8Income tax expenses
    
    
    (67.1
    )
    
    
    (249.9
    )
    
    
    (428.7
    )
    
    
    (62.8
    )Equity in earnings (loss) of
affiliated companies
    
    
    (13.6
    )
    
    
    0.9
    
    
    
    (30.0
    )
    
    
    (4.4
    )Net income
    
    
    599.0
    
    
    
    947.4
    
    
    
    1,471.6
    
    
    
    215.6Less: Net income attributable
to non-controlling interests
    
    
    (7.1
    )
    
    
    (11.9
    )
    
    
    (18.6
    )
    
    
    (2.7
    )Net income attributable to
Shanda Games Limited
    
    
    591.9
    
    
    
    935.5
    
    
    
    1,453.0
    
    
    
    212.9
 *
    
    Less than 0.1 For the Year Ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)Earnings per share data:Earnings per share, basic
    
    
    1.08
    
    
    
    1.70
    
    
    
    2.61
    
    
    
    0.38Earnings per share, diluted
    
    
    1.08
    
    
    
    1.70
    
    
    
    2.60
    
    
    
    0.38Earnings per ADS, basic(2)
    
    
    2.16
    
    
    
    3.40
    
    
    
    5.22
    
    
    
    0.76Earnings per ADS, diluted(2)
    
    
    2.16
    
    
    
    3.40
    
    
    
    5.20
    
    
    
    0.76
  5




---



##### Table of Contents



As of December 31,2007
    
    
    2008
    
    
    2009(in millions)RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)Consolidated Balance Sheets Data:Total current assets
    
    
    904.4
    
    
    
    1,582.7
    
    
    
    3,297.3
    
    
    
    483.1Total assets
    
    
    1,857.3
    
    
    
    2,444.1
    
    
    
    4,327.4
    
    
    
    634.0Total current liabilities
    
    
    606.9
    
    
    
    1,178.0
    
    
    
    1,261.0
    
    
    
    184.7Total liabilities
    
    
    640.9
    
    
    
    1,208.2
    
    
    
    1,301.9
    
    
    
    190.7Total Shanda Games Limited
shareholders equity
    
    
    1,001.2
    
    
    
    1,097.0
    
    
    
    2,819.6
    
    
    
    413.1Non-controlling interests
    
    
    215.2
    
    
    
    138.9
    
    
    
    205.9
    
    
    
    30.2Total equity
    
    
    1,216.4
    
    
    
    1,235.9
    
    
    
    3,025.5
    
    
    
    443.3Total liabilities and equity
    
    
    1,857.3
    
    
    
    2,444.1
    
    
    
    4,327.4
    
    
    
    634.0
 (1)
    
    Translations of RMB into U.S. dollars were made at a rate of RMB 6.8259 to US$1.00,
the noon buying rate in New York City for cable transfers as certified for customs purposes by
the Federal Reverse Bank of New York on December 31, 2009.(2)
    
    Each ADS represents two
Class A ordinary shares. EXCHANGE RATE INFORMATION
   Renminbi per U.S. Dollar Noon Buying RatePeriodAverage(1)
    
    
    Low
    
    
    High
    
    
    End2005
    
    
    8.1826
    
    
    
    8.2765
    
    
    
    8.0702
    
    
    
    8.07022006
    
    
    7.9579
    
    
    
    8.0702
    
    
    
    7.8041
    
    
    
    7.80412007
    
    
    7.5806
    
    
    
    7.8127
    
    
    
    7.2946
    
    
    
    7.29462008
    
    
    6.9193
    
    
    
    7.2946
    
    
    
    6.7800
    
    
    
    6.82252009
    
    
    6.8295
    
    
    
    6.8176
    
    
    
    6.8470
    
    
    
    6.8259October 2009
    
    
    6.8267
    
    
    
    6.8248
    
    
    
    6.8292
    
    
    
    6.8264November 2009
    
    
    6.8271
    
    
    
    6.8255
    
    
    
    6.8300
    
    
    
    6.8265December 2009
    
    
    6.8275
    
    
    
    6.8244
    
    
    
    6.8299
    
    
    
    6.82592010January 2010
    
    
    6.8269
    
    
    
    6.8258
    
    
    
    6.8295
    
    
    
    6.8268February 2010
    
    
    6.8285
    
    
    
    6.8258
    
    
    
    6.8330
    
    
    
    6.8258March 2010
    
    
    6.8262
    
    
    
    6.8254
    
    
    
    6.8270
    
    
    
    6.8258April 2010 (through April 23)
    
    
    6.8256
    
    
    
    6.8275
    
    
    
    6.8229
    
    
    
    6.8270
 
  (1)
    
    Annual averages are calculated using month-end rates. Monthly averages are calculated using
the average of the daily rates during the relevant period.  B. CAPITALIZATION AND INDEBTEDNESS
  C. REASONS FOR THE OFFER AND USE OF PROCEEDS
   6




---



##### Table of Contents



D. RISK FACTORS
 Risks Relating to Our Business and Our Industry
 If we are unable to successfully develop and source new online games, our business prospects,
financial condition and results of operations would be materially and adversely affected.
  
    
    In-house development of new online games and introduction of expansion packs for our
existing online games
    
    
    Maintaining good relationships with our licensors, extending licenses for our existing
licensed online games and licensing new online games
  
    
    Investments in and acquisitions of other businesses that we believe may benefit our
business
  
    
    Sourcing of new online games through co-development and co-operation
   7




---



##### Table of Contents



We depend substantially on two massively multi-player online role-playing games, or MMORPGs, which
accounted for approximately 75.9% and 78.2% of our net revenues in 2008 and 2009, respectively, and
have finite commercial lifespans.
  
    
    any reduction in purchases of virtual items by Mir II or Woool players;
 
    
    a decrease in the popularity of either game in China due to increased competition or
other factors;
 
    
    failure to improve, update or enhance Mir II or Woool in a timely manner; or
 
    
    any lasting or prolonged server interruption due to network failures or other factors or
any other adverse developments specific to Mir II or Woool.
   Our new games, such as AION, may not be commercially successful, and we may fail to launch new
games according to our timetable, or at all.
    8




---



##### Table of Contents



Our new games may attract game players away from our existing games, which may have a material
adverse effect on our business, financial condition and results of operations.
  Changes or adjustments we make to our existing or new games may not be well received by our game
players.
  There are risks that the revenue models we adopt for our online games may not be suitable.
  Our business could suffer if we do not successfully manage our current growth and potential future
growth.
  There are risks associated with our pursuit of growth through acquisitions and strategic
investments.
   9




---



##### Table of Contents



We face risks associated with the licensing of our games internationally, and if we are unable to
effectively manage these risks, our ability to expand our business internationally could be
impaired.
   
    
    identifying and maintaining good relations with game operators who are knowledgeable in,
and can effectively distribute and operate our games in, international markets;
 
    
    negotiating licensing agreements with game operators on terms that are commercially
acceptable to us and enforcing the provisions of those agreements;
 
    
    developing games, updates and expansion packs catering to overseas markets and renewing
our license agreements with game operators upon expiration;
 
    
    maintaining the reputation of our company and our games, given that our games are
operated by game operators in the international markets with different standards;
 
    
    protecting our intellectual property rights overseas and managing the related costs;
 
    
    auditing the royalties we are entitled to receive;
 
    
    complying with the different commercial and legal requirements of the international
markets in which our games are offered, such as game import regulatory procedures, taxes and
other restrictions and expenses; and
 
    
    managing our foreign currency risks.
   10




---



##### Table of Contents



We or our licensors, co-developers, co-operators or investees may be subject to intellectual
property infringement claims, which may force us to incur substantial legal expenses and, if
determined adversely against us or our licensors, co-developers, co-operators or investees, may
materially disrupt our business.
    Unauthorized use of our intellectual property by third parties, and the expenses incurred in
protecting our intellectual property rights, may adversely affect our business.
     Our business may be materially harmed if our online games are not featured prominently in a
sufficient number of Internet cafes in China.
   11




---



##### Table of Contents



We depend on certain VIEs of Shanda Online to provide services that are critical to our business.
The termination of either or both of these service agreements or any failure of or significant
quality deterioration in these services could have a material adverse effect on our business,
financial condition and results of operations.
     Shanda Networking provides integrated platform services to some of our competitors, which may have
a material adverse effect on our business.
   12




---



##### Table of Contents



We could be liable for any failure, service interruption or security breach of Shanda Networkings
online payment platform, and the reduction in sales made through those channels may have a material
adverse impact on our revenues.
  We face the risks of uncertainties in the growth of the online game industry and market acceptance
of our online games.
  
    
    the growth rate in the number of users of personal computers, Internet and broadband in
China and other markets in which our online games are offered;
 
    
    whether the online game industry, particularly in China and the rest of the Asia-Pacific
region, continues to grow and the rate of any such growth;
 
    
    changes in consumer demographics, tastes or preferences;
 
    
    the popularity and price of new online games and virtual items that we and our
competitors launch and distribute;
 
    
    our ability to timely upgrade and improve our existing games to extend their commercial
lifespan and to maintain or expand their market share in the online game industry;
 
    
    the availability and popularity of other forms of entertainment, particularly console
system games such as those made by Microsoft, Nintendo and Sony, which are already popular
in many other countries and may gain popularity in China and other countries or regions in
which we market our online games; and
 
    
    general economic conditions, particularly economic conditions that impact the level of
discretionary consumer spending.
  We may not be able to adapt to the rapidly evolving online game industry in China.
  We face significant competition which could reduce our market share and materially and adversely
affect our business, financial condition and results of operations.
   13




---



##### Table of Contents



We depend on our key personnel, and our business and growth prospects may be severely disrupted if
we lose their services or are unable to attract new key employees.
   The global financial and economic crisis, particularly the slowdown in the Chinese economy, may
adversely affect our business, results of operations and financial condition.
   14




---



##### Table of Contents



If we fail to anticipate or successfully implement new technologies, our games may become obsolete
or uncompetitive, and our business prospects and results of operations could be materially and
adversely affected.
  Errors or defects in our online games and the proliferation of cheating programs could materially
and adversely affect our business prospects and results of operations.
  Network interruptions, security breaches or computer virus attacks could have a material adverse
effect on our business prospects and results of operations.
   
    
    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; and
 
    
    any disruption or failure in the national backbone network, which would prevent our
players outside Shanghai from logging on to any of our games, or playing games for which the
servers are all located in Shanghai.
  The successful operation of our business and implementation of our growth strategies, including our
ability to accommodate additional game players in the future, depend upon the performance and
reliability of the Internet infrastructure and fixed line and wireless telecommunications networks
in China.
   15




---



##### Table of Contents



The limited use of personal computers in China and the relatively high cost of Internet access may
limit the development of the Internet in China and thus impede our growth.
  We may need to record impairment charges to earnings if our acquisition goodwill, investments
in affiliate companies or acquired intangible assets are determined to be impaired, which would
adversely affect our results of operations.
  We have limited business insurance coverage in China.
  If we fail to maintain an effective system of internal control over financial reporting, we may be
unable to accurately report our financial results or prevent fraud, and as a result investor
confidence and the market price of our ADSs may be adversely affected.
    16




---



##### Table of Contents



You may not be able to rely on our quarterly operating results as an indication of our future
performance because our quarterly operating results may be subject to significant fluctuations.
  
    
    our ability to retain existing users, attract new game players at a steady rate and
maintain user satisfaction;
 
    
    the announcement or introduction of new games or updates or expansion packs to existing
games by us or our competitors;
 
    
    the range, number and pricing of virtual items available for sale;
 
    
    technical difficulties, system downtime or Internet failures;
 
    
    the amount and timing of operating costs and capital expenditures relating to expansion
of our business, operations and infrastructure;
 
    
    the adoption of new, or changes to existing, governmental regulations;
 
    
    seasonality effect during holidays in the second quarter and the fourth quarter, when
generally, fewer game players play our games;
 
    
    a shortfall in our revenues relative to our forecasts and a decline in our operating
results;
 
    
    the introduction and nationwide roll-out of the third-generation wireless
telecommunication network in China; and
 
    
    economic conditions in general and specific to the online game industry and to China.
   Risks Relating to the Reorganization and Our Continued Relationship with Shanda Interactive
 We have limited experience operating as a standalone company.
    17




---



##### Table of Contents



Our financial information included in this annual report may not be representative of our results
as a standalone company.
    We may not be able to continue to receive the same level of support from Shanda Interactive.
  Some of the terms of our agreements with Shanda Interactive and its affiliates may be less
favorable to us than similar agreements negotiated between unaffiliated third parties.
   18




---



##### Table of Contents



The Amended and Restated Non-Compete and Non-Solicitation Agreement with Shanda Interactive, our
parent, contains certain exceptions and may not be effective in preventing Shanda Interactive from
engaging in certain transactions that directly or indirectly may compete with (or be perceived to
be in competition with) our online game business.
  Shanda Interactive will control the outcome of shareholder actions in our company.
     19




---



##### Table of Contents



We may have conflicts of interest with Shanda Interactive. Because of Shanda Interactives
controlling ownership interest in our company, we may not be able to resolve such conflicts on
terms favorable to us.
  
    
    Indemnification arrangements with Shanda Interactive.In connection with the
reorganization, we have agreed to indemnify Shanda Interactive with respect to liabilities
relating to our online game business, including operations of that business when it was a
business unit of Shanda Interactive prior to the reorganization. These indemnification
arrangements could result in our having interests that are adverse to those of Shanda
Interactive, such as different interests with respect to settlement arrangements in the
event of litigation.
 
    
    Non-compete agreement with Shanda Interactive.Shanda Interactive has agreed not to
compete with us in the online game business anywhere in the world for a five-year period
commencing July 1, 2008, subject to certain exceptions that may present conflicts of
interests. See  Risks Relating to the Reorganization and Our Continued Relationship with
Shanda Interactive  The Amended and Restated Non-Compete and Non-Solicitation Agreement
with Shanda Interactive, our parent, contains certain exceptions and may not be effective in
preventing Shanda Interactive from engaging in certain transactions that directly or
indirectly may compete with (or be perceived to be in competition with) our online game
business.
 
    
    Employee recruitment and retention.Because both Shanda Interactive and we operate
primarily in Shanghai and are engaged in the interactive entertainment business, we may
compete with Shanda Interactive in the hiring of new employees, in particular with respect
to those involved in interactive entertainment content development and operation. While the
Amended and Restated Non-Compete and Non-Solicitation Agreement restricts Shanda Interactive
from inducing any of our employees to terminate his or her employment with us, we cannot
assure you that Shanda Interactive will not breach this agreement.
 
    
    Our board members or executive officers may have conflicts of interest.Mr. Qunzhao Tan,
our chairman and chief executive officer, currently also serves as a member of the board of
directors of Shanda Interactive. In addition, Mr. Tianqiao Chen and Mr. Danian Chen, both of
whom are our directors, currently also serve as Shanda Interactives chairman and chief
executive officer, and chief operating officer and as a member of the board of directors of
Shanda Interactive, respectively. A majority of our directors and executive officers also
own shares and/or options to purchase shares in Shanda Interactive. Shanda Interactive may
continue to grant incentive share compensation to our board members and executive officers
from time to time. These relationships could create perceived or actual conflicts of
interest when these persons are faced with decisions with potentially different implications
for Shanda Interactive and us.
 
    
    Transfer of assets.In connection with the reorganization, Shanda Interactive
transferred substantially all of its assets and liabilities related to its online game
business to us. However, there may be assets (such as intellectual property rights) that are
required for our business but were not part of the assets transferred to us pursuant to the
Master Separation Agreement or otherwise have not been transferred to us. If Shanda
Interactive refuses to transfer such assets to us or if we are not able to secure similar
assets on terms acceptable to us or at all, our business, financial condition and results of
operations may be materially and adversely affected.
 
    
    Sale of shares in our company.Shanda Interactive may decide to sell all or a portion of
the Class B ordinary shares that it holds to a third party, including to one of our
competitors, thereby giving that third party substantial influence over our business and our
affairs. Such a sale could be contrary to the interests of certain of our shareholders,
including our employees and our public shareholders, and affect the implementation of our
business strategy.
 
    
    Allocation of business opportunities.Business opportunities may arise that both we and
Shanda Interactive find attractive, and which would complement our respective businesses.
Although Shanda Interactive has agreed in the Amended and Restated Non-Compete and
Non-Solicitation Agreement with us not to acquire equity interests in third-party online
game businesses without first using its reasonable best efforts to make such investment
opportunities available to us, subject to certain limited exceptions, we may not be able to
pursue the business opportunities effectively if Shanda Interactive decides to take
advantage of such opportunities itself notwithstanding such agreement.
 
    
    Services provided by Shanda Networking to our competitors.Shanda Networking provides
integrated services to other online game companies that compete with us. These commercial
relationships are beyond our control and may negatively affect our business. See  Risks
Relating to Our Business and Our Industry  Shanda Networking provides integrated platform
services to some of our competitors, which may have a material adverse effect on our
business.
 
    
    Developing business relationships with Shanda Interactives competitors.So long as
Shanda Interactive remains our controlling shareholder, we may be limited in our ability to
do business with its competitors, such as other interactive entertainment media companies in
China.
  20




---



##### Table of Contents



Risks Relating to Regulation of Our Business and to Our Structure
 If the PRC government finds that the agreements that establish the structure for operating our
China business do not comply with its restrictions on foreign investment in the online game
industry, we could be subject to severe penalties.
    
    
    revoking our PRC operating companies business and operating licenses;
 
    
    discontinuing or restricting our PRC operating companies operations;
 
    
    imposing conditions or requirements with which we or our PRC companies may not be able to
comply;
  21




---



##### Table of Contents




    
    requiring us or our PRC companies to restructure the relevant ownership structure or
operations; or
 
    
    taking other regulatory or enforcement actions, including levying fines, that could be
harmful to our business.
  The contractual arrangements related to critical aspects of our operations with Shanghai Shulong
and its shareholders may not be as effective in providing operational control as direct ownership.
   Shareholders of Shanghai Shulong may potentially have a conflict of interest with us, and they may
breach their contracts with us or cause such contracts to be amended in a manner contrary to the
interest of our company.
  Our arrangements with our PRC operating companies may be reviewed by the PRC tax authorities for
transfer pricing adjustments.
   22




---



##### Table of Contents



Our holding company structure may restrict our ability to receive dividends from, or transfer funds
to, our PRC subsidiaries and our PRC operating companies, which could restrict our ability to act
in response to changing market conditions and reallocate funds among our Chinese entities timely.
   We are one of Chinas leading online game providers and cooperate closely with Shanda Online, which
through its VIEs operates a leading online service platform in China. Some of our competitors and
our users may institute claims against us and Shanda Online under the new Anti-Monopoly Law and as
a result we may have to terminate our relationship with Shanda Online, which may have a material
adverse effect on our business, financial conditions and results of operations.
   The laws and regulations governing the online game industry and related businesses in China are
developing and subject to future changes. If we or any of our PRC operating companies fail to
obtain or maintain all applicable permits and approvals, our business and operations would be
materially and adversely affected.
   23




---



##### Table of Contents



Additional government regulations resulting from negative publicity in China regarding online games
or otherwise may have a material adverse effect on our business, financial condition and results of
operations.
    The PRC government has tightened its regulation of Internet cafes, which are currently one of the
primary venues for our users to play online games. Intensified government regulation of Internet
cafes could restrict our ability to maintain or increase our revenues and expand our game player
base.
   24




---



##### Table of Contents



The PRC government may prevent us from distributing, and we may be subject to liability for,
content deemed to be inappropriate.
    The PRC government controls virtually all Internet access in China, and requires all computers sold
in China to be installed with government-designated software to censor websites deemed
inappropriate by the government, which may potentially discourage or restrict the use of the
Internet or our online games by the players, and consequently adversely impact our business,
financial conditions and results of operation.
   We may be required to reapply for approvals for online games licensed from overseas licensors.
 Xin Chu Lian
  25




---



##### Table of Contents



Currently there is no law or regulation specifically governing virtual asset property rights and
therefore, it is not clear what liabilities, if any, online game operators may have for virtual
assets.
   Compliance with the laws or regulations governing virtual currency may result in us having to
obtain additional approvals or licenses or change our current business model.
     26




---



##### Table of Contents



We may be subject to, and may expend significant resources in defending against, government actions
and civil suits based on the advertising content provided in our virtual advertising space; we may
also be penalized by the governmental authority for such content.
  Risks Relating to the Peoples Republic of China
 Adverse changes in economic and political policies of the PRC government could have a material
adverse effect on the overall economic growth of China, which could adversely affect our business.
    27




---



##### Table of Contents



The PRC legal system embodies uncertainties which could limit the legal protections available to
us.
  Regulations relating to offshore investment activities by PRC residents may subject us to fines or
sanctions imposed by the PRC government, including restrictions on our PRC subsidiaries abilities
to pay dividends or make distributions to us and our ability to increase our investment in our PRC
subsidiaries.
   SAFE rules and regulations may limit our ability to convert and transfer the net proceeds from our
initial public offering to Shanghai Shulong, our VIE in the PRC, which may adversely affect the
business expansion of Shanghai Shulong, and we may not be able to convert the net proceeds from our
initial public offering into Renminbi to invest in or acquire any other PRC companies or establish
other VIEs in the PRC.
   28




---



##### Table of Contents



Restrictions on currency exchange may limit our ability to utilize our capital effectively.
     Fluctuations in exchange rates could result in foreign currency exchange losses.
    29




---



##### Table of Contents



The discontinuation, reduction or delay of any of the preferential tax treatments or the government
financial incentives currently available to us in the PRC could materially and adversely affect our
business, financial condition and results of operations.
    There are significant uncertainties under the New EIT Law relating to our PRC enterprise income tax
liabilities.
   We face risks related to health epidemics and other outbreaks of contagious
diseases, including avian flu, SARS and H1N1 flu, and natural disasters.
   30




---



##### Table of Contents



We may be subject to fines and legal sanctions if we or our Chinese employees fail to comply with
recent PRC regulations relating to employee stock options granted by overseas listed companies to
PRC citizens.
  Risks Relating to Our ADSs
 The price of our ADSs has been volatile historically and may continue to be volatile, which may
make it difficult for holders to resell the ADSs when desired or at attractive prices.
   
    
    announcements of technological or competitive developments;
 
    
    regulatory developments in our target markets affecting us, our customers or our competitors;
 
    
    announcements regarding intellectual property rights litigation;
 
    
    actual or anticipated fluctuations in our quarterly operating results;
 
    
    changes in financial estimates by securities research analysts;
 
    
    changes in the economic performance or market valuations of our products;
 
    
    addition or departure of our executive officers and key research personnel; and
 
    
    sales or perceived sales of additional ordinary shares or ADSs.
    31




---



##### Table of Contents



We may need additional capital and may sell additional ADSs or other equity securities or incur
indebtedness, which could result in additional dilution to our shareholders or increase our debt
service obligations.
  We may be required to withhold PRC income tax on the dividends we pay you (if any), and any gain
you realize on the transfer of our ordinary shares and/or ADSs may also be subject to PRC
withholding tax.
   Your right as a holder of ADSs to participate in any future rights offerings may be limited, which
may cause dilution to your holdings and they may not receive cash dividends if it is impractical to
make them available to such holders.
    32




---



##### Table of Contents



You may be subject to limitations on transfer of your ADSs.
  As we are a Cayman Islands company, you may face difficulties in protecting your interests, and
our ability to protect our rights through the U.S. federal courts may be limited.
    
 
    You may have difficulties in enforcing judgments obtained against us.
   33




---



##### Table of Contents



We are a controlled company within the meaning of the NASDAQ Listing Rules and, as a result, rely
on exemptions from certain corporate governance requirements that provide protection to
shareholders of other
companies, and we may also rely on the foreign private issuer exemption from most of the corporate
governance requirements under the NASDAQ Listing Rules.
  
 
 
 
   We may be classified as a passive foreign investment company, which could result in adverse U.S.
federal income tax consequences to U.S. holders of our ADSs or Class A ordinary shares.
  Our dual-class ordinary share structure with different voting rights could discourage others from
pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs
may view as beneficial.
    34




---



##### Table of Contents



Our amended and restated articles of association contain anti-takeover provisions that could
adversely affect the rights of holders of our ordinary shares and ADSs.
   
 
 
 
 
 The voting rights of holders of ADSs are limited by the terms of the deposit agreement.
  Your right as a holder of ADSs to participate in any future rights offerings may be limited, which
may cause dilution to your holdings.
  
 Item 4. INFORMATION ON THE COMPANY
 A. HISTORY AND DEVELOPMENT OF THE COMPANY
   35




---



##### Table of Contents



B. BUSINESS OVERVIEW
       36




---



##### Table of Contents



Our Games
 MMORPGs
   Game
    
    Genre
    
    Visual Dimensions
    
    Game Source
    
    Launch DateMir II
    
    Martial arts adventure
    
    2D
    
    License(1)
    
    November 2001Woool
    
    Martial arts adventure
    
    2D
    
    In-house
    
    October 2003The Sign
    
    Martial arts adventure
    
    3D
    
    In-house
    
    May 2004The Age
    
    Martial arts adventure
    
    2D
    
    In-house
    
    June 2004Magical Land
    
    Fantasy
    
    2D
    
    In-house
    
    July 2005R.O.
    
    Fantasy
    
    2D
    
    License
    
    September 2005Archlord
    
    Fantasy
    
    3D
    
    License
    
    July 2006Latale
    
    Side-scrolling combat
    
    2D
    
    In-house
    
    April 2007Fengyun Online
    
    Martial arts adventure
    
    3D
    
    Acquisition
    
    July 2007World Hegemony
    
    Strategy web game
    
    2D
    
    In-house
    
    November 2007Might & Hero
    
    Strategy web game
    
    2D
    
    Investment
    
    May 2008Lineage
    
    Fantasy
    
    2D
    
    License
    
    June 2008Lineage II
    
    Fantasy
    
    3D
    
    License
    
    June 2008Tales of Dragons
    
    Fantasy
    
    2D
    
    In-house
    
    July 2008A Thousand Years III
    
    Martial arts adventure
    
    2D
    
    In-house
    
    November 2008AION
    
    Fantasy
    
    3D
    
    License
    
    April 2009JX Online World
    
    Martial arts adventure
    
    2D
    
    Co-operation
    
    June 2009Ghost Fighter Online
    
    Side-scrolling action
    
    3D
    
    Investment
    
    August 2009Luvinia Online
    
    Fantasy
    
    3D
    
    Acquisition
    
    August 2009ZU Online
    
    Martial arts adventure
    
    3D
    
    Investment
    
    August 2009Yuyan Online
    
    Martial arts adventure
    
    2.5D(2)
    
    Co-operation
    
    September 2009TS2 Online
    
    Turn-based
    
    2D
    
    License
    
    December 2009Hades Realm
    
    Martial arts adventure
    
    2D
    
    Acquisition
    
    January 2010Zodiac Tales
    
    Turn-based
    
    2D
    
    Acquisition
    
    January 2010Dukes and Lords
    
    Martial arts adventure
    
    2D
    
    Acquisition
    
    January 2010Woool of Heroes
    
    Martial arts adventure
    
    2D
    
    In-house
    
    March 2010
 (1)
    
    We license Mir II from Actoz, which is our majority-owned subsidiary. While
Actoz controls the licensing of Mir II in China, we continue to classify
Mir II as a licensed game because Actoz shares a portion of the ongoing
licensing fees we pay to Actoz with a third party that co-owns the
intellectual property rights relating to the game.(2)
    
    2.5D refers to a game with 3D-rendered characters but a 2D game environment.  For the Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2009
    
    
    2009Quarterly active paying
accounts (in
thousands)(1)
    
    
    7,189
    
    
    
    8,582
    
    
    
    9,064
    
    
    
    9,419Average monthly revenues
per active paying
account (in
RMB)(2)
    
    
    43.9
    
    
    
    41.9
    
    
    
    43.4
    
    
    
    45.0
 
 (1)
    
    Quarterly active paying accounts refers to the aggregate number of active paying
accounts for our online games during a given quarter.(2)
    
    Average monthly revenues per active paying account refers to our online game
revenues during a given quarter divided by quarterly active paying accounts, further divided
by three.  37




---



##### Table of Contents



Advanced Casual Games
   VisualGame
    
    Genre
    
    Dimensions
    
    Game Source
    
    LaunchBNB
    
    Battle
    
    2D
    
    License
    
    August 2003GetAmped
    
    Fighting
    
    3D
    
    License
    
    May 2004Maple Story
    
    Side-scrolling combat
    
    2D
    
    License
    
    August 2004Shanda Richman
    
    Strategy
    
    3D
    
    In-house
    
    December 2005Crazy Kart
    
    Racing
    
    3D
    
    In-house
    
    March 2006Kongfu Kids
    
    Fighting
    
    3D
    
    In-house
    
    June 2007Tales Runner
    
    Racing
    
    3D
    
    License
    
    July 2007Dead or Alive Online
    
    Fighting
    
    3D
    
    Co-development
    
    May 2009
  For the Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2009
    
    
    2009Quarterly active paying
accounts (in
thousands)(1)
    
    
    1,052
    
    
    
    1,152
    
    
    
    1,209
    
    
    
    1,014Average monthly revenues
per active paying account
(in RMB)(2)
    
    
    27.8
    
    
    
    20.9
    
    
    
    24.1
    
    
    
    20.8
 
 (1)
    
    Quarterly active paying accounts refers to the aggregate number of active paying
accounts for our online games during a given quarter.(2)
    
    Average monthly revenues per active paying account refers to our online game
revenues during a given quarter divided by quarterly active paying accounts, further divided
by three.  Access to Our Games
  Our Online Game Development and Sourcing Model
  In-House Development
    38




---



##### Table of Contents




    
    formulate a new game proposal based on a preliminary market study;
 
    
    conduct an in-depth feasibility study;
 
    
    establish a project team to draft a new game development plan;
 
    
    develop the game story and overall game design;
 
    
    design the game style, characters and environments;
 
    
    develop the server-end and user-end software;
 
    
    conduct intermediate management review after the fundamental game structure has been
developed; and
 
    
    conduct final management review upon completing the development of the new game.
   Game Licensing
    Investment and Acquisition
    39




---



##### Table of Contents



Co-Development
  Co-Operation
  Our Game Performance Evaluation and Testing Systems
 Our Game Performance Evaluation System for Game Sourcing
  
    
    Stage 1.We evaluate a game based upon a
number of criteria, including game and artistic
design, technology and infrastructure requirements and operational
metrics, if any. Of the
thousands of games evaluated over our years of operation, only a small number have been
submitted to our steering committee, which is comprised of personnel from our game
development and operations, quality management, finance, marketing and other departments, for further evaluation.
 
    
    Stage 2.The steering committee assesses these games and approves a select number of
games, which are then passed on to the game management, business development and quality
management divisions for testing and final evaluation.
 
    
    Stage 3.These divisions evaluate the games to identify those with the highest potential
for commercial success and allocate our marketing and other resources to such games.
 Our Pre-Launch Game Testing System
  Our Game Operation Model
 Game Management
  
    
    conduct cost/benefit analyses and form operational plans;
 
    
    coordinate internal resources and interact with our other departments such as game
design, artistic design, quality management, marketing, and technological services to ensure
a smooth daily operation of the online game;
 
    
    control the timing of the release of updates and expansion packs; and
 
    
    manage the games virtual community on an ongoing basis by, for example, organizing
in-game events.
   40




---



##### Table of Contents



Network and Technology Infrastructure
       Anti-Cheating and Anti-Hacking
  Marketing
  In-game events and announcements.
 Online and traditional advertising.
  41




---



##### Table of Contents



Offline promotions.
 Our Revenue Models
 Revenue Models for the Games that We Operate
     Licensing of Our Games to Third Parties
  In-Game Advertising
  Online Billing and Payment, Distribution and Customer Service
   42




---



##### Table of Contents



Online Billing and Payment and Distribution
   
    
    Direct online sales.  Game players can purchase prepaid cards directly online and payment
can be made using certain commercial bank cards and other online payment service providers.
 
    
    Indirect e-sales.  Distributors order prepaid cards through a central e-sales computer
system and resell the cards to game players through Internet cafes or other retail points of
sale.
 
    
    Indirect offline distribution.  Game players can purchase physical prepaid cards from
retail points of sale, which primarily consist of news stands, convenience stores, software
stores and book stores.
 Customer Service
    Competition
     43




---



##### Table of Contents



Intellectual Property and Proprietary Rights
       Government Regulations
  
    
    the Bureau of State Secrecy;
 
    
    the General Administration of Press and Publication, or the GAPP (formerly the State Press
and Publications Administration);
 
    
    the Ministry of Commerce, or the MOFCOM;
 
    
    the Ministry of Culture, or the MOC;
 
    
    the Ministry of Industry and Information Technology, or the MIIT (formerly the Ministry of
Information Industry);
 
    
    the Ministry of Public Security;
 
    
    the State Administration of Foreign Exchange, or the SAFE;
 
    
    the State Administration of Industry and Commerce, or the SAIC;
 
    
    the State Administration for Radio, Film and Television;
 
    
    the State Copyright Bureau, or the SCB; and
 
    
    the State Council Information Office.
 Foreign Ownership Restrictions
   44




---



##### Table of Contents



Licenses
  ICP License.
  Internet Culture Operation License.
 Internet Publishing License.
  45




---



##### Table of Contents



Online Bulletin Board Service Approval.
 Regulation of Internet Content
   Regulation of Information Security
   Technology Import and Export
  Intellectual Property Rights
   46




---



##### Table of Contents



Internet Cafe Regulation
  Privacy Protection
  Anti-fatigue Compliance System and Real-name Registration System
    Payment and Clearance By Non-financial Institutions
    47




---



##### Table of Contents



Virtual Currency
       C. ORGANIZATIONAL STRUCTURE
     48




---



##### Table of Contents



49




---



##### Table of Contents



D. PROPERTY, PLANTS AND EQUIPMENT
  
 Item 4A. UNRESOLVED STAFF COMMENTS
  
 Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 You should read the following discussion and analysis of our financial condition and results
of operations in conjunction with our consolidated financial statements and the related notes
included elsewhere in this annual report on Form 20-F . This discussion may contain forward-looking
statements based upon current expectations that involve risks and uncertainties. Our actual results
may differ materially from those anticipated in these forward- looking statements as a result of
various factors, including those set forth under Item 3. Key InformationD. Risk Factors or in
other parts of this annual report on Form 20-F .
 Overview
      The Reorganization and the Basis of Preparation
   50




---



##### Table of Contents



Our Agreements with Shanda Online
    51




---



##### Table of Contents



Factors Affecting Results of Operations
  Our ability to continue to successfully introduce new online games and expansion packs for
existing games.
 Our ability to maintain and expand our community of loyal game players.
 Game content sourcing costs.
 The reliability and quality of Shanda Networkings integrated service platform and
Shengfutongs distribution services.
 Competition in Chinas online game industry.
 Revenues
   For the Year Ended December 31,2007
    
    
    2008
    
    
    2009% of Net
    
    
    
    
    
    
    % of Net
    
    
    
    
    
    
    % of NetRMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues(unaudited)(in millions, except percentages)Net revenues:MMORPG revenues
    
    
    2,016.1
    
    
    
    86.8
    %
    
    
    2,987.8
    
    
    
    88.5
    %
    
    
    4,476.7
    
    
    
    93.1
    %Advanced casual game revenues
    
    
    280.4
    
    
    
    12.1
    
    
    
    358.9
    
    
    
    10.6
    
    
    
    310.4
    
    
    
    6.5Other revenues(1)
    
    
    26.3
    
    
    
    1.1
    
    
    
    30.1
    
    
    
    0.9
    
    
    
    19.6
    
    
    
    0.4Total net revenues
    
    
    2,322.8
    
    
    
    100.0
    %
    
    
    3,376.8
    
    
    
    100.0
    %
    
    
    4,806.7
    
    
    
    100.0
    %
 
 (1)
    
    Other revenues primarily include fees received from game promotions
and short messaging services fees earned.  52




---



##### Table of Contents



Cost of Revenues
  For the Year Ended December 31,2007
    
    
    2008
    
    
    2009% of Net
    
    
    
    
    
    
    % of Net
    
    
    
    
    
    
    % of NetRMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues(unaudited)(in millions, except percentages)Net revenues
    
    
    2,322.8
    
    
    
    100.0
    %
    
    
    3,376.8
    
    
    
    100.0
    %
    
    
    4,806.7
    
    
    
    100.0
    %Cost of revenues:Platform fees
    
    
    735.4
    
    
    
    31.7
    
    
    
    864.9
    
    
    
    25.6
    
    
    
    1,018.5
    
    
    
    21.2Upfront and ongoing
licensing fees
    
    
    429.6
    
    
    
    18.5
    
    
    
    520.9
    
    
    
    15.4
    
    
    
    797.1
    
    
    
    16.6Others
    
    
    96.1
    
    
    
    4.1
    
    
    
    103.6
    
    
    
    3.1
    
    
    
    117.9
    
    
    
    2.4Total cost of revenues
    
    
    1,261.1
    
    
    
    54.3
    
    
    
    1,489.4
    
    
    
    44.1
    
    
    
    1,933.5
    
    
    
    40.2Gross profit/margin
    
    
    1,061.7
    
    
    
    45.7
    %
    
    
    1,887.4
    
    
    
    55.9
    %
    
    
    2,873.2
    
    
    
    59.8
    %
 Platform fees.
  53




---



##### Table of Contents



Upfront and ongoing licensing fees.
 Others.
 Gross profit/margin.
 Operating Expenses
  For the Year Ended December 31,2007
    
    
    2008
    
    
    2009% of Net
    
    
    
    
    
    
    % of Net
    
    
    
    
    
    
    % of NetRMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues(unaudited)(in millions, except percentages)Net revenues:
    
    
    2,322.8
    
    
    
    100.0
    %
    
    
    3,376.8
    
    
    
    100.0
    %
    
    
    4,806.7
    
    
    
    100.0
    %Operating expenses:Product development
    
    
    136.4
    
    
    
    5.9
    
    
    
    238.8
    
    
    
    7.1
    
    
    
    339.8
    
    
    
    7.1Sales and marketing
    
    
    125.4
    
    
    
    5.4
    
    
    
    204.5
    
    
    
    6.1
    
    
    
    432.9
    
    
    
    9.0General and administrative
    
    
    175.2
    
    
    
    7.5
    
    
    
    287.2
    
    
    
    8.4
    
    
    
    366.1
    
    
    
    7.6Total operating expenses
    
    
    437.0
    
    
    
    18.8
    
    
    
    730.5
    
    
    
    21.6
    
    
    
    1,138.8
    
    
    
    23.7Operating profit/margin
    
    
    624.7
    
    
    
    26.9
    %
    
    
    1,156.9
    
    
    
    34.3
    %
    
    
    1,734.4
    
    
    
    36.1
    %
 Product development expenses.
 Sales and marketing expenses.
 General and administrative expenses.
  54




---



##### Table of Contents



Operating profit/margin.
 Non-Operating Income
  Interest Income.
 Other Non-Operating Income.
  
    
    generating more than a minimum level of revenues from high-tech related sales or
services, determined as a percentage of total revenues;
 
    
    employing more than a minimum number of employees in product development; and
 
    
    expending more than a minimum amount on product development, determined as a percentage
of total revenues.
  Taxation
   PRC Enterprise Income Tax
    55




---



##### Table of Contents



Equity in Earning (Loss) of Affiliated Companies
  Non-Controlling Interest
  Critical Accounting Policies
  Basis of Preparation
     56




---



##### Table of Contents



Revenue Recognition
      Consolidation of Variable Interest Entities
   57




---



##### Table of Contents



Property and Equipment, Intangible Assets, Land Use Rights and Other Long-lived Assets
   Impairment of Investment in Affiliated Companies
  Impairment of Goodwill
  Share-Based Compensation
  Accounting for stock-based compensation
   58




---



##### Table of Contents



Income Taxes and Valuation Allowance
   59




---



##### Table of Contents



Accounting for Uncertainty in Income Taxes  An interpretation of FASB Statement No. 109
 Results of Operations
 Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
 Net revenues.
   For the Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009Quarterly active paying
accounts (in thousands)(1)
    
    
    4,110
    
    
    
    4,239
    
    
    
    5,189
    
    
    
    5,889
    
    
    
    7,189
    
    
    
    8,582
    
    
    
    9,064
    
    
    
    9,419Monthly average revenues
per active paying account
(in RMB)(2)
    
    
    51.9
    
    
    
    54.7
    
    
    
    49.6
    
    
    
    49.8
    
    
    
    43.9
    
    
    
    41.9
    
    
    
    43.4
    
    
    
    45.0
 
 (1)
    
    Quarterly active paying accounts refers to the aggregate number of active paying accounts for our online games during a given quarter.(2)
    
    Average monthly revenues per active paying account refers to our online game revenues during a given quarter divided by quarterly active paying accounts, further divided by three.  For the Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009Quarterly active paying
accounts (in thousands)(1)
    
    
    1,661
    
    
    
    1,421
    
    
    
    1,380
    
    
    
    961
    
    
    
    1,052
    
    
    
    1,152
    
    
    
    1,209
    
    
    
    1,014Monthly average revenues
per active paying account
(in RMB)(2)
    
    
    19.8
    
    
    
    20.8
    
    
    
    23.7
    
    
    
    25.5
    
    
    
    27.8
    
    
    
    20.9
    
    
    
    24.1
    
    
    
    20.8
 
 (1)
    
    Quarterly active paying accounts refers to the aggregate number of active paying accounts for our online games during a given quarter.(2)
    
    Average monthly revenues per active paying account refers to our online game revenues during a given quarter divided by quarterly active paying accounts, further divided by three.  60




---



##### Table of Contents



Cost of revenues.
 
 
 
 Gross profit.
 Operating expenses.
 
 
 
 Income from operations.
 Income before income tax expenses and equity in earning (loss) of affiliated companies.
  61




---



##### Table of Contents



Income tax expenses.
 Equity
in earning (loss) of affiliated companies.
 Net income attributable to non-controlling interest.
 Net income attributable to our company.
 Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 Net revenues.
  Cost of revenues.
 
  62




---



##### Table of Contents




 
 Gross profit.
 Operating expenses.
 
    
    Our product development expenses increased 75% from RMB136.4 million in 2007 to
RMB238.8 million (US$35.0 million) in 2008, primarily due to (i) the launch of a bonus
incentive plan at the end 2007 for our product development employees giving rise to an
increase of RMB61.4 million in salary and benefit, (ii) an increase of RMB23.2 million in
salary and benefits for Actozs employees due to Actoz becoming a consolidated entity
beginning in July 2007 and (iii) an increase of RMB18.4 million in outsourced product
development costs as a result of our investments through 18 Capital. Product development
expenses totaled approximately 5.9% and 7.1% of our net revenues in 2007 and 2008,
respectively.
 
    
    Our sales and marketing expenses increased 63% from RMB125.4 million in 2007 to
RMB204.5 million (US$29.9 million) in 2008, primarily due to an increase in the number of
prepaid cards sold resulting in an increase of the service fees we pay to Shengfutong. See Item 7, Major Shareholders and Related
Party Transactions  Related Party Transactions  Transactions and Agreements with Shanda Interactive.
Sales and marketing expenses totaled approximately
5.4% and 6.1% of our net revenues in 2007 and 2008, respectively.
 
    
    Our general and administrative expenses increased 64% from RMB175.2 million in 2007 to
RMB287.2 million (US$42.0 million) in 2008. This increase was primarily due to the following
factors: (i) an increase of RMB49.1 million in business tax due to the increased services
provided by Shengqu to the Shulong entities to support our online game operations, (ii) an
increase of RMB25.4 million in salary and benefits from salary and headcount increases and
(iii) an increase of RMB9.5 million in salary and benefits of Actozs employees as a result
of the consolidation of Actoz beginning in July 2007. General and administrative expenses
accounted for approximately 7.5% and 8.4% of our net revenues in 2007 and 2008,
respectively.
 Income from operations.
 Income before income tax expenses and equity in earning (loss) of affiliated companies.
 Income tax expenses.
 Equity in earning (loss) of affiliated companies.
 Net income attributable to non-controlling interest.
 Net income attributable to our company.
  63




---



##### Table of Contents



B. LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows and Working Capital
   Year Ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in millions)Net cash provided by operating activities
    
    
    672.7
    
    
    
    1,144.5
    
    
    
    2,010.5
    
    
    
    294.5Net cash used in investing activities
    
    
    (132.1
    )
    
    
    (144.2
    )
    
    
    (1,904.2
    )
    
    
    (279.0
    )Net cash used in financing activities
    
    
    (376.0
    )
    
    
    (748.3
    )
    
    
    1,050.5
    
    
    
    153.9Effect of exchange rate changes on cash
    
    
    (7.1
    )
    
    
    (16.7
    )
    
    
    13.5
    
    
    
    2.1Net increase in cash and cash equivalents
    
    
    157.5
    
    
    
    235.3
    
    
    
    1,170.3
    
    
    
    171.5Cash, beginning of the period
    
    
    236.1
    
    
    
    393.6
    
    
    
    628.9
    
    
    
    92.1Cash, end of the period
    
    
    393.6
    
    
    
    628.9
    
    
    
    1,799.2
    
    
    
    263.6
     64




---



##### Table of Contents



Capital Expenditures
   C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
   
    
    outsourcing and in-house development of updates, expansions and sequels of our existing
online game related content;
 
    
    sourcing new games via co-development, investment and in-house development;
  65




---



##### Table of Contents




    
    Improving, via internal and outsourcing research and development, our integrated
service platform, including our digital content delivery system, unified billing and
payment system, customer relationship management system, and user authentication system
and related security; and
 
    
    improving our server management and control systems.
  D. TREND INFORMATION
  E. OFF-BALANCE SHEET ARRANGEMENTS
  F. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
  Payments Due by PeriodTotal
    
    
    Less than 1 Year
    
    
    1-3 years
    
    
    More Than 3 Years(RMB in millions)Operating lease obligations:Office premises
    
    
    10.9
    
    
    
    6.8
    
    
    
    4.1
    
    
    
    Computer servers, software and equipment
    
    
    39.1
    
    
    
    32.4
    
    
    
    6.7
    
    
    
    Total contractual obligations
    
    
    50.0
    
    
    
    39.2
    
    
    
    10.8
    
    
    
    
     66




---



##### Table of Contents



Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. DIRECTORS AND SENIOR MANAGEMENT
  Name
    
    Age
    
    PositionQunzhao Tan(1)
    
    
    34
    
    
    Chairman of the Board of Directors and Chief Executive
OfficerTianqiao Chen(1)
    
    
    36
    
    
    DirectorDanian Chen(1)
    
    
    31
    
    
    DirectorLai Xing Cai(2)
    
    
    67
    
    
    Independent DirectorAndy Lin(2)
    
    
    36
    
    
    Independent DirectorHeng Wing Chan(2)
    
    
    63
    
    
    Independent DirectorHai Ling
    
    
    40
    
    
    PresidentRichard Wei
    
    
    47
    
    
    Chief Financial OfficerXiangdong Zhang
    
    
    34
    
    
    Chief ProducerJisheng Zhu
    
    
    37
    
    
    Chief Technology Officer and Acting Chief Operating OfficerThomas Yih
    
    
    36
    
    
    General Counsel
 (1)
    
    Member of the compensation committee.(2)
    
    Member of the audit committee. Qunzhao Tan
 Tianqiao Chen
 Danian Chen
 Lai Xing Cai
 Andy Lin
 Heng Wing Chan
 Hai Ling
  67




---



##### Table of Contents



Richard Wei
 Xiangdong Zhang
 Jisheng Zhu
 Thomas Yih
 Duties of Directors
   
    
    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;
 
    
    determining our debt and finance policies and proposals for the increase or decrease in
our registered capital and the issuance of debentures;
 
    
    formulating our major acquisition and disposition plans, and plans for merger, division
or dissolution;
 
    
    proposing amendments to our amended and restated memorandum and articles of
association; and
 
    
    exercising any other powers conferred by the shareholders meetings or under our amended and
restated memorandum and articles of association
 Terms of Directors and Executive Officers
   68




---



##### Table of Contents



B. COMPENSATION
  Equity Compensation Plans
    Number of Class AOrdinary Shares to be
    
    
    Exercise PriceIssued Upon Exercise of
    
    
    per Class A
    
    
    Date of
    

    Date ofName
    
    Options
    
    
    Ordinary Share
    
    
    Grant

    
    Expiration(in US$)Qunzhao Tan
    
    *
    
    
    3.40
    
    
    March 19, 2010
    
    March 19, 2020*(1)
    
    
    
    
    
    September 7, 2009
    
    September 7, 2019Tianqiao Chen
    
    
    
    
    
    
    
    
    
    Danian Chen
    
    *(1)
    
    
    
    
    
    September 7, 2009
    
    September 7, 2019Lai Xing Cai
    
    *(1)
    
    
    
    
    
    September 7, 2009
    
    September 7, 2019Andy Lin
    
    *(1)
    
    
    
    
    
    September 7, 2009
    
    September 7, 2019Heng Wing Chan
    
    
    
    
    
    
    
    
    
    Hai Ling
    
    *
    
    
    3.20
    
    
    November 14, 2008
    
    November 14, 2018Richard Wei
    
    *
    
    
    3.20
    
    
    April 1, 2009
    
    April 1, 2019Xiangdong Zhang
    
    *
    
    
    3.20
    
    
    November 14, 2008
    
    November 14, 2018Jisheng Zhu
    
    *
    
    
    3.20
    
    
    November 14, 2008
    
    November 14, 2018Thomas Yih
    
    *(1)
    
    
    
    
    
    September 7, 2009
    
    September 7, 2019
 
 *
    
    Upon exercise of all options granted, would beneficially own less than
1% of our outstanding ordinary shares.(1)
    
    Restricted shares C. BOARD PRACTICES
 Term and Severance Provisions of Directors and Executive Officers
   Board Committees
  Audit Committee.
  69




---



##### Table of Contents




    
    selecting independent auditors and pre-approving all auditing and non-auditing services
permitted to be performed by the independent auditors;
 
    
    setting clear hiring policies for employees or former employees of the independent
auditors;
 
    
    reviewing with the independent auditors any audit problems or difficulties and
managements response;
 
    
    reviewing and approving all proposed related-party transactions;
 
    
    discussing the annual audited financial statements with management and the independent
auditors;
 
    
    discussing with management and the independent auditors major issues regarding accounting
principles and financial statement presentations;
 
    
    reviewing reports prepared by management or the independent auditors relating to
significant financial reporting issues and judgments;
 
    
    reviewing with management and the independent auditors related-party transactions and
off-balance sheet transactions and structures;
 
    
    reviewing with management and the independent auditors the effect of regulatory and
accounting initiatives and actions;
 
    
    reviewing policies with respect to risk assessment and risk management;
 
    
    reviewing our disclosure controls and procedures and internal control over financial
reporting;
 
    
    timely reviewing reports from the independent auditors regarding all critical accounting
policies and practices to be used by our company, all alternative treatments of financial
information within GAAP that have been discussed with management and all other material
written communications between the independent auditors and management;
 
    
    establishing procedures for the receipt, retention and treatment of complaints received
from our employees regarding accounting, internal accounting controls or auditing matters
and the confidential, anonymous submission by our employees of concerns regarding
questionable accounting or auditing matters;
 
    
    annually reviewing and reassessing the adequacy of our audit committee charter;
 
    
    such other matters that are specifically delegated to our audit committee by our board of
directors from time to time; and
 
    
    meeting separately, periodically, with management, the internal auditors and the
independent auditors.
 Compensation Committee.
  
    
    making and reviewing recommendations to our board of directors regarding our compensation
policies and forms of compensation provided to our directors and officers;
 
    
    determining and reviewing bonuses for our officers and other employees;
 
    
    determining and reviewing stock-based compensation for our directors, officers, employees
and consultants;
 
    
    administering our equity incentive plans in accordance with the terms thereof; and
 
    
    such other matters that are specifically delegated to the compensation committee by our board of
directors from time to time.
  70




---



##### Table of Contents



D. EMPLOYEES
  Number of
    
    
    PercentageEmployees
    
    
    of TotalProduct development(1)
    
    
    1,517
    
    
    
    67.3
    %Sales and marketing
    
    
    184
    
    
    
    8.2
    %General and administration
    
    
    190
    
    
    
    8.4
    %Technical support and customer service
    
    
    363
    
    
    
    16.1
    %Total
    
    
    2,254
    
    
    
    100.0
    %
 
 (1)
    
    Includes game development personnel.  E. SHARE OWNERSHIP
  
 Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. MAJOR SHAREHOLDERS
  
    
    each person known to us to own beneficially more than 5% of our ordinary shares; and
 
    
    each of our directors and executive officers who beneficially own ordinary shares
within the meaning of Rule 13d-3 of the Exchange Act.
  Shares Beneficially OwnedPercentageofName
    
    Number
    
    
    TotalShanda Interactive Entertainment Limited(1)
    
    
    409,087,000
    
    
    
    71.0
    %Qunzhao Tan
    
    
    *
    
    
    
    *Tianqiao Chen
    
    
    
    
    
    
    Danian Chen
    
    
    *
    
    
    
    *Lai Xing Cai
    
    
    *
    
    
    
    *Andy Lin
    
    
    *
    
    
    
    *Heng Wing Chan
    
    
    
    
    
    
    Hai Ling
    
    
    *
    
    
    
    *Richard Wei
    
    
    *
    
    
    
    *Xiangdong Zhang
    
    
    *
    
    
    
    *Jisheng Zhu
    
    
    *
    
    
    
    *Thomas Yih
    
    
    *
    
    
    
    *
 
 *
    
    Upon exercise of all options currently exercisable or vesting within 60 days of the date of
this table, would beneficially own less than 1% of our ordinary shares.(1)
    
    Consists of 409,087,000 Class B ordinary shares held by Shanda SDG Investment
Limited, a British Virgin Islands corporation and a direct wholly-owned subsidiary of Shanda
Interactive Entertainment Limited. Shanda Interactive Entertainment Limited is a publicly
listed company whose ADSs trade on the Nasdaq Global Market under the symbol SNDA. Shanda
SDG Investment Limiteds address is No. 208 Juli Road, Pudong New Area, Shanghai 201203,
Peoples Republic of China.  71




---



##### Table of Contents



B. RELATED PARTY TRANSACTIONS
 Contractual Arrangements with Shanghai Shulong and Its Shareholders
  Transactions and Agreements with Shanda Interactive
   Master Separation Agreement
  Contribution and Transfer.
 Indemnification.
 Liability Release.
 No Representations or Warranties.
 New VIE Agreements and New Game Licensing Agreements.
   72




---



##### Table of Contents



Amended and Restated Non-Compete and Non-Solicitation Agreement
   Amended and Restated Cooperation Agreement
    Amended and Restated Sales Agency Agreement
     73




---



##### Table of Contents



Domain Names and Trademarks License Agreement
  Deferred Revenues Transfer Agreement
   Lease of Office Facilities
  Transfer of Actoz
  Payment of Dividend
  Other Related Party Transactions
 Game License Agreement
 Others.
   74




---



##### Table of Contents



Item 8. FINANCIAL INFORMATION
 A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
 Consolidated Financial Statements
  Legal Proceedings
  Dividend Policy
    B. SIGNIFICANT CHANGES
       
 Item 9. THE OFFER AND LISTING
 A. OFFER AND LISTING DETAILS
 Price Range of American Depositary Shares
   Market Price(US$)High
    
    
    LowYearly high and lowsYear 2009 (from September 25, 2009)
    
    $
    11.70
    
    
    $
    8.79Quarterly highs and lows:Third quarter 2009 (from September 25, 2009)
    
    $
    11.70
    
    
    $
    10.75Fourth quarter 2009
    
    $
    11.40
    
    
    $
    8.79First quarter 2010
    
    $
    10.90
    
    
    $
    6.41Second quarter 2010 (through April 28)
    
    $
    7.53
    
    
    $
    6.98Monthly highs and lows:October 2009
    
    $
    11.26
    
    
    $
    8.79November 2009
    
    $
    11.40
    
    
    $
    9.96December 2009
    
    $
    10.73
    
    
    $
    9.31January 2010
    
    $
    10.90
    
    
    $
    8.50February 2010
    
    $
    8.95
    
    
    $
    8.22March 2010
    
    $
    7.42
    
    
    $
    6.41April 2010 (through April 28)
    
    $
    7.53
    
    
    $
    6.98
  75




---



##### Table of Contents



B. PLAN OF DISTRIBUTION
  C. MARKETS
  D. SELLING SHAREHOLDER
  E. DILUTION
  F. EXPENSES OF THE ISSUE
  
 Item 10. ADDITIONAL INFORMATION
 A. SHARE CAPITAL
  B. MEMORANDUM AND ARTICLES OF ASSOCIATION
  C. MATERIAL CONTRACTS
  D. EXCHANGE CONTROLS
   76




---



##### Table of Contents



E. TAXATION
 The following is a general summary of certain Cayman Islands, the Peoples Republic of China
and U.S. federal income tax considerations relevant to holders of our Class A ordinary shares or
ADSs. The discussion is not intended to be, nor should it be construed as, legal or tax advice to
any prospective holder of our Class A ordinary shares or ADSs. The discussion is based on laws and
relevant interpretations thereof in effect as of the date hereof, all of which are subject to
change or different interpretations, possibly with retroactive effect. The discussion does not
address U.S. state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands,
the Peoples Republic of China and the United States.
 Cayman Islands Taxation
  Peoples Republic of China Taxation
 PRC taxation of us and our corporate group
    77




---



##### Table of Contents



PRC taxation of our overseas shareholders
  United States Federal Income Tax Considerations
  
 
 
 
 
 
 
 
 
    
 
 
   78




---



##### Table of Contents



Taxation of Distributions. pro rata
   Sale or Other Disposition of Ordinary Shares or ADSs.
  Passive Foreign Investment Company Rules.
  79




---



##### Table of Contents



de minimis
       80




---



##### Table of Contents



Information Reporting and Backup Withholding.
  F. DIVIDENDS AND PAYING AGENTS
  G. STATEMENTS BY EXPERTS
  H. DOCUMENTS ON DISPLAY
     I. SUBSIDIARY INFORMATION
  
 Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
   81




---



##### Table of Contents



Foreign Currency Risk
   
 Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  Service
    
    FeeIssuance or delivery of an ADR, including
issuances against deposit of shares, issuances
in respect of distributions, rights or other
distributions, surrendering of an ADR for
delivery of a Class A ordinary share,
cancellation of an ADR, including issuance,
delivery, surrendering or cancellation in
connection with share distributions, stock
splits, rights and mergers.
    
    US$5.00 for each 100 ADRs (or portion thereof), to
be paid to the depositary.Any cash distribution (other than cash dividend).
    
    Up to $0.05 per ADS.Depositary services
    
    $0.02 per ADS.A fee equivalent to the fee that would have been
payable if securities distributed to you had
been shares and the shares had been deposited
for issuance of ADSs
    
    Distribution of securities distributed to holders of
deposited securities which are distributed by the
depositary to ADS holdersRegistration or transfer fees
    
    Transfer and registration of shares on our share
register to or from the name of the depositary or its
agent when you deposit or withdraw sharesExpenses of the depositary
    
    Cable, telex and facsimile transmissions
Converting foreign currency to U.S. dollars
  
 PART II
 
 Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 A.  D. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
  E. USE OF PROCEEDS
   82




---



##### Table of Contents



Item 15. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
  Changes in Internal Control over Financial Reporting
  
 Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
   
 Item 16B. CODE OF ETHICS
  
 Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  For the year ended December 31,2008
    
    
    2009RMB
    
    
    RMB
    
    
    US$(in thousands)Audit fees(1)
    
    
    
    
    
    
    11,540
    
    
    
    1,690Total
    
    
    
    
    
    
    11,540
    
    
    
    1,690
 (1)
    
    Audit fees means the aggregate fees in each of the fiscal years listed for
professional services rendered by our principal auditors for the audit of our annual consolidated
financial statements or services that are normally provided by the auditors in connection with
statutory and regulatory filings or engagements. Services comprising the fees disclosed under this
category also involve principally limited reviews performed on our consolidated financial
statements and the audits of the annual financial statements of our subsidiaries and affiliated
companies. 
 Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
   83




---



##### Table of Contents



Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 Item 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
  
 Item 16G. CORPORATE GOVERNANCE
  
    
    that a majority of our board of directors consist of independent directors;
 
    
    that we have a corporate governance and nominating committee that is composed entirely of
independent directors with a written charter addressing the committees purpose and
responsibilities;
 
    
    that we have a compensation committee that is composed entirely of independent directors
with a written charter addressing the committees purpose and responsibilities; and
 
    
    for an annual performance evaluation of the nominating and governance committee and the
compensation committee.
  
 PART III
 
 Item 17. FINANCIAL STATEMENTS
  
 Item 18. FINANCIAL STATEMENTS
   84




---



##### Table of Contents



Item 19. EXHIBITS
 Number
    
    Description1.1
    
    
    Amended and Restated Memorandum and Articles of Association of
Shanda Games Limited (incorporated by reference to Exhibit 3.1 to
our Registration Statement on Form F-1 (file no. 333-161708) filed
with the Securities and Exchange Commission on September 30, 2009).2.1
    
    
    Specimen Certificate for Class A Ordinary Shares (incorporated by
reference to Exhibit 4.1 to our Registration Statement on Form F-1
(file no. 333-161708) filed with the Securities and Exchange
Commission on September 3, 2009).2.2
    
    
    Specimen of American Depositary Receipt (incorporated by reference
to Exhibit A to Exhibit 1 to our Registration Statement on Form F-6
(file no. 333-161901) filed with the Securities and Exchange
Commission on September 14, 2009).2.3
    
    
    Form of Deposit Agreement (incorporated by reference to Exhibit 1
to the Form F-6 (file no. 333-161901) filed with the Securities and
Exchange Commission on September 14, 2009).4.1
    
    
    Amended and Restated 2008 Equity Compensation Plan (incorporated by
references to Exhibit 10.1 to our Registration Statement on Form
F-1 (file no. 333-161708) filed with the Securities and Exchange
Commission on September 3, 2009).4.2
    
    
    Form of Indemnification Agreement with the Registrants directors
and officers (incorporated by references to Exhibit 10.2 to our
Registration Statement on Form F-1 (file no. 333-161708) filed with
the Securities and Exchange Commission on September 3, 2009).4.3
    
    
    Form of Employment Agreement (incorporated by references to Exhibit
10.3 to our Registration Statement on Form F-1 (file no.
333-161708) filed with the Securities and Exchange Commission on
September 3, 2009).4.4
    
    
    Master Separation Agreement between Shanda Interactive
Entertainment Limited and Shanda Games Limited dated July 1, 2008
(incorporated by references to Exhibit 10.4 to our Registration
Statement on Form F-1 (file no. 333-161708) filed with the
Securities and Exchange Commission on September 3, 2009).4.5
    
    
    English translation of Amended and Restated Cooperation Agreement
among Shanghai Shanda Networking Co., Ltd., Nanjing Shanda
Networking Co., Ltd., Shanghai Shulong Technology Development Co.,
Ltd., Nanjing Shulong Computer Technology Co., Ltd. and Shanghai
Shulong Computer Technology Co., Ltd. dated September 10, 2009
(incorporated by references to Exhibit 10.5 to Amendment No. 1 to
our Registration Statement on Form F-1 (file no. 333-161708) filed
with the Securities and Exchange Commission on September 14, 2009).4.6
    
    
    English translation of Domain Names and Trademarks License
Agreement between Shanda Computer (Shanghai) Co., Ltd. and Shengqu
Information Technology (Shanghai) Co., Ltd. dated July 1, 2008
(incorporated by references to Exhibit 10.6 to our Registration
Statement on Form F-1 (file no. 333-161708) filed with the
Securities and Exchange Commission on September 3, 2009).4.7
    
    
    Amended and Restated Non-Compete and Non-Solicitation Agreement
between Shanda Interactive Entertainment Limited and Shanda Games
Limited dated September 10, 2009 (incorporated by references to
Exhibit 10.7 to Amendment No. 1 to our Registration Statement on
Form F-1 (file no. 333-161708) filed with the Securities and
Exchange Commission on September 14, 2009).4.8
    
    
    English translation of Amended and Restated Sales Agency Agreement
among Shanghai Shengfutong Electronic Commerce Co., Ltd., Shanghai
Shulong Technology Development Co., Ltd., Nanjing Shulong Computer
Technology Development Co., Ltd. and Shanghai Shulong Computer
Technology Development Co., Ltd. dated September 10, 2009
(incorporated by references to Exhibit 10.7 to Amendment No. 1 to
our Registration Statement on Form F-1 (file no. 333-161708) filed
with the Securities and Exchange Commission on September 14, 2009).4.9
    
    
    English translation of Framework Agreement on Disposition of Shanda
Point Cards Inventories among Shanghai Shengfutong Electronic
Commerce Co., Ltd., Shanghai Shanda Networking Co., Ltd., Nanjing
Shanda Networking Development Co., Ltd., Hangzhou Bianfeng
Networking Technology Co., Ltd., Shanghai Shulong Technology Co.,
Ltd., Nanjing Shulong Computer Technology Co., Ltd. and Shanghai
Shulong Computer Technology Co., Ltd. dated July 1, 2008
(incorporated by references to Exhibit 10.9 to our Registration
Statement on Form F-1 (file no. 333-161708) filed with the
Securities and Exchange Commission on September 3, 2009).4.10
    
    
    English translation of Share Entrustment Agreement among Dongxu
Wang, Yingfeng Zhang and Shengqu Information Technology (Shanghai)
Co., Ltd. dated July 1, 2008 (incorporated by references to Exhibit
10.10 to our Registration Statement on Form F-1 (file no.
333-161708) filed with the Securities and Exchange Commission on
September 3, 2009).
  85




---



##### Table of Contents



Number
    
    Description4.11
    
    
    English translation of Share Pledge Agreement among Dongxu Wang,
Yingfeng Zhang and Shengqu Information Technology (Shanghai) Co.,
Ltd. dated July 1, 2008 (incorporated by references to Exhibit
10.11 to our Registration Statement on Form F-1 (file no.
333-161708) filed with the Securities and Exchange Commission on
September 3, 2009).4.12
    
    
    English translation of Power of Attorney to Business Operating
Agreement executed by Dongxu Wang in favor of Shengqu Information
Technology (Shanghai) Co., Ltd. dated July 1, 2008 (incorporated by
references to Exhibit 10.12 to our Registration Statement on Form
F-1 (file no. 333-161708) filed with the Securities and Exchange
Commission on September 3, 2009).4.13
    
    
    English translation of Power of Attorney to Business Operating
Agreement executed by Yingfeng Zhang in favor of Shengqu
Information Technology (Shanghai) Co., Ltd. dated July 1, 2008
(incorporated by references to Exhibit 10.13 to our Registration
Statement on Form F-1 (file no. 333-161708) filed with the
Securities and Exchange Commission on September 3, 2009).4.14
    
    
    English translation of Share Disposition Agreement among Dongxu
Wang, Yingfeng Zhang, Shengqu Information Technology (Shanghai)
Co., Ltd. and Shanghai Shulong Technology Development Co., Ltd.
dated July 1, 2008 (incorporated by references to Exhibit 10.14 to
our Registration Statement on Form F-1 (file no. 333-161708) filed
with the Securities and Exchange Commission on September 3, 2009).4.15
    
    
    English translation of Business Operation Agreement among Dongxu
Wang, Yingfeng Zhang, Shengqu Information Technology (Shanghai)
Co., Ltd. and Shanghai Shulong Technology Development Co., Ltd.
dated July 1, 2008 (incorporated by references to Exhibit 10.15 to
our Registration Statement on Form F-1 (file no. 333-161708) filed
with the Securities and Exchange Commission on September 3, 2009).4.16
    
    
    English translation of Exclusive Consulting and Service Agreement
between Shengqu Information Technology (Shanghai) Co., Ltd. and
Shanghai Shulong Technology Development Co., Ltd. dated July 1,
2008 (incorporated by references to Exhibit 10.16 to our
Registration Statement on Form F-1 (file no. 333-161708) filed with
the Securities and Exchange Commission on September 3, 2009).
  86




---



##### Table of Contents



Number
    
    Description4.17
    
    
    English translation of Loan Agreement between Shengqu Information
Technology (Shanghai) Co., Ltd. and Dongxu Wang dated July 1, 2008
(incorporated by references to Exhibit 10.17 to our Registration
Statement on Form F-1 (file no. 333-161708) filed with the
Securities and Exchange Commission on September 3, 2009).4.18
    
    
    English translation of Loan Agreement between Shengqu Information
Technology (Shanghai) Co., Ltd. and Yingfeng Zhang dated July 1,
2008 (incorporated by references to Exhibit 10.18 to our
Registration Statement on Form F-1 (file no. 333-161708) filed with
the Securities and Exchange Commission on September 3, 2009).4.19
    
    
    Mir II License Agreement among Actoz Soft Co., Ltd., Shanghai
Shanda Internet Development Co., Ltd. and Shanghai Pudong New Area
Imp. & Exp. Corp. dated June 29, 2001 (incorporated by references
to Exhibit 10.19 to our Registration Statement on Form F-1 (file
no. 333-161708) filed with the Securities and Exchange Commission
on September 3, 2009).4.20
    
    
    Mir II Amendment Agreement among Actoz Soft Co., Ltd., Shanghai
Shanda Internet Development Co., Ltd., and Shanghai Pudong Imp. &
Exp. Co., Ltd. dated August 19, 2003 (incorporated by references to
Exhibit 10.20 to our Registration Statement on Form F-1 (file no.
333-161708) filed with the Securities and Exchange Commission on
September 3, 2009)4.21
    
    
    Mir II Extension Agreement among Actoz Soft Co., Ltd., Shanghai
Shanda Internet Networking Co., Ltd. and Shanghai Pudong Imp. &
Exp. Co., Ltd. dated September 22, 2005 (incorporated by references
to Exhibit 10.21 to Amendment No. 1 to our Registration Statement
on Form F-1 (file no. 333-161708) filed with the Securities and
Exchange Commission on September 14, 2009).4.22
    
    
    Mir II Extension Agreement among Actoz Soft Co., Ltd., Shengqu
Information Technology (Shanghai) Co., Ltd. and Shanghai Pudong IMP
& EXP Co., Ltd. dated November 26, 2008 (incorporated by references
to Exhibit 10.22 to Amendment No. 1 to our Registration Statement
on Form F-1 (file no. 333-161708) filed with the Securities and
Exchange Commission on September 14, 2009)4.23
    
    
    Assignment Agreement of Mir II among Actoz Soft Co., Ltd, Shanghai
Shanda Internet Development Co., Ltd. and Shengqu Information
Technology (Shanghai) Co., Ltd. dated July 1, 2008 (incorporated by
references to Exhibit 10.22 to our Registration Statement on Form
F-1 (file no. 333-161708) filed with the Securities and Exchange
Commission on September 3, 2009)4.24
    
    
    Share Purchase Agreement between Shanda Interactive Entertainment
Limited and Shanda Games Korean Investment Limited dated May 2009
(incorporated by references to Exhibit 10.23 to our Registration
Statement on Form F-1 (file no. 333-161708) filed with the
Securities and Exchange Commission on September 3, 2009)8.1
    *
    
    List of Subsidiaries11.1
    
    
    Code of Ethics (incorporated by references to Exhibit 99.11 to our
Registration Statement on Form F-1 (file no. 333-161708) filed with
the Securities and Exchange Commission on September 3, 2009).12.1
    *
    
    Certification of Chief Executive Officer Required by Rule 13a-14(a).12.2
    *
    
    Certification of Chief Financial Officer Required by Rule 13a-14(a).13.1
    *
    
    Certification of Chief Executive Officer Required by Rule
13(a)-14(b) and Section 1350 of Chapter 63 of Title 18 of the
United States Code.13.2
    *
    
    Certification of Chief Financial Officer Required by Rule
13(a)-14(b) and Section 1350 of Chapter 63 of Title 18 of the
United States Code.15.1
    *
    
    Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company15.2
    *
    
    Consent of Jade & Fountain PRC Lawyers
 *
    
    filed herewith  87




---



##### Table of Contents



SIGNATURE
  SHANDA GAMES LIMITEDBy:
    /s/ Qunzhao TanName:
    Qunzhao TanTitle:
    Chairman and Chief Executive Officer   88




---



##### 



PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2007, 2008 and 2009
    
    
    F-3Consolidated Balance Sheets as of December 31, 2008 and 2009
    
    
    F-4Consolidated Statements of Changes in Shareholders Equity for the Years Ended December 31, 2007, 2008 and 2009
    
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2008 and 2009
    
    
    F-6Notes to the Consolidated Financial Statements for the Years Ended December 31, 2007, 2008 and 2009
    
    
    F-7
   F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF  SHANDA GAMES LIMITED:
   
  F-2




---



##### Table of Contents



SHANDA GAMES LIMITED
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 (Amounts expressed in thousands, except share and per share data and where otherwise stated)
 For the Years Ended December 31,Notes
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$ (Note 2(5))Net revenues:
    
    2(18)MMORPG revenues
    
    
    
    
    2,016,111
    
    
    
    2,987,823
    
    
    
    4,476,699
    
    
    
    655,840Advanced casual game revenues
    
    
    
    
    280,356
    
    
    
    358,891
    
    
    
    310,449
    
    
    
    45,481Other revenues
    
    
    
    
    26,331
    
    
    
    30,042
    
    
    
    19,557
    
    
    
    2,865Total net revenues
    
    
    
    
    2,322,798
    
    
    
    3,376,756
    
    
    
    4,806,705
    
    
    
    704,186Cost of revenuesThird parties
    
    2(21)
    
    
    (491,995
    )
    
    
    (768,241
    )
    
    
    (1,049,281
    )
    
    
    (153,721
    )Related parties
    
    2(21),18
    
    
    (769,145
    )
    
    
    (721,119
    )
    
    
    (884,193
    )
    
    
    (129,535
    )Total cost of revenues
    
    
    
    
    (1,261,140
    )
    
    
    (1,489,360
    )
    
    
    (1,933,474
    )
    
    
    (283,256
    )Gross profit
    
    
    
    
    1,061,658
    
    
    
    1,887,396
    
    
    
    2,873,231
    
    
    
    420,930Operating expenses:Product development
    
    2(23)
    
    
    (136,355
    )
    
    
    (238,786
    )
    
    
    (339,754
    )
    
    
    (49,774
    )Sales and marketingThird parties
    
    2(24)
    
    
    (125,426
    )
    
    
    (124,484
    )
    
    
    (206,739
    )
    
    
    (30,287
    )Related parties
    
    2(24),18
    
    
    
    
    
    
    (80,057
    )
    
    
    (226,239
    )
    
    
    (33,144
    )General and administrative
    
    2(22)
    
    
    (175,177
    )
    
    
    (287,224
    )
    
    
    (366,136
    )
    
    
    (53,639
    )Total operating expenses
    
    
    
    
    (436,958
    )
    
    
    (730,551
    )
    
    
    (1,138,868
    )
    
    
    (166,844
    )Income from operations
    
    
    
    
    624,700
    
    
    
    1,156,845
    
    
    
    1,734,363
    
    
    
    254,086Interest income
    
    
    
    
    26,224
    
    
    
    33,436
    
    
    
    26,262
    
    
    
    3,847Investment income
    
    
    
    
    32
    
    
    
    
    
    
    
    214
    
    
    
    31Other income, net
    
    5
    
    
    28,711
    
    
    
    6,118
    
    
    
    169,444
    
    
    
    24,824Income before income tax expenses and equity in earning (loss) of
affiliated companies
    
    
    
    
    679,667
    
    
    
    1,196,399
    
    
    
    1,930,283
    
    
    
    282,788Income tax expenses
    
    6
    
    
    (67,072
    )
    
    
    (249,909
    )
    
    
    (428,676
    )
    
    
    (62,801
    )Equity in earning (loss) of affiliated companies
    
    10
    
    
    (13,554
    )
    
    
    918
    
    
    
    (30,071
    )
    
    
    (4,405
    )Net income
    
    
    
    
    599,041
    
    
    
    947,408
    
    
    
    1,471,536
    
    
    
    215,582Less: Net income attributable to non-controlling interest
    
    
    
    
    (7,141
    )
    
    
    (11,924
    )
    
    
    (18,564
    )
    
    
    (2,720
    )Net income attributable to Shanda Games Limited
    
    
    
    
    591,900
    
    
    
    935,484
    
    
    
    1,452,972
    
    
    
    212,862Net income
    
    
    
    
    599,041
    
    
    
    947,408
    
    
    
    1,471,536
    
    
    
    215,582Other comprehensive income:Unrealized gain of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    6,389
    
    
    
    936Currency translation adjustments of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    27Currency translation adjustments of an affiliated company/a subsidiary
    
    2(4)
    
    
    (26,374
    )
    
    
    (144,702
    )
    
    
    42,642
    
    
    
    6,247Comprehensive income
    
    
    
    
    572,667
    
    
    
    802,706
    
    
    
    1,520,750
    
    
    
    222,792Comprehensive (income)/loss attributable to non-controlling interest
    
    
    
    
    4,755
    
    
    
    60,282
    
    
    
    (39,569
    )
    
    
    (5,797
    )Comprehensive income attributable to Shanda Games Limited
    
    
    
    
    577,422
    
    
    
    862,988
    
    
    
    1,481,181
    
    
    
    216,995Earnings per ordinary share
    
    2(30),7Basic
    
    
    
    
    1.08
    
    
    
    1.70
    
    
    
    2.61
    
    
    
    0.38Diluted
    
    
    
    
    1.08
    
    
    
    1.70
    
    
    
    2.60
    
    
    
    0.38Weighted average ordinary shares used in per share calculation
    
    7Basic
    
    
    
    
    550,000,000
    
    
    
    550,000,000
    
    
    
    556,575,353
    
    
    
    556,575,353Diluted
    
    
    
    
    550,000,000
    
    
    
    550,000,000
    
    
    
    559,600,871
    
    
    
    559,600,871Share-based compensation included in:
    
    2(25), 16Cost of revenue
    
    
    
    
    (266
    )
    
    
    (858
    )
    
    
    (1,175
    )
    
    
    (172
    )Product development
    
    
    
    
    (842
    )
    
    
    (1,866
    )
    
    
    (2,113
    )
    
    
    (310
    )Sales and marketing
    
    
    
    
    
    
    
    
    (1,001
    )
    
    
    (948
    )
    
    
    (139
    )General and administrative
    
    
    
    
    (16,387
    )
    
    
    (17,065
    )
    
    
    (121,575
    )
    
    
    (17,810
    )
   F-3




---



##### Table of Contents



SHANDA GAMES LIMITED
 
 CONSOLIDATED BALANCE SHEETS
 (Amounts expressed in thousands, except share and per share data)
 Notes
    
    December 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2009RMB
    
    
    RMB
    
    
    US$ (Note 2(5))ASSETSCurrent assets:Cash and cash equivalents
    
    2(6),8
    
    
    628,891
    
    
    
    1,799,151
    
    
    
    263,577Restricted cash
    
    2(7)
    
    
    
    
    
    
    54,471
    
    
    
    7,980Short-term investments
    
    2(8)
    
    
    234,578
    
    
    
    757,955
    
    
    
    111,041Marketable securities
    
    2(9)
    
    
    2,830
    
    
    
    9,219
    
    
    
    1,351Accounts receivable, net of allowance for doubtful accounts
    
    2(10),9
    
    
    7,285
    
    
    
    18,503
    
    
    
    2,711Accounts receivable due from related parties
    
    18
    
    
    433,303
    
    
    
    405,932
    
    
    
    59,469Deferred licensing fees and related costs
    
    2(20)
    
    
    51,310
    
    
    
    53,550
    
    
    
    7,845Prepayments and other current assets
    
    
    
    
    48,829
    
    
    
    112,794
    
    
    
    16,525Other receivables due from related parties
    
    18
    
    
    105,269
    
    
    
    6,184
    
    
    
    906Deferred tax assets
    
    6
    
    
    70,398
    
    
    
    79,575
    
    
    
    11,658Total current assets
    
    
    
    
    1,582,693
    
    
    
    3,297,334
    
    
    
    483,063Investment in affiliated companies
    
    2(11),10
    
    
    23,521
    
    
    
    8,703
    
    
    
    1,275Property and equipment
    
    2(12),11
    
    
    92,985
    
    
    
    139,834
    
    
    
    20,486Intangible assets
    
    2(13),12
    
    
    409,010
    
    
    
    517,248
    
    
    
    75,777Goodwill
    
    2(14),13
    
    
    116,543
    
    
    
    170,075
    
    
    
    24,916Long-term rental deposits
    
    
    
    
    50,423
    
    
    
    64,759
    
    
    
    9,487Other long term assets
    
    2(15)
    
    
    134,210
    
    
    
    113,400
    
    
    
    16,613Non-current deferred tax assets
    
    6
    
    
    34,727
    
    
    
    16,091
    
    
    
    2,357Total assets
    
    
    
    
    2,444,112
    
    
    
    4,327,444
    
    
    
    633,974LIABILITIESCurrent liabilities:Short-term borrowings
    
    
    
    
    
    
    
    
    15,000
    
    
    
    2,198Accounts payable
    
    
    
    
    19,773
    
    
    
    27,315
    
    
    
    4,002Accounts payable due to related parties
    
    18
    
    
    75,414
    
    
    
    70,770
    
    
    
    10,368Licensing fees payable
    
    
    
    
    203,156
    
    
    
    224,497
    
    
    
    32,889Taxes payable
    
    
    
    
    87,980
    
    
    
    142,536
    
    
    
    20,882Deferred revenue
    
    2(19)
    
    
    329,688
    
    
    
    250,934
    
    
    
    36,762Other payables and accruals
    
    14
    
    
    155,363
    
    
    
    433,442
    
    
    
    63,500Other payables due to related parties
    
    18
    
    
    262,673
    
    
    
    19,937
    
    
    
    2,921Deferred tax liabilities
    
    6
    
    
    43,906
    
    
    
    76,589
    
    
    
    11,220Total current liabilities
    
    
    
    
    1,177,953
    
    
    
    1,261,020
    
    
    
    184,742Long-term liabilities
    
    
    
    
    
    
    
    
    6,090
    
    
    
    892Non-current deferred tax liabilities
    
    6
    
    
    28,520
    
    
    
    31,244
    
    
    
    4,577Non-current deferred revenue
    
    2(19)
    
    
    1,724
    
    
    
    3,546
    
    
    
    519Total liabilities
    
    
    
    
    1,208,197
    
    
    
    1,301,900
    
    
    
    190,730Commitments and contingencies
    
    21
    
    
    
    
    
    
    
    
    
    
    EquityClass A ordinary shares (US$0.01 par value, 16,000,000,000
shares authorized, nil and 167,000,000 issued and
outstanding as of December 31, 2008 and 2009)
    
    15
    
    
    
    
    
    
    1,782
    
    
    
    261Class B ordinary shares (US$0.01 par value, 4,000,000,000
shares authorized, 550,000,000 and 409,087,000 issued and
outstanding as of December 31, 2008 and 2009)
    
    15
    
    
    40,193
    
    
    
    40,193
    
    
    
    5,888Additional paid-in capital
    
    
    
    
    477,250
    
    
    
    1,229,189
    
    
    
    180,077Statutory reserves
    
    2(28)
    
    
    113,869
    
    
    
    127,034
    
    
    
    18,611Accumulated other comprehensive loss
    
    
    
    
    (86,974
    )
    
    
    (58,765
    )
    
    
    (8,609
    )Retained earnings
    
    
    
    
    552,644
    
    
    
    1,480,225
    
    
    
    216,854Total Shanda Games Limited shareholders equity
    
    
    
    
    1,096,982
    
    
    
    2,819,658
    
    
    
    413,082Non-controlling interests
    
    
    
    
    138,933
    
    
    
    205,886
    
    
    
    30,162Total equity
    
    
    
    
    1,235,915
    
    
    
    3,025,544
    
    
    
    443,244Total liabilities and equity
    
    
    
    
    2,444,112
    
    
    
    4,327,444
    
    
    
    633,974
   F-4




---



##### Table of Contents



SHANDA GAMES LIMITED
 
 CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 (Amounts expressed in thousands, except share data)
 Total ShandaOrdinary Share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Games Limited(US$0.01 Par Value)
    
    
    Additional
    
    
    Statutory
    
    
    Accumulated Other
    
    
    Retained
    
    
    Shareholders
    
    
    Non-controllingNumber of Shares
    
    
    Par Value
    
    
    Paid-in Capital
    
    
    Reserves
    
    
    Comprehensive Loss
    
    
    Earnings
    
    
    Equity
    
    

interests
    
    
    Total  EquityRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBBalance as of January 1, 2007
    
    
    550,000,000
    
    
    
    40,193
    
    
    
    288,662
    
    
    
    110,341
    
    
    
    
    
    
    
    1,222,414
    
    
    
    1,661,610
    
    
    
    
    
    
    
    1,661,610Contribution from Shanda (Note 15)
    
    
    
    
    
    
    
    
    
    
    400,298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,298
    
    
    
    
    
    
    
    400,298Non-controlling interest arising from business combination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    217,659
    
    
    
    217,659Corporate expense allocation (Note 2(1))
    
    
    
    
    
    
    
    
    
    
    37,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,592
    
    
    
    
    
    
    
    37,592Share-based compensation (Note 16)
    
    
    
    
    
    
    
    
    
    
    15,053
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,053
    
    
    
    2,345
    
    
    
    17,398Cumulative currency translation adjustments of an
affiliated company/a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,478
    )
    
    
    
    
    
    
    (14,478
    )
    
    
    (11,896
    )
    
    
    (26,374
    )Distribution to Shanda
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,690,806
    )
    
    
    (1,690,806
    )
    
    
    
    
    
    
    (1,690,806
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    591,900
    
    
    
    591,900
    
    
    
    7,141
    
    
    
    599,041Balance as of December 31, 2007
    
    
    550,000,000
    
    
    
    40,193
    
    
    
    741,605
    
    
    
    110,341
    
    
    
    (14,478
    )
    
    
    123,508
    
    
    
    1,001,169
    
    
    
    215,249
    
    
    
    1,216,418Contribution from Shanda (Note 15)
    
    
    
    
    
    
    
    
    
    
    21,917
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,917
    
    
    
    (11,127
    )
    
    
    10,790Corporate expense allocation (Note 2(1))
    
    
    
    
    
    
    
    
    
    
    31,346
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,346
    
    
    
    
    
    
    
    31,346Share-based compensation (Note 16)
    
    
    
    
    
    
    
    
    
    
    17,622
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,622
    
    
    
    3,169
    
    
    
    20,791Cumulative currency translation adjustments of an
affiliated company/a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72,496
    )
    
    
    
    
    
    
    (72,496
    )
    
    
    (72,206
    )
    
    
    (144,702
    )Equity pick-up of the equity movement in an affiliated
company of a subsidiary
    
    
    
    
    
    
    
    
    
    
    842
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    842
    
    
    
    839
    
    
    
    1,681Repurchase of own shares by a subsidiary
    
    
    
    
    
    
    
    
    
    
    (8,951
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,951
    )
    
    
    (8,915
    )
    
    
    (17,866
    )Appropriations to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,528
    
    
    
    
    
    
    
    (3,528
    )
    
    
    
    
    
    
    
    
    
    
    Distribution to Shanda
    
    
    
    
    
    
    
    
    
    
    (327,131
    )
    
    
    
    
    
    
    
    
    
    
    (502,820
    )
    
    
    (829,951
    )
    
    
    
    
    
    
    (829,951
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    935,484
    
    
    
    935,484
    
    
    
    11,924
    
    
    
    947,408Balance as of December 31, 2008
    
    
    550,000,000
    
    
    
    40,193
    
    
    
    477,250
    
    
    
    113,869
    
    
    
    (86,974
    )
    
    
    552,644
    
    
    
    1,096,982
    
    
    
    138,933
    
    
    
    1,235,915Issuance of ordinary shares upon initial public offering
    
    
    26,087,000
    
    
    
    1,782
    
    
    
    1,039,371
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,041,153
    
    
    
    
    
    
    
    1,041,153Corporate expense allocation (Note 2(1))
    
    
    
    
    
    
    
    
    
    
    14,351
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,351
    
    
    
    
    
    
    
    14,351Share-based compensation (Note 16)
    
    
    
    
    
    
    
    
    
    
    112,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,450
    
    
    
    13,361
    
    
    
    125,811Exercise of share option of a foreign subsidary
    
    
    
    
    
    
    
    
    
    
    1,932
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,932
    
    
    
    14,023
    
    
    
    15,955Cumulative currency translation adjustments of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    
    
    
    
    183
    
    
    
    
    
    
    
    183Cumulative currency translation adjustments of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,637
    
    
    
    
    
    
    
    21,637
    
    
    
    21,005
    
    
    
    42,642Unrealized gain of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,389
    
    
    
    
    
    
    
    6,389
    
    
    
    
    
    
    
    6,389Appropriations to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,165
    
    
    
    
    
    
    
    (13,165
    )
    
    
    
    
    
    
    
    
    
    
    Distribution to Shanda
    
    
    
    
    
    
    
    
    
    
    (416,165
    )
    
    
    
    
    
    
    
    
    
    
    (512,226
    )
    
    
    (928,391
    )
    
    
    
    
    
    
    (928,391
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,452,972
    
    
    
    1,452,972
    
    
    
    18,564
    
    
    
    1,471,536Balance as of December 31, 2009
    
    
    576,087,000
    
    
    
    41,975
    
    
    
    1,229,189
    
    
    
    127,034
    
    
    
    (58,765
    )
    
    
    1,480,225
    
    
    
    2,819,658
    
    
    
    205,886
    
    
    
    3,025,544
   F-5




---



##### Table of Contents



SHANDA GAMES LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts expressed in thousands)
 For the Years Ended December 31,2007
    
    
    2008
    
    
    2009
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$ (Note 2(5))Cash flows from operating activities:Net income
    
    
    599,041
    
    
    
    947,408
    
    
    
    1,471,536
    
    
    
    215,582Adjustments for:Share-based compensation expenses
    
    
    17,495
    
    
    
    20,790
    
    
    
    125,811
    
    
    
    18,431Corporate expenses allocated from Shanda
    
    
    37,592
    
    
    
    31,346
    
    
    
    14,351
    
    
    
    2,102Depreciation of property and equipment
    
    
    60,979
    
    
    
    52,339
    
    
    
    44,797
    
    
    
    6,563Amortization of intangible assets
    
    
    74,407
    
    
    
    104,897
    
    
    
    151,852
    
    
    
    22,246Amortization of land use right
    
    
    208
    
    
    
    113
    
    
    
    
    
    
    
    Intangible assets impairment
    
    
    20,095
    
    
    
    
    
    
    
    
    
    
    
    Provision/(reversal) for losses on receivables
    
    
    (776
    )
    
    
    10,426
    
    
    
    3,411
    
    
    
    500Loss from disposal of fixed assets
    
    
    4,525
    
    
    
    84
    
    
    
    3,613
    
    
    
    529Investment income
    
    
    (32
    )
    
    
    
    
    
    
    (214
    )
    
    
    (31
    )Write off purchased in-process research and development
    
    
    3,073
    
    
    
    
    
    
    
    
    
    
    
    Foreign exchange (gain)/ loss
    
    
    2,591
    
    
    
    (5,159
    )
    
    
    5,290
    
    
    
    775Deferred taxes and change of withholding tax
    
    
    (37,304
    )
    
    
    (20
    )
    
    
    33,572
    
    
    
    4,918Equity in loss/(earnings) of affiliated companies
    
    
    13,554
    
    
    
    (918
    )
    
    
    30,071
    
    
    
    4,405Changes in assets and liabilities, net of acquisitions:Accounts receivable
    
    
    29,187
    
    
    
    (37,016
    )
    
    
    (12,085
    )
    
    
    (1,770
    )Receivables due from related parties
    
    
    (29,617
    )
    
    
    (233,748
    )
    
    
    130,455
    
    
    
    19,112Deferred licensing fees and related costs
    
    
    (19,976
    )
    
    
    (19,762
    )
    
    
    (2,265
    )
    
    
    (332
    )Prepayments and other current assets
    
    
    21,940
    
    
    
    (11,896
    )
    
    
    (40,718
    )
    
    
    (5,965
    )Upfront licensing fee paid in intangible assets
    
    
    (41,300
    )
    
    
    (31,353
    )
    
    
    (105,749
    )
    
    
    (15,492
    )Prepayment for upfront license fee in other long term assets
    
    
    (232,450
    )
    
    
    (44,179
    )
    
    
    (19,754
    )
    
    
    (2,894
    )Other long-term deposits
    
    
    561
    
    
    
    (12,919
    )
    
    
    (9,384
    )
    
    
    (1,375
    )Accounts payable
    
    
    (863
    )
    
    
    18,309
    
    
    
    6,440
    
    
    
    943Licensing fees payable
    
    
    24,922
    
    
    
    60,146
    
    
    
    31,744
    
    
    
    4,650Taxes payable
    
    
    (20,688
    )
    
    
    48,173
    
    
    
    51,909
    
    
    
    7,605Deferred revenue
    
    
    100,376
    
    
    
    111,242
    
    
    
    (77,332
    )
    
    
    (11,329
    )License fee payable to a related party
    
    
    (46,090
    )
    
    
    
    
    
    
    
    
    
    
    Payables due to related parties
    
    
    70,806
    
    
    
    32,299
    
    
    
    12,620
    
    
    
    1,849Other payables and accruals
    
    
    20,404
    
    
    
    103,888
    
    
    
    160,536
    
    
    
    23,519Net cash provided by operating activities
    
    
    672,660
    
    
    
    1,144,490
    
    
    
    2,010,507
    
    
    
    294,541Cash flows from investing activities:Increase in restricted cash for foreign currency forward contract
    
    
    
    
    
    
    
    
    
    
    (702,075
    )
    
    
    (102,855
    )Payment for the transfer of equity interest in a subsidiary from Shanda
    
    
    
    
    
    
    
    
    
    
    (479,661
    )
    
    
    (70,271
    )Proceeds from income of marketable securities
    
    
    
    
    
    
    
    
    
    
    214
    
    
    
    31Proceeds from disposal of short-term investment
    
    
    
    
    
    
    52,599
    
    
    
    
    
    
    
    Purchase of marketable securities
    
    
    
    
    
    
    (2,830
    )
    
    
    
    
    
    
    Increase of short-term investments
    
    
    (86,697
    )
    
    
    (99,297
    )
    
    
    (502,350
    )
    
    
    (73,595
    )Increase in loan receivable
    
    
    (12,000
    )
    
    
    (14,006
    )
    
    
    18
    
    
    
    3Purchase of property and equipment
    
    
    (82,704
    )
    
    
    (46,989
    )
    
    
    (96,668
    )
    
    
    (14,162
    )Proceeds from disposal of fixed assets
    
    
    1,055
    
    
    
    2,338
    
    
    
    480
    
    
    
    70Purchase of intangible assets
    
    
    (2,476
    )
    
    
    (11,947
    )
    
    
    (11,944
    )
    
    
    (1,750
    )Cash received upon consolidation of a subsidiary contributed by Shanda
    
    
    112,227
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of a subsidiary, net of cash acquired
    
    
    (56,540
    )
    
    
    
    
    
    
    (93,626
    )
    
    
    (13,716
    )Repurchase of own shares by a subsidiary
    
    
    
    
    
    
    (17,866
    )
    
    
    
    
    
    
    Investment in affiliated companies
    
    
    (5,000
    )
    
    
    (6,193
    )
    
    
    (18,606
    )
    
    
    (2,726
    )Net cash used in investing activities
    
    
    (132,135
    )
    
    
    (144,191
    )
    
    
    (1,904,218
    )
    
    
    (278,971
    )Cash flows from financing activities:Net proceeds from issuance of ordinary shares upon IPO
    
    
    
    
    
    
    
    
    
    
    1,041,153
    
    
    
    152,530Proceeds from a loan borrowed
    
    
    
    
    
    
    
    
    
    
    1,077,670
    
    
    
    157,880Repayment of a loan
    
    
    
    
    
    
    
    
    
    
    (375,595
    )
    
    
    (55,025
    )Proceeds from issuance of ordinary shares under stock option plan of a subsidiary
    
    
    
    
    
    
    
    
    
    
    15,955
    
    
    
    2,337Net distribution to Shanda
    
    
    (375,981
    )
    
    
    (748,271
    )
    
    
    (708,729
    )
    
    
    (103,829
    )Net cash (used in) / provided by financing activities
    
    
    (375,981
    )
    
    
    (748,271
    )
    
    
    1,050,454
    
    
    
    153,893Effect of exchange rate changes on cash
    
    
    (7,099
    )
    
    
    (16,699
    )
    
    
    13,517
    
    
    
    1,981Net increase in cash and cash equivalents
    
    
    157,445
    
    
    
    235,329
    
    
    
    1,170,260
    
    
    
    171,444Cash and cash equivalents, beginning of year
    
    
    236,117
    
    
    
    393,562
    
    
    
    628,891
    
    
    
    92,133Cash and
cash equivalents, end of year
    
    
    393,562
    
    
    
    628,891
    
    
    
    1,799,151
    
    
    
    263,577Supplemental disclosure of cash flow information:Cash paid during the year for income taxes
    
    
    101,462
    
    
    
    232,669
    
    
    
    323,937
    
    
    
    47,457Cash paid for interest expenses
    
    
    
    
    
    
    
    
    
    
    814
    
    
    
    119Supplemental disclosure of non-cash investing activities:Acquisition related obligation at year end
    
    
    
    
    
    
    
    
    
    
    48,800
    
    
    
    7,149Supplemental disclosure of non-cash financing activities:Restricted cash relating to the exercise of employee stock options
    
    
    
    
    
    
    
    
    
    
    54,471
    
    
    
    7,980
   F-6




---



##### Table of Contents



SHANDA GAMES LIMITED
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
 1. ORGANIZATION AND NATURE OF OPERATIONS
 Nature of operations
  The Reorganization
     
    
    Establishment of Shanda Games. Shanda Games was incorporated in the Cayman Islands on
June 12, 2008 as a direct wholly-owned subsidiary of Shanda, to be the holding company for
the online game business. Pursuant to a share exchange, Shanda Games became a direct
wholly-owned subsidiary of Shanda, and Shanda Games (HK) became a direct wholly-owned
subsidiary of Shanda Games.
 
    
    Assignment of Certain Original VIE Agreements. Shengqu assigned all of the Original VIE
Agreements with Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng (other than those
relating to the operations of the online game business, which were cancelled) to Shanda
Computer (Shanghai) Co.,
Ltd., or Shanda Computer, an indirect wholly-owned subsidiary of Shanda, thereby making
Shanda Computer the primary beneficiary of Shanda Networking.
  F-7




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
 
    
    Transfer of Equity Interests. Shanda Networking transferred the equity interests of
Shanghai Shulong to two nominee shareholders, both of whom are PRC citizens.
 
    
    New VIE Agreements. Shengqu entered into various agreements, including contracts
relating to the transfer of assets, the provision of services and software licenses and
equipment with Shanghai Shulong, Shulong Computer and Nanjing Shulong (collectively, the
Shulong entities) and contracts relating to certain shareholder rights and corporate
governance matters with Shanghai Shulong and its nominee shareholders (collectively, the
New VIE Agreements).
 
    
    Separation Agreement. Pursuant to a Master Separation Agreement, Shanda transferred all
of its assets and liabilities related to its online game business (including applicable
equity investments and intellectual property rights) to Shanghai Shulong. Concurrently, all
assets and liabilities unrelated to the online game business, including certain real
property interests, intellectual property rights and personal tangible properties were
transferred to Shanda.
 
    
    Game Licensing Agreements. Prior to the Reorganization, Shengqu had licensed certain
rights to online games from various third parties, which rights were sublicensed to Shanda
Networking and its subsidiaries. As a part of the Reorganization, Shengqu amended such
third party license agreements to allow Shengqu to sublicense its rights to the Shulong
entities. Following the Reorganization, the Company conducts its online game business
through the PRC operating companies.
   2. PRINCIPAL ACCOUNTING POLICIES
 (1) Basis of preparation
      F-8




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
       (2) Use of estimates
  (3) Consolidation
  Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51
   F-9




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
  
    
    Equipment leasing agreements, pursuant to which Shanda Networking, Nanjing Shanda and
Hangzhou Bianfeng leased a substantial majority of their operating assets from Shengqu;
 
    
    Technical support agreements, pursuant to which Shengqu provided technical support for
Shanda Networking Nanjing Shanda and Hangzhou Bianfengs operations;
 
    
    Software license agreements, pursuant to which Shengqu licensed certain game related
software to Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng;
 
    
    A strategic consulting agreement, pursuant to which Shengqu provided strategic
consulting services to Shanda Networking, Nanjing Shanda and Hangzhou Bianfeng; and
 
    
    Online game license agreements, pursuant to which Shanda Networking, Nanjing Shanda and
Hangzhou Bianfeng operated certain online games that are licensed or owned by Shengqu.
    
    
    Loan Agreementsbetween Shengqu and the shareholders of Shanghai Shulong. These loan
agreements provide for loans of RMB10.8 million to the PRC employees for them to make
contributions to the registered capital of Shanghai Shulong in exchange for equity
interests in Shanghai Shulong. The loans are interest free and are repayable on demand, but
the shareholders may not repay all or any part of the loans without Shengqus prior written
consent.
 
    
    Equity Entrust Agreementbetween Shengqu and the shareholders of Shanghai Shulong,
pursuant to which the shareholders acknowledge their status as nominee shareholders.
  F-10




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
 
 
    
    Equity Pledge Agreementamong Shengqu, Shanghai Shulong and the shareholders of Shanghai
Shulong. Pursuant to this agreement, the shareholders pledged to Shengqu their entire
equity interests in Shanghai Shulong to secure the performance of their respective
obligations and Shanghai Shulongs obligations under the various agreements, including the
Equity Pledge Agreement, the Business Operation Agreement and the Exclusive Consulting and
Service Agreement. Without Shengqus prior written consent, neither of the shareholders can
transfer any equity interests in Shanghai Shulong.
 
    
    Equity Disposition Agreementamong Shengqu, Shanghai Shulong and the shareholders of
Shanghai Shulong. Pursuant to this agreement, Shengqu and any third party designated by
Shengqu have the right, exercisable at any time during the term of the agreement, if and
when it is legal to do so under PRC laws and regulations, to purchase from the
shareholders, as the case may be, all or any part of their equity interests in Shanghai
Shulong at a purchase price equal to the lowest price permissible by the then-applicable
PRC laws and regulations. The agreement is for an initial term of 20 years, renewable upon
Shengqus request.
 
    
    Business Operation Agreementamong Shengqu, Shanghai Shulong and the shareholders of
Shanghai Shulong. This agreement sets forth the rights of Shengqu to control the actions of
the shareholders of Shanghai Shulong.
 
    
    Exclusive Consulting and Service Agreementbetween Shengqu and Shanghai Shulong.
Pursuant to this agreement, Shengqu has the exclusive right to provide technology support
and business consulting services to Shanghai Shulong for a fee.
 
    
    Proxiesexecuted by the shareholders of Shanghai Shulong in favor of Shengqu. These
irrevocable proxies grant Shengqu or its designees the power to exercise the rights of the
shareholder as shareholders of Shanghai Shulong, including the right to appoint directors,
general manager and other senior management of Shanghai Shulong.
  (4) Foreign currency translation
     F-11




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
 (5) Convenience translation
  (6) Cash and cash equivalents
  (7) Restricted cash
  (8) Short-term investments
  (9) Marketable securities
    (10) Allowances for doubtful accounts
  (11) Investment in affiliated companies
   F-12




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
  (12) Property and equipment
  Computer equipment
    
    5 yearsOffice buildings
    
    20 yearsLeasehold improvements
    
    Lesser of the term of the lease or the estimated useful lives of the assetsFurniture and fixtures
    
    5 yearsMotor vehicles
    
    5 years
  (13) Intangible assets
 Online game product development costs
 Accounting
for Costs of Computer Software to be Sold, Leased or Otherwise Marketed
 Website and internally used software development costs
 Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use
  F-13




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
 Upfront licensing fees
  Software and copyrights
  Software technology, game engine, non-compete agreements, customer base and trademark acquired
through business combinations
 Business Combinations
 Software technology
    
    0.5 to 6 yearsGame engine
    
    3 to 7.5 yearsNon-compete agreements
    
    2.5 to 5 yearsCustomer base
    
    2 to 5.5 yearsTrademarks
    
    7.5 or 20 yearsIn-process research and development
    
    Prior to January 1, 2009, written
off immediately. Beginning from
January 1, 2009, indefinite life
and subject to impairment testing
until completed or abandoned
 (14) Goodwill
  Goodwill and other
intangible assets
 (15) Other long-term assets
  (16) Impairment of long-lived assets and intangible assets
   F-14




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
 (17) Financial instruments
  (18) Revenue recognition
   Reporting revenue gross as a principal versus
net as an agent
     F-15




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
 (19) Deferred revenue
  (20) Deferred licensing fees and related costs
  (21) Cost of revenue
  (22) General and administrative
  (23) Product development
  (24) Sales and marketing
  (25) Share-based compensation
 Accounting for stock-based
compensation
  F-16




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
  (26) Leases
  (27) Taxation
  Income Taxes
 Accounting for Uncertainty in Income Taxes  An interpretation of FASB
Statement No. 109
 (28) Statutory reserves
 China
      F-17




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
   Korea
  (29) Dividends
    (30) Earnings per share
  (31) Comprehensive income
  (32) Segment reporting
 Disclosures about Segments of an Enterprise and Related Information
  F-18




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
 (33) Fair value measurements
 Fair Value Measurements
  (34) Business combinations and non-controlling interests
  Business combinations
  Non-controlling Interests in Consolidated Financial Statements-an amendment of ARB No.51
  F-19




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in thousands unless otherwise stated)
 3. RECENT ACCOUNTING PRONOUNCEMENTS
 Recognition and Presentation of Other-Than-Temporary Impairments
 Determining Whether a Market is Not Active and a Transaction Is Not Distressed
 Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies
 Subsequent
Events
 The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles  a
replacement of FASB Statement No. 162
 Accounting for
Transfers of Financial Assets  an amendment of FASB Statement No. 140
  F-20




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 Amendments to FASB Interpretation No. 46(R)
 4. BUSINESS COMBINATIONS
  Acquisition completed in 2009
 Chengdu Simo
   RMBCash
    
    
    6,374Other assets
    
    
    26,885Identifiable intangible assets
    
    
    104,300Purchased in-progress research and development
    
    
    6,000Deferred tax liabilities
    
    
    (11,723
    )Goodwill
    
    
    53,532Current liabilities
    
    
    (36,568
    )Purchase price
    
    
    148,800
    F-21




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 Year Ended(in thousands, except per share data)
    
    December 31, 2009unauditedRMBNet revenues
    
    
    4,835,256Net income
    
    
    1,413,837Earnings per ordinary shareBasic
    
    
    2.54Diluted
    
    
    2.53
  Acquisition completed in 2007
 (1) Actoz
    RMBCash
    
    
    13,467Other assets
    
    
    54,270Identifiable intangible assets
    
    
    30,111Purchased in-progress research and development
    
    
    3,073Deferred tax liability
    
    
    (9,126
    )Goodwill
    
    
    11,088Current liabilities
    
    
    (14,583
    )Purchase price
    
    
    88,300
 Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase
Method
  F-22




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
   Year Ended(in thousands, except per share data)
    
    December 31, 2007unauditedRMBNet revenues
    
    
    2,355,762Net income
    
    
    586,454Earnings per ordinary shareBasic
    
    
    1.07Diluted
    
    
    1.07
    (2) Chengdu Aurora
   RMBCash
    
    
    24,260Other assets
    
    
    12,161Identifiable intangible assets
    
    
    64,530Deferred tax liabilities
    
    
    (16,133
    )Goodwill
    
    
    26,130Current liabilities
    
    
    (9,948
    )Purchase price
    
    
    101,000
   F-23




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
  Year Ended(in thousands, except per share data)
    
    December 31, 2007unauditedRMBNet revenues
    
    
    2,322,798Net income
    
    
    591,900Earnings per ordinary shareBasic
    
    
    1.08Diluted
    
    
    1.08
  5. OTHER INCOME
 For the years ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMBGovernment financial incentives
    
    
    54,258
    
    
    
    18,421
    
    
    
    177,020Foreign exchange (loss) gain
    
    
    (2,591
    )
    
    
    10,756
    
    
    
    (5,290
    )Donation expense
    
    
    (3,895
    )
    
    
    (16,084
    )
    
    
    Others
    
    
    (19,061
    )
    
    
    (6,975
    )
    
    
    (2,286
    )28,711
    
    
    
    6,118
    
    
    
    169,444
  6. TAXATION
 Cayman Islands
  Hong Kong
   F-24




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 China
       Korea
   F-25




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 Composition of income tax expense
  For the years ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMBCurrent income tax expenses
    
    
    103,561
    
    
    
    205,704
    
    
    
    358,104Deferred income tax expenses (benefits)
    
    
    (36,489
    )
    
    
    7,205
    
    
    
    937Withholding taxes
    
    
    
    
    
    
    37,000
    
    
    
    69,635Income tax expenses
    
    
    67,072
    
    
    
    249,909
    
    
    
    428,676
 Reconciliation of the differences between statutory tax rate and the effective tax rate
  For the years ended December 31,2007
    
    
    2008
    
    
    2009Statutory income tax rate
    
    
    33
    %
    
    
    25
    %
    
    
    25
    %Tax differential from statutory rate
applicable to the subsidiaries and the
VIE subsidiaries
    
    
    (20
    )%
    
    
    (11
    )%
    
    
    (12
    %)Enacted tax rate change
    
    
    (3
    )%
    
    
    (1
    )%
    
    
    Effect of tax holidays
    
    
    (4
    )%
    
    
    
    
    
    
    Effect of the withholding taxes
    
    
    
    
    
    
    3
    %
    
    
    4
    %Effect of change in valuation allowance
    
    
    
    
    
    
    4
    %
    
    
    4
    %Others
    
    
    4
    %
    
    
    1
    %
    
    
    1
    %Effective income tax rate
    
    
    10
    %
    
    
    21
    %
    
    
    22
    %
  For the years ended December 31,(in thousands, except per share data)
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMBThe aggregate effect
    
    
    31,849
    
    
    
    
    
    
    
    Basic ordinary share effect
    
    
    0.06
    
    
    
    
    
    
    
    Diluted ordinary share effect
    
    
    0.06
    
    
    
    
    
    
    
    
  Significant components of deferred tax assets and deferred tax liabilities are as follows:
 December 31, 2008
    
    
    December 31, 2009RMB
    
    
    RMBDeferred tax assetsLicensing fees and related costs and deferred revenues
    
    
    40,717
    
    
    
    31,208Other temporary differences
    
    
    34,734
    
    
    
    61,025Foreign tax credit of Actoz
    
    
    59,689
    
    
    
    117,557Development cost
    
    
    11,595
    
    
    
    9,825Less: Valuation allowance
    
    
    (41,610
    )
    
    
    (123,949
    )Total deferred tax assets, net of valuation allowance
    
    
    105,125
    
    
    
    95,666Deferred tax liabilitiesIntangible assets arising from business combination
    
    
    35,426
    
    
    
    38,149Withholding taxes
    
    
    37,000
    
    
    
    69,684Total deferred tax liabilities
    
    
    72,426
    
    
    
    107,833
  F-26




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 Movement of valuation allowances
 For the years ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMBBalance at beginning of year
    
    
    
    
    
    
    3,118
    
    
    
    41,610Current year additions
    
    
    3,118
    
    
    
    38,492
    
    
    
    82,339Balance at end of year
    
    
    3,118
    
    
    
    41,610
    
    
    
    123,949
   7. EARNINGS PER SHARE
  For the years ended December 31,(in thousands, except share and per share data)
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMBNumerator:Net income per ordinary share attributable to Shanda Games Limited for basic and diluted earnings
    
    
    591,900
    
    
    
    935,484
    
    
    
    1,452,972Denominator:Weighted-average ordinary shares outstanding for basic calculation
    
    
    550,000,000
    
    
    
    550,000,000
    
    
    
    556,575,353Dilutive effect of share options
    
    
    
    
    
    
    
    
    
    
    2,986,054Dilutive effect of restricted shares
    
    
    
    
    
    
    
    
    
    
    39,464Denominator for diluted calculation
    
    
    550,000,000
    
    
    
    550,000,000
    
    
    
    559,600,871Net income
per ordinary share attributable to Shanda Games Limiteds shareholders  basic
    
    
    1.08
    
    
    
    1.70
    
    
    
    2.61Net income
per ordinary share attributable to Shanda Games Limiteds shareholders  diluted
    
    
    1.08
    
    
    
    1.70
    
    
    
    2.60
 8. CASH AND CASH EQUIVALENTS
    F-27




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 9. ACCOUNTS RECEIVABLE
 December 31, 2008
    
    
    December 31, 2009RMB
    
    
    RMBAccounts receivable
    
    
    16,138
    
    
    
    20,544Less: Allowance for doubtful accounts
    
    
    (8,853
    )
    
    
    (2,041
    )7,285
    
    
    
    18,503
  For the years ended December 31,2008
    
    
    2009RMB
    
    
    RMBBalance at beginning of year
    
    
    9,772
    
    
    
    8,853Add: Current year additions
    
    
    
    
    
    
    1,673Less: Current year reversal
    
    
    (695
    )
    
    
    Current year write-offs
    
    
    (224
    )
    
    
    (8,485
    )Balance at end of year
    
    
    8,853
    
    
    
    2,041
 10. INVESTMENTS IN AFFILIATED COMPANIES
  December 31, 2008
    
    

December 31, 2009PercentageRMB
    
    
    RMB
    
    
    OwnershipShanghai Weilai Information Technology Co., Ltd. (Shanghai Weilai)
    
    
    3,333
    
    
    
    
    
    
    
    25
    %Beijing Zhongcheng Cooperation and Technology Development Co., Ltd.
(Beijing Zhongcheng)
    
    
    6,069
    
    
    
    
    
    
    
    35
    %Anipark Co., Ltd. (Anipark)
    
    
    3,910
    
    
    
    6,751
    
    
    
    12.89
    %Shanghai Caiqu Network Technology Co., Ltd. (Shanghai Caiqu)
    
    
    4,000
    
    
    
    
    
    
    
    Shanghai Qiyu Information Technology Co., Ltd. (Shanghai Qiyu)
    
    
    960
    
    
    
    829
    
    
    
    20
    %Xiamen Lianyu Science and Technology Co., Ltd. (Xiamen Lianyu)
    
    
    374
    
    
    
    505
    
    
    
    30
    %Fuzhou Lingyu Computer Technology Co., Ltd (Fuzhou Lingyu)
    
    
    
    
    
    
    319
    
    
    
    30
    %Chengdu Sunray Technology Co., Ltd. (Chengdu Sunray)
    
    
    4,570
    
    
    
    
    
    
    
    20
    %Beijing Chuanyue Shidai Information Co., Ltd. (Beijing Chuanyue)
    
    
    178
    
    
    
    
    
    
    
    20
    %Others
    
    
    127
    
    
    
    299
    
    
    
    20%-23
    %Total
    
    
    23,521
    
    
    
    8,703
  F-28




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 The movement of the investments in affiliated companies is as follows:
 Share of
    
    
    AmortizationProfit/(Loss)
    
    
    of IdentifiableBalances at
    
    
    
    
    
    
    on Affiliated
    
    
    Intangible
    
    
    
    
    
    
    Balances atJanuary 1,
    
    
    
    
    
    
    Companies
    
    
    Assets, Net of
    
    
    Other Equity
    
    
    December 31,2008
    
    
    Investments
    
    
    Investments
    
    
    Tax
    
    
    Movement
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBChengdu Sunray
    
    
    5,000
    
    
    
    
    
    
    
    (430
    )
    
    
    
    
    
    
    
    
    
    
    4,570Beijing Chuanyue
    
    
    
    
    
    
    100
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    178Shanghai Qiyu
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    (40
    )
    
    
    
    
    
    
    960Beijing Zhongcheng
    
    
    
    
    
    
    6,269
    
    
    
    (200
    )
    
    
    
    
    
    
    
    
    
    
    6,069Xiamen Lianyu
    
    
    
    
    
    
    430
    
    
    
    (49
    )
    
    
    (7
    )
    
    
    
    
    
    
    374Shanghai Weilai
    
    
    
    
    
    
    3,333
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,333Shanghai Caiqu
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000Anipark
    
    
    
    
    
    
    
    
    
    
    1,564
    
    
    
    
    
    
    
    2,346
    
    
    
    3,910Others
    
    
    
    
    
    
    125
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    127Total
    
    
    5,000
    
    
    
    15,257
    
    
    
    965
    
    
    
    (47
    )
    
    
    2,346
    
    
    
    23,521
 Share of
    
    
    AmortizationProfit/(Loss)
    
    
    of IdentifiableBalances at
    
    
    
    
    
    
    on Affiliated
    
    
    Intangible
    
    
    
    
    
    
    Transferred
    
    
    Balances atJanuary 1,
    
    
    
    
    
    
    Companies
    
    
    Assets, Net of
    
    
    Other Equity
    
    
    Out to Related
    
    
    December 31,2009
    
    
    Investments
    
    
    Investments
    
    
    Tax
    
    
    Movement
    
    
    Party
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBShanghai Weilai
    
    
    3,333
    
    
    
    11,667
    
    
    
    (15,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Beijing Zhongcheng
    
    
    6,069
    
    
    
    5,731
    
    
    
    (11,800
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Anipark
    
    
    3,910
    
    
    
    
    
    
    
    2,194
    
    
    
    
    
    
    
    647
    
    
    
    
    
    
    
    6,751Shanghai Caiqu
    
    
    4,000
    
    
    
    
    
    
    
    340
    
    
    
    (340
    )
    
    
    
    
    
    
    (4,000
    )
    
    
    Shanghai Qiyu
    
    
    960
    
    
    
    
    
    
    
    (71
    )
    
    
    (60
    )
    
    
    
    
    
    
    
    
    
    
    829Xiamen Lianyu
    
    
    374
    
    
    
    
    
    
    
    142
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    505Fuzhou Lingyu
    
    
    
    
    
    
    1,000
    
    
    
    (681
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319Chengdu Sunray
    
    
    4,570
    
    
    
    
    
    
    
    (4,570
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Beijing Chuanyue
    
    
    178
    
    
    
    
    
    
    
    (178
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    127
    
    
    
    208
    
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    299Total
    
    
    23,521
    
    
    
    18,606
    
    
    
    (29,660
    )
    
    
    (411
    )
    
    
    647
    
    
    
    (4,000
    )
    
    
    8,703
 11. PROPERTY AND EQUIPMENT
  December 31, 2008
    
    
    December 31, 2009RMB
    
    
    RMBComputer equipment
    
    
    243,952
    
    
    
    297,660Leasehold improvements
    
    
    1,564
    
    
    
    4,338Furniture and fixtures
    
    
    20,540
    
    
    
    26,069Motor vehicles
    
    
    11,213
    
    
    
    10,919Office buildings
    
    
    2,596
    
    
    
    2,596Less: Accumulated depreciation
    
    
    (186,880
    )
    
    
    (201,748
    )Net book value
    
    
    92,985
    
    
    
    139,834
   F-29




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 12. INTANGIBLE ASSETS
  December 31, 2008
    
    
    December 31, 2009RMB
    
    
    RMBGross carrying amount:Upfront licensing fee paid
    
    
    343,571
    
    
    
    479,704Software, copyrights and others
    
    
    87,865
    
    
    
    107,565Intangible assets arising from business combinations Software technology
    
    
    118,223
    
    
    
    207,523 Non-compete arrangement
    
    
    227
    
    
    
    21,227 Trademarks
    
    
    54,666
    
    
    
    54,666 Other
    
    
    3,073
    
    
    
    3,073607,625
    
    
    
    873,758Less: accumulated amortizationUpfront licensing fee paid
    
    
    (55,739
    )
    
    
    (165,018
    )Software, copyrights and others
    
    
    (79,511
    )
    
    
    (93,460
    )Intangible assets arising from business combinations
    
    
    (43,270
    )
    
    
    (77,937
    )(178,520
    )
    
    
    (336,415
    )Less: Impairment for upfront licensing fee paid
    
    
    (20,095
    )
    
    
    (20,095
    )Net book value
    
    
    409,010
    
    
    
    517,248
    AmortizationRMB2010
    
    
    161,8602011
    
    
    151,9982012
    
    
    81,5882013
    
    
    28,7472014
    
    
    25,404Total
    
    
    449,597
 13. GOODWILL
 The changes in the carrying amount of goodwill from significant acquisitions are as follows:
 Actoz
    
    
    Chengdu Aurora
    
    
    Shanghai Shulong
    
    
    Chengdu Simo
    
    
    TotalRMBBalance as of December 31, 2007
    
    
    86,479
    
    
    
    26,130
    
    
    
    3,934
    
    
    
    
    
    
    
    116,543Acquisitions in 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as of December 31, 2008
    
    
    86,479
    
    
    
    26,130
    
    
    
    3,934
    
    
    
    
    
    
    
    116,543Acquisitions in 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,532
    
    
    
    53,532Balance as of December 31, 2009
    
    
    86,479
    
    
    
    26,130
    
    
    
    3,934
    
    
    
    53,532
    
    
    
    170,075
   F-30




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 14. OTHER PAYABLES AND ACCRUALS
 December 31, 2008
    
    
    December 31, 2009RMB
    
    
    RMBSalary and welfare payable
    
    
    2,242
    
    
    
    4,619Accrued bonus
    
    
    51,336
    
    
    
    89,860Unpaid rental for server software
    
    
    46,574
    
    
    
    47,609Accrued professional service fee
    
    
    7,185
    
    
    
    8,695Acquisition related obligation (Note 4)
    
    
    
    
    
    
    48,800Unpaid advertisement and promotion fee
    
    
    32,443
    
    
    
    146,054Payables to employees relating to exercise of options (Note 2(7))
    
    
    
    
    
    
    54,471Other payables
    
    
    15,583
    
    
    
    33,334Total
    
    
    155,363
    
    
    
    433,442
 15. ORDINARY SHARES
     F-31




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 16. SHARE OPTION PLAN
  Share-based compensation allocated from Shanda
 Shandas 2003 Share Incentive Plan
   Shandas 2005 Equity Compensation Plan
    Weighted
    
    
    WeightedAverageOptions
    
    
    Average
    
    
    Remaining
    
    
    AggregateOutstanding
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Intrinsic ValueUS$
    
    
    
    

    
    
    US$Outstanding at January 1, 2008
    
    
    1,462,008
    
    
    
    8.05Granted
    
    
    20,000
    
    
    
    17.60Exercised
    
    
    (117,322
    )
    
    
    8.42Forfeited or Expired
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    1,364,686
    
    
    
    8.16
    
    
    
    6.49
    
    
    
    10,979Vested and expected to vest at December 31, 2008
    
    
    1,221,245
    
    
    
    8.08
    
    
    
    6.52
    
    
    
    9,925Vested and exercisable at December 31, 2008
    
    
    551,862
    
    
    
    7.25
    
    
    
    6.55
    
    
    
    4,930Granted
    
    
    
    
    
    
    Exercised
    
    
    (735,616
    )
    
    
    7.66Forfeited or Expired
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    629,070
    
    
    
    8.73
    
    
    
    5.24
    
    
    
    11,055Vested and expected to vest at December 31, 2009
    
    
    591,410
    
    
    
    8.69
    
    
    
    5.26
    
    
    
    10,415Vested and exercisable at December 31, 2009
    
    
    187,820
    
    
    
    8.15
    
    
    
    5.24
    
    
    
    3,410
  F-32




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
      For the years ended December 31,2007
    
    
    2008Risk-free interest rate(1)
    
    
    4.51
    %
    
    
    3.28
    %Expected life (in years)(2)
    
    5 years
    
    
    5 yearsExpected dividend yield(3)
    
    
    0
    %
    
    
    0
    %Expected volatility(4)
    
    
    58
    %
    
    
    58
    %Fair value per option at grant date (in RMB)
    
    
    55.91
    
    
    
    61.97
 
 (1)
    
    The risk-free interest rate for periods within the contractual life of the share option is
based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent
with the expected term of the awards.(2)
    
    The expected term of stock options granted under the Plan is developed giving consideration
to vesting period, contractual term and historical exercise pattern.(3)
    
    Shanda has no history or expectation of paying dividends on its ordinary shares.(4)
    
    Expected volatility is estimated based on the historical volatility of comparable companies
stocks and of Shandas ordinary shares for a period equal to the expected term preceding the
grant date.  F-33




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 Share-based compensation of the Company
 2008 Equity Compensation Plan
          F-34




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
  Weighted
AverageWeighted
    
    
    Remaining
    
    
    AggregateOptions
    
    
    Average
    
    
    Contractual
    
    
    IntrinsicOutstanding
    
    
    Exercise Price
    
    
    Life
    
    
    ValueUS$
    
    

    

    
    
    
    US$Granted
    
    
    21,857,500
    
    
    
    3.2Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    21,857,500
    
    
    
    3.2
    
    
    
    9.87
    
    
    
    Vested and expected to vest at December 31, 2008
    
    
    3,213,101
    
    
    
    3.2
    
    
    
    9.87
    
    
    
    Vested and exercisable at December 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    3,889,000
    
    
    
    3.4Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (191,300
    )
    
    
    3.2Expired
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    25,555,200
    
    
    
    3.2
    
    
    
    8.94
    
    
    
    47,589Vested and expected to vest at December 31, 2009
    
    
    25,178,284
    
    
    
    3.2
    
    
    
    8.94
    
    
    
    46,956Vested and exercisable at December 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
     For the years ended December 312008
    
    
    2009Exercise Price
    
    US$
    3.2
    
    
    US$
    3.20~US$3.98Fair value of ordinary shares
    
    US$
    3.13
    
    
    US$
    3.90~US$6.25Risk-free interest rate(1)
    
    
    3.94
    %
    
    
    3.31%~4.44
    %Exercise multiple(2)
    
    
    1.8
    
    
    
    1.8Expected dividend yield(3)
    
    
    0
    %
    
    
    0
    %Expected volatility(4)
    
    
    50
    %
    
    
    50
    %Fair value per option at grant date (in RMB)
    
    
    10.4~11.8
    
    
    
    14.1~26.8
 
 (1)
    
    The risk-free interest rate for periods within the contractual life of the share option is
based on the U.S. Treasury yield curve over the contractual term of the option in effect at
the time of grant.(2)
    
    The management estimates the options will be exercised when the spot price reaches 1.8 times
of strike price after becoming exercisable.(3)
    
    The Company has no history or expectation of paying dividends on its ordinary shares.(4)
    
    Expected volatility is estimated based on the historical volatility of comparable companies
stocks and of Shandas ordinary shares for a period equal to the expected term preceding the
grant date.  F-35




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
  For the year endedDecember 31, 2009Exercise Price
    
    US$
    5.29~US$5.38Fair value of ordinary shares
    
    US$
    5.12~US$5.16Risk-free interest rate(1)
    
    
    2.13%~2.48
    %Expected life (in years)(2)
    
    
    5Expected dividend yield(3)
    
    
    0
    %Expected volatility(4)
    
    
    50
    %Fair value per option at grant date (in RMB)
    
    
    15.82~15.84
 (1)
    
    The risk-free interest rate for periods within the contractual life of the share option is
based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent
with the expected term of the awards.(2)
    
    The expected term of stock options granted is developed giving consideration to vesting
period, contractual term and historical exercise pattern of options granted by Shanda.(3)
    
    The Company has no history or expectation of paying dividends on its ordinary shares.(4)
    
    Expected volatility is estimated based on the historical volatility of comparable companies
stocks and of Shandas ordinary shares for a period equal to the expected term preceding the
grant date.    A summary of unvested restricted share activity as of December 31, 2008 and 2009 is presented
below:
 Weighted AverageUnvested Restricted Shares
    
    Number of Shares
    
    
    Grant-date Fair ValueUS$Granted
    
    
    407,770
    
    
    
    3.2Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Unvested at December 31, 2008
    
    
    407,770
    
    
    
    3.2Granted
    
    
    6,320,420
    
    
    
    6.2Vested
    
    
    
    
    
    
    Forfeited
    
    
    (3,000
    )
    
    
    6.3Unvested at December 31, 2009
    
    
    6,725,190
    
    
    
    6.0Expected to vest at December 31, 2009
    
    
    5,479,864
    
    
    
    6.0
  F-36




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
  Share-based compensation of Actoz
       For the years ended December 312007
    
    
    2008Risk-free interest rate
    
    
    4.80-5.39
    %
    
    
    4.80-5.39
    %Expected life (in years)
    
    4.7-4.9 years
    
    4.7-4.9 yearsExpected dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    80%-83
    %
    
    
    63%-87
    %Fair value per option at grant date( in KRW)
    
    
    5,997~6,198
    
    
    
    4,531~6,355
  F-37




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 Activities of share options
  Options
    
    
    Weighted Average
    
    
    Weighted Averaged
Remaining
    
    
    AggregateOutstanding
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Intrinsic ValueKRW
    
    

    
    
    
    
    KRWJanuary 1, 2008
    
    
    702,920
    
    
    
    9,535Granted
    
    
    104,040
    
    
    
    8,603Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (44,410
    )
    
    
    9,700December 31, 2008
    
    
    762,550
    
    
    
    9,398
    
    
    
    5.54
    
    
    
    611,557Vested and expected to vest as of
December 31, 2008
    
    
    648,736
    
    
    
    9,375
    
    
    
    5.51
    
    
    
    534,923Vested and exercisable as of
December 31, 2008
    
    
    68,280
    
    
    
    8,300
    
    
    
    4.57
    
    
    
    129,732December 31, 2008
    
    
    762,550
    
    
    
    9,398
    
    
    
    5.54
    
    
    
    611,557Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (300,700
    )
    
    
    9,397
    
    
    
    
    
    
    
    Forfeited
    
    
    (49,360
    )
    
    
    9,406
    
    
    
    
    
    
    
    December 31, 2009
    
    
    412,490
    
    
    
    9,398
    
    
    
    4.66
    
    
    
    3,156,394Vested and expected to vest as of
December 31, 2009
    
    
    392,849
    
    
    
    9,390
    
    
    
    4.65
    
    
    
    3,009,071Vested and exercisable as of
December 31, 2009
    
    
    123,261
    
    
    
    9,390
    
    
    
    4.65
    
    
    
    949,448
     17. EMPLOYEE BENEFITS
   F-38




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 18. RELATED PARTY TRANSACTIONS
  For the years ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMBPlatform service
fees and sales agent fees
paid to companies under
common control by
Shanda(1)
    
    
    595,672
    
    
    
    791,702
    
    
    
    1,099,201Online game licensing
fees paid to an
affiliated
company(2)
    
    
    158,172
    
    
    
    
    
    
    
    Online game upfront
licensing fee paid to an
affiliated
company(2)
    
    
    7,741
    
    
    
    
    
    
    
    Promotion service fee
paid to companies under
common control by Shanda
    
    
    
    
    
    
    9,474
    
    
    
    11,230Online game licensing
fees received from
companies under common
control by Shanda
    
    
    (8,311
    )
    
    
    (11,244
    )
    
    
    (7,091
    )Online game upfront fee
received from a company
under common control by
Shanda
    
    
    
    
    
    
    (3,441
    )
    
    
    (12,088
    )Corporate general
administrative expenses
allocated from Shanda
    
    
    37,592
    
    
    
    31,346
    
    
    
    14,351Rental fee paid to
companies under common
control by Shanda
    
    
    
    
    
    
    
    
    
    
    10,394Consulting service fee
paid to companies under
common control by Shanda
    
    
    
    
    
    
    
    
    
    
    2,260
 
 (1)
    
    Prior to the Reorganization, these services were provided by Shandas various subsidiaries
and VIEs, and the service fees were incurred based on the contractual arrangement entered
prior to the Reorganization. For the five-year period beginning after the Reorganization, the
Group has agreed to continue to use services provided by companies under common control of
Shanda based on new services agreements.(2)
    
    The transactions are up to June 30, 2007 as the affiliated company has been consolidated from
July 1, 2007.  F-39




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
  December 31, 2008
    
    

December 31, 2009RMB
    
    
    RMBAccounts receivables from related parties under common control by Shanda
    
    
    431,876
    
    
    
    405,932Accounts receivables from Shanda
    
    
    1,427
    
    
    
    433,303
    
    
    
    405,932Other receivables due from related parties under common control by Shanda
    
    
    105,269
    
    
    
    6,184
  December
31, 2008
    
    

December 31, 2009RMB
    
    
    RMBAccounts payable to related parties under common control by Shanda
    
    
    75,414
    
    
    
    70,770Other payables to related parties under common control by Shanda
    
    
    262,673
    
    
    
    19,937
  19. DERIVATIVE
  20. CERTAIN RISKS AND CONCENTRATIONS
       F-40




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
 21. COMMITMENTS AND CONTINGENCIES
 Operating lease agreements
  ComputerOffice Premise
    
    
    Equipment
    
    
    TotalRMB
    
    
    RMB
    
    
    RMB2010
    
    
    6,810
    
    
    
    32,416
    
    
    
    39,2262011
    
    
    3,480
    
    
    
    6,735
    
    
    
    10,2152012
    
    
    588
    
    
    
    
    
    
    
    58810,878
    
    
    
    39,151
    
    
    
    50,029
    Contingencies
 Accounting for Loss Contingencies
   F-41




---



##### Table of Contents



SHANDA GAMES LIMITED
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(Amounts expressed in thousands unless otherwise stated)
  22. SUBSEQUENT EVENTS
     23. RESTRICTED NET ASSETS
   F-42