Document:

LHO-2014-3-31-10-Q-Ex 10.4

Exhibit 10.4
PERFORMANCE-BASED
SHARE AWARD AGREEMENT
(Non-Assignable)
Regarding a target amount of ____ Common Shares
(maximum amount of _____ Common Shares)
of
Beneficial Interest, par value $0.01 per share of
LASALLE HOTEL PROPERTIES
THIS PERFORMANCE-BASED SHARE AWARD AGREEMENT (this “Agreement”) certifies that, effective as of _____, 20__ (the “Date of Grant”), ______________ (the “Grantee”) is granted an award of ____ (the “Target Amount”) common shares of beneficial interest, par value $0.01 per share (the “Common Shares”), of LASALLE HOTEL PROPERTIES (the “Company”), subject to increase to a maximum of ____ Common Shares (the “Maximum Amount”), upon and subject to the following terms and conditions and the applicable terms and conditions of the 2009 Equity Incentive Plan, as amended and as in effect from time to time (the “Plan”).  This Agreement represents the Company’s commitment to issue Common Shares at a future date, subject to the terms of this Agreement and the Plan.
1.Status of Underlying Shares; Restrictions.  No Common Shares covered by this Agreement shall be issued or outstanding until earned and awarded pursuant to Section 2 and/or Section 4.  Thereafter, awarded Common Shares shall be validly issued, fully paid and non-assessable and non-forfeitable and generally transferable by the Grantee.  After Common Shares are earned and awarded pursuant to Section 2 and/or Section 4, the transfer agent for the Company shall be instructed to issue any certificates representing such shares with appropriate legends related to restrictions under the Securities Act of 1933 or applicable state securities laws (including a legend referenced in Section 9(b)) or related to the Company’s status as a real estate investment trust for federal income tax purposes or the ownership or transfer restrictions contained in the Company’s declaration of trust.  As provided in Section 2(g) and Section 4(f) below, in order for an award to be made under this Agreement, the Grantee must be continuously employed by the Company (or any of its controlled group affiliates) from the Date of Grant through and including the earliest to occur of (i) _________, 20__, (ii) the date of a Change in Control of the Company (as defined below) and (iii) the date of an Involuntary Termination (as defined below).

2.Performance Award.
(a)The Common Shares will be awarded pursuant to this Section 2, in accordance with the rules set forth below.
(b)The total number of shares that will be awarded pursuant to this Section 2 will equal the sum of the number of shares earned pursuant to Sections 2(c), (d) and (e) below and will be determined and awarded as of the first business day following _________, 20__, or as soon thereafter as reasonably practicable in the case of Section 2(c) (which requires the publication of financial information about the Company and the companies comprising the Peer Group (as defined below)).  Notwithstanding the foregoing, the number of shares earned pursuant to Sections 2(c), (d) and (e) shall be awarded no later than _________, 20__.  In each case, the determination will depend on, as applicable, the Return on Invested Capital (as defined below) or the Total Return (as defined below) of the Company (as defined below), as compared to the applicable benchmark.  
(c)Up to 33-1/3% of the Maximum Amount of shares that may be awarded under this Section 2 will be based on the Target Amount and the Return on Invested Capital of the Company compared to the Return on Invested Capital of the companies comprising the Peer Group (as defined below) as set forth in the applicable table below.  More specifically, the amount to be awarded under this Section 2(c) is calculated as the product of (i) the applicable percent earned determined using the applicable table below and (ii) ___ shares (a number of shares equal to 33-1/3% of the Target Amount).  In no event may more than ____ shares (calculated as 200% of 33-1/3% of Target Amount) be awarded pursuant to this Section 2(c).  For purposes of this Section 2(c), the applicable table is (i) the table labeled “Table I” below if there are eight companies in the Peer Group, (ii) the table labeled “Table II” below if there are seven companies in the Peer Group, (iii) the table labeled “Table III” below if there are six companies in the Peer Group, or (iv) the table labeled “Table IV” below if there are five companies in the Peer Group.
Table I
	
						
	Company’s Ranking within the Peer Group Based on Return on Invested Capital:
	Sixth, Seventh or Eighth (Least Return on Invested Capital)
	Fifth
	Fourth
	Third
	First (Greatest Return on Invested Capital) or Second

	Percent Earned (of the 33-1/3% of the Award Determined by Section 2(c)):
	0%
	50%
	100%
	150%
	200%

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Table II
	
					
	Company’s Ranking within the Peer Group Based on Return on Invested Capital:
	Fifth, Sixth or Seventh (Least Return on Invested Capital)
	Fourth
	Third
	First (Greatest Return on Invested Capital) or Second

	Percent Earned (of the 33-1/3% of the Award Determined by Section 2(c)):
	0%
	100%
	150%
	200%

Table III
	
					
	Company’s Ranking within the Peer Group Based on Return on Invested Capital:
	Sixth (Least Return on Invested Capital) or Fifth
	Fourth
	Third
	Second or First (Greatest Return on Invested Capital) or Second

	Percent Earned (of the 33-1/3% of the Award Determined by Section 2(c)):
	0%
	100%
	150%
	200%

Table IV
	
						
	Company’s Ranking within the Peer Group Based on Return on Invested Capital:
	Fifth (Least Return on Invested Capital)
	Fourth
	Third
	Second
	First (Greatest Return on Invested Capital)

	Percent Earned (of the 33-1/3% of the Award Determined by Section 2(c)):
	0%
	50%
	100%
	150%
	200%

(d)Up to 33-1/3% of the Maximum Amount of shares that may be awarded under this Section 2 will be based on the Target Amount and the Total Return of the Company compared 

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to the Total Return of the companies comprising the Peer Group for the Measuring Period, as set forth in the applicable table below.  More specifically, the amount to be awarded under this Section 2(d) is calculated as the product of (i) the applicable percent earned determined using the applicable table below and (ii) ____ shares (a number of shares equal to 33-1/3% of the Target Amount).  In no event may more than ______ shares (calculated as 200% of 33-1/3% of Target Amount) be awarded pursuant to this Section 2(d).  For purposes of this Section 2(d), the applicable table is (i) the table labeled “Table I” below if there are eight companies in the Peer Group, (ii) the table labeled “Table II” below if there are seven companies in the Peer Group, (iii) the table labeled “Table III” below if there are six companies in the Peer Group, or (iv) the table labeled “Table IV” below if there are five companies in the Peer Group.

Table I
	
						
	Company’s Ranking within the Peer Group Based on Total Return:
	Sixth, Seventh or Eighth (Least Total Return)
	Fifth
	Fourth
	Third
	First (Greatest Total Return) or Second

	Percent Earned (of the 33-1/3% of the Award Determined by Section 2(d)):
	0%
	50%
	100%
	150%
	200%

Table II
	
					
	Company’s Ranking within the Peer Group Based on Total Return:
	Fifth, Sixth or Seventh (Least Total Return)
	Fourth
	Third
	First (Greatest Total Return) or Second

	Percent Earned (of the 33-1/3% of the Award Determined by Section 2(d)):
	0%
	100%
	150%
	200%

4

Table III
	
					
	Company’s Ranking within the Peer Group Based on Total Return:
	Sixth (Least Total Return) or Fifth
	Fourth
	Third
	Second or First (Greatest Total Return) or Second

	Percent Earned (of the 33-1/3% of the Award Determined by Section 2(d)):
	0%
	100%
	150%
	200%

Table IV
	
						
	Company’s Ranking within the Peer Group Based on Total Return:
	Fifth (Least Total Return)
	Fourth
	Third
	Second
	First (Greatest Total Return)

	Percent Earned (of the 33-1/3% of the Award Determined by Section 2(d)):
	0%
	50%
	100%
	150%
	200%

(e) Up to 33-1/3% of the Maximum Amount of shares that may be awarded under this Section 2 will be based on the Target Amount and the Total Return of the Company as set forth in the table below.  More specifically, the amount to be awarded under this Section 2(e) is calculated as the product of (i) the applicable percent earned determined using the table below and (ii) _____ shares (a number of shares equal to 33-1/3% of the Target Amount).  In no event may more than _______ shares (calculated as 200% of 33-1/3% of Target Amount) be awarded pursuant to this Section 2(e).  The Grantee acknowledges that the Total Return threshold for a 50% earning is based on a 5% compounded annual Total Return; the threshold for a 100% earning is based on a 8% compounded annual Total Return; and the threshold for a 200% earning is based on a 12% compounded annual Total Return (such bases collectively, the “Determinative Percentages”).
	
					
	Company’s Total Return:
	Less than 15.76%
	15.76%
	25.97%
	40.49% or greater

	Percent Earned (of the 33-1/3% of the Award Determined by Section 2(e)):
	0%
	50%
	100%
	200%

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In the event that the Company’s Total Return is in between (i) 15.76% and 25.97% or (ii) 25.97% and 40.49%, then the percent earned shall be calculated by linear interpolation to the nearest 1/100th of a percent using the nearest lower and nearest higher percent earned figures set forth in the table above.
(f)Notwithstanding anything to the contrary in this Agreement, and in addition to the ability of the Committee to add Reporting Lodging REITs to the Peer Group pursuant to Section 14(p), in the event (in each instance) that before the end of the Measuring Period the total number of companies constituting the Peer Group shall decrease and shall be fewer than five (it being understood the Peer Group initially includes eight, not five, constituents), the Committee shall have the discretion, after consultation with the Company’s executive management team, to amend Sections 2(c) and (d) of this Agreement and the related definitions in a manner that the Committee in good faith deems to be fair and equitable to the Grantee and the Company, provided that the total potential number of Common Shares subject to this Agreement shall not be reduced as a result of this Section 2(f).  The Committee shall make a change to this Agreement pursuant to this Section 2(f), if any, within 90 days after each decrease in the number of companies constituting the Peer Group and promptly advise the Grantee of any changes to this Agreement pursuant to this Section 2(f).
(g)Without limiting the effect of Section 4, the Grantee must be continuously employed by the Company (or any of its controlled group affiliates) from the Date of Grant through _________, 20__, for an award of earned Common Shares to be made under this Section 2 (it being understood and agreed that a Grantee need not be employed by the Company (or any of its controlled group affiliates) after _________, 20__, for an award of earned Common Shares to be made under this Section 2).
3.No Further Vesting.  The Common Shares that are awarded pursuant to Section 2 above will be fully vested and generally transferable. 
4.Special Earning and Vesting Provisions.
(a)    Upon the occurrence of a Change in Control of the Company during the Measuring Period, then, notwithstanding Section 2(b), the total number of shares that are awarded pursuant to Section 2 will be determined and will be awarded as of (i.e., the Measuring Period will end and performance will be measured as of) the date of such Change in Control of the Company, provided that:
(i) the Measuring Period shall be deemed to have ended as of the last day of the most recently completed fiscal quarter (for example, the fiscal quarter ended June 30 in the case of a Change in Control of the Company on September 29 and the fiscal quarter ended September 30 in the case of a Change in Control of the Company on October 5) for purposes of Section 2(c), and the number of shares that are awarded 

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pursuant to Section 2(c) (which requires the publication of financial information about the Company and the companies comprising the Peer Group) will be determined and will be awarded as soon as reasonably practicable;
(ii) the Measuring Period shall be deemed to have ended at market close of the New York Stock Exchange on the date of the Change in Control of the Company for purposes of Sections 2(d) and 2(e);
(iii) the Total Return hurdles in the table contained in Section 2(e) table will be reduced pro rata using the Determinative Percentages and based on the portion of the original Measuring Period (i.e., the Measuring Period before reduction pursuant to this Section 4) not yet elapsed relative to the total original Measuring Period; and
(iv) in all events, the shares will be determined and awarded no later than March 15 of the year after the year in which the Change in Control of the Company occurs.
The Target Amount (including products of the Target Amount in Section 2) will not be reduced pro rata pursuant to this Section 4(a).
(b)    As a condition to the accelerated earning described in Section 4(a), the Grantee agrees, for a one-year period commencing on the date of the Change in Control of the Company during the Measuring Period the Grantee will not engage in Competitive Activities (as defined below). 
(c)    The Grantee agrees that the covenant contained in Section 4(b) of this Agreement is reasonably necessary to protect the legitimate interests of the Company and its affiliates, is reasonable with respect to time and territory and that Grantee has read and understands the description of the covenant so as to be informed as to its meaning and scope.
(d)    The Company and the Grantee agree that in the event of the Grantee’s breach of Section 4(b), the Grantee will immediately pay the Company in cash an amount equal to the market value of the Common Shares that received accelerated awarding, as compared to the awarding schedule set forth in Section 2, as a result of the operation of Section 4(a).  Market value for purposes of the preceding sentence will be the market value as of the date of the Change in Control of the Company.  Such payment shall be the Company’s sole remedy for a breach of Section 4(b).
(e)    Upon the occurrence of an Involuntary Termination during the Measuring Period, then, notwithstanding Section 2(b), the total number of shares to be awarded pursuant to Section 2 will be determined and will be awarded as of (i.e., the Measuring Period will end and performance will be measured as of) the date of such termination, provided that:
(i) the Measuring Period shall be deemed to have ended as of the last day of the most recently completed fiscal quarter (for example, the fiscal quarter ended June 30 in the case of an Involuntary Termination on September 29 and the fiscal quarter ended 

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September 30 in the case of an Involuntary Termination on October 5) for purposes of Section 2(c), and the number of shares that are awarded pursuant to Section 2(c) (which requires the publication of financial information about the Company and the companies comprising the Peer Group) will be determined and will be awarded as soon as reasonably practicable;
(ii) the Total Return hurdles in the table contained in Section 2(e) will be reduced pro rata using the Determinative Percentages and based on the portion of the original Measuring Period (i.e., the Measuring Period before reduction pursuant to this Section 4) not yet elapsed relative to the total original Measuring Period;
(iii) the Target Amount (including products of the Target Amount in Section 2) will be reduced pro rata based on the portion of the original Measuring Period not yet elapsed relative to the total original Measuring Period; and
(iv) in all events, the shares will be determined and awarded no later than March 15 of the year after the year in which the Involuntary Termination occurs.
(f)    The Grantee must be continuously employed by the Company (or any of its controlled group affiliates) from the Date of Grant through the earlier of (i) a Change in Control of the Company and (ii) an Involuntary Termination for an award of earned Common Shares to be made under this Section 4 (it being understood and agreed that a Grantee need not be employed by the Company (or any of its controlled group affiliates) after the earlier of the two dates for an award of earned Common Shares to be made under this Section 4).
5.Dividends and Voting.  The Grantee shall not be entitled to receive dividends on Common Shares underlying this Agreement or vote such Common Shares, or to receive notice as a shareholder or to have any rights whatsoever as a shareholder of the Company in respect of such Common Shares, until such Common Shares are awarded and issued pursuant to Section 2 and/or Section 4.  On the date of award of Common Shares pursuant to Section 2 and/or Section 4, an amount equal to all cash dividends that would have been paid on such Common Shares if they had been issued and outstanding from the Date of Grant throughout the Measuring Period (as may be adjusted in Section 4) will be paid to the Grantee. Thereafter, the awarded Common Shares shall be vested and not subject to forfeiture, and the Grantee will be entitled to vote such shares and the Company shall pay the Grantee any cash dividends that are declared and paid on such shares.    
6.Adjustment.  The Committee shall make or provide for such adjustments in the number of Common Shares covered by this Agreement as the Committee shall in good faith determine to be equitably required in order to prevent any dilution or expansion of the rights of the Grantee that otherwise would result from (i) any share dividend, share split, combination of shares, recapitalization or similar change in the capital structure of the Company or (ii) any merger, consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial or complete liquidation 

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or other distribution of assets, issuance of warrants or other rights to purchase securities or any other transaction or event having an effect similar to any of the foregoing.
7.Fractional Shares.  No fractional Common Shares will be issued pursuant to this Agreement, and the number of Common Shares to be issued pursuant to this Agreement will be rounded to the nearest whole share.
8.Compliance With Law.  The Company and the Grantee will make reasonable efforts to comply with all applicable securities laws.  In addition, notwithstanding any provision of this Agreement to the contrary, the shares will not be awarded or become vested at any time that such award would result in a violation of any such law.
9.Investment Representation.
(a)In order to comply with Section 8 hereof and any applicable securities law, the Company may require the Grantee (i) to furnish evidence satisfactory to the Company (including, without limitation, a written and signed representation letter) to the effect that all Common Shares acquired pursuant to this Agreement were acquired for investment only and not for resale or distribution and (ii) to agree that all such shares shall only be sold in transactions covered by an effective registration statement under the Securities Act of 1933 (the “Securities Act”) or pursuant to an exemption therefrom.
(b)At any time while applicable, the Company may affix a legend to the certificates representing unregistered Common Shares issued pursuant to this Agreement to the effect that such shares are not covered by an effective registration statement under the Securities Act and may only be sold or transferred upon registration or pursuant to an exemption therefrom.
10.    Severability.  In the event that one or more of the provisions of this Agreement may be invalidated for any reason by a court, any provision so invalidated will be deemed to be separable from the other provisions hereof, and the remaining provisions hereof will continue to be valid and fully enforceable.  Notwithstanding the foregoing, if any provision of Section 4(b) of this Agreement or the related definitions should be deemed invalid, illegal or unenforceable because its scope or duration is considered excessive, such provision shall be modified so that the scope of the provision is reduced only to the minimum extent necessary to render the modified provision valid, legal and enforceable.
11. Governing Law.  This certificate is made under, and will be construed in accordance with, the laws of the State of Maryland, without giving effect to the principle of conflict of laws of such State.
12.  Withholding and Taxes.  To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any payment made to or benefit realized by the Grantee, and the amounts available to the Company for such withholding are insufficient, it shall be a condition to the receipt of such payment or the realization of such benefit that the Grantee 

9

make arrangements satisfactory to the Company for payment of the balance of any taxes required to be withheld.  At the discretion of the Committee, such arrangements may include, without limitation, voluntary or mandatory relinquishment of a portion of any such payment or benefit or any other compensation payable to the Grantee or the surrender of outstanding Common Shares, and the Grantee hereby specifically consents to the foregoing, provided that the Grantee, in his discretion, may elect to pay the minimum statutory withholding obligation associated with an award of Common Shares under this Agreement by surrendering to the Company Common Shares otherwise receivable by the Grantee under this Agreement, such Common Shares to be valued at Fair Market Value on the date the Common Shares are awarded under this Agreement.
13.    Section 409A.  This Agreement and the awards granted hereunder are intended to comply with, or otherwise be exempt from, Section 409A of the Internal Revenue Code (“Section 409A”).  This Agreement shall be administered, interpreted and construed in a manner consistent with that intent.  Should any provision of this Agreement be found not to comply with, or otherwise not be exempt from, the provisions of Section 409A, it shall be modified and given effect, in the sole discretion of the Committee and without requiring the Grantee’s consent, in such manner as the Committee determines to be necessary or appropriate to comply with, or to effectuate an exemption from, Section 409A.  Each payment under this Agreement shall be treated as a separate identified payment for purposes of Section 409A.  The preceding provisions shall not be construed as a guarantee by the Company of any particular tax effect to Grantee of the award under this Agreement.  
14.    Certain Definitions.
(a) “AFFO” shall mean published FFO, as adjusted for acquisition costs, non-cash ground rent and other non-cash and/or unusual items and excluding the effect of income taxes, and after comparable adjustments for the company’s portion of these and the items of FFO related to unconsolidated entities and joint ventures, as determined in the good faith discretion of the Committee.
(b)“Average AFFO” shall mean the average of AFFO for the Measuring Period, calculated as the quotient of (x) the sum of AFFO for the Measuring Period divided by (y) three; provided that in the case of an early award pursuant to Section 4, Average AFFO shall be calculated as the quotient of (x) the sum of AFFO for the Measuring Period divided by (y) the number of years in the Measuring Period (for example, 1.75, in the case of a Measuring Period consisting of one year and three quarters).  See the exhibit attached to this Agreement and labeled “Performance Share Agreement Exhibit” for example calculations of Average AFFO.
(c)“Average Capital” shall mean the average of the Invested Capital (as defined below) for the Measuring Period and shall be calculated as the quotient of (x) the sum of Invested Capital at the beginning of the first year of the Measuring Period, plus the Invested Capital at the end of each of the first, second and third years of the Measuring Period, divided by (y) four; provided that in the case of an early award pursuant to Section 4, Average Capital shall be calculated as the 

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quotient of (x) the sum of Invested Capital at the beginning of the first year of the Measuring Period, plus the Invested Capital at the end of each of the completed fiscal years of the Measuring Period plus at the end of the Measuring Period (i.e., the end of the applicable fiscal quarter), divided by (y) the applicable period number (for example, 3, in the case of a Measuring Period consisting of one year and three quarters).  See the exhibit attached to this Agreement and labeled “Performance Share Agreement Exhibit” for example calculations of Average Capital.
(d)“Cause” shall have the meaning ascribed to such term in the Severance Agreement (as defined below). 
(e)“Change in Control of the Company” shall mean the occurrence of any of the following:
(i) any “person,” as such term is used in Section 3(a)(9) of the Exchange Act (as defined below), as modified and used in Sections 13(d) and 14(d) thereof except that such term shall not include (A) the Company or any of its subsidiaries, (B) any trustees or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Common Shares, or (E) any person or group as used in Rule 13d-1(b) under the Exchange Act, is or becomes the beneficial owner, as such term is defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person, any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing 50% or more of the combined voting power of the Company’s then outstanding securities;
(ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new Trustee (other than (A) a Trustee designated by a person who has entered into an agreement with the Company to effect a transition described in clause (i), (iii), or (iv) of this definition or (B) a Trustee whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of Trustees of the Company) whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the Trustees then still in office who either were Trustees at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;
(iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any corporation or other business entity, 

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other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least 75% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as defined above) is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing 25% or more of the combined voting power of the Company’s then outstanding securities; or
(iv) there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets (or any transaction having a similar effect) other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 75% of the combined voting power of the voting securities of which is owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
(f)“Competitive Activities” shall mean (i) the Grantee’s direct or indirect participation (for his own account or jointly with others) in the management of, or as an employee, board member, partner, manager, member, joint venturer, representative or other agent of, or advisor or consultant to, any Competitive Operation; or (ii) the Grantee’s investment in, or ownership of, in any Competitive Operation; provided that the Grantee may, as principal for his own account, engage in a Competitive Operation that is not funded, in part or in whole, with third-party institutional equity; and further provided that the Grantee may invest in, or own of, up to 5% of the capital stock of any business entity whose securities are traded on any national securities exchange or registered pursuant to Section 12(g) of the Exchange Act.
(g)“Competitive Operation” shall mean any business operation (other than the Company or one of its subsidiaries) if such operation is then primarily engaged in the acquisition or ownership of luxury or upscale hotels in urban, resort or convention markets in the United States, it being acknowledged and agreed that a Competitive Operation shall not include a business operation primarily engaged in (i) owning hotels other than luxury or upscale hotels; or (ii) franchising hotels to others;  or (iii) managing hotels for others.
(h)“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

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(i)“FFO” shall mean net income or loss determined in accordance with GAAP (as defined below), excluding gains or losses from sales of properties and impairment losses, plus real estate-related depreciation and amortization (excluding amortization of deferred finance costs).
(j)“GAAP” shall mean U.S. generally accepted accounting principles. 
(k)“Good Reason” shall mean the occurrence, without the Grantee’s prior written consent, of any of the following: (i) any material reduction of the Grantee’s base salary or material reduction of the Grantee’s target bonus as a percentage of base salary; (ii) any material adverse change in the Grantee’s duties or responsibilities, including assignment of duties inconsistent with his position, significant adverse alteration of the nature or status of responsibilities or the conditions of employment or any material diminution in authority, duties, or responsibilities, including, without limitation, any such material adverse change that results from a transaction pursuant to which the Company ceases to be a Reporting Lodging REIT (as defined below); (iii) a material diminution in the authority, duties, or responsibilities of the supervisor to whom the Grantee is required to report including, without limitation, any material diminution that results from a transaction pursuant to which the Company ceases to be a Reporting Lodging REIT; or (iv) relocation of the Company’s headquarters and/or the Grantee’s regular work address to a location which requires the Grantee to travel more than 50 miles from the Grantee’s residence.  The parties acknowledge that a significant part of the duties and responsibilities of the Grantee, and of the supervisor to whom the Grantee may be required to report, as applicable, derives from the fact that the Company is a reporting company under Section 12 of the Exchange Act.  A termination by the Grantee shall not be for Good Reason unless the Grantee gives the Company written notice specifying the event or condition that the Grantee asserts constitutes Good Reason, the notice is given no more than 90 days after the occurrence of the event or initial existence of the condition that the Grantee asserts constitutes Good Reason, during the 30 days following such notice the Company either fails to remedy or cure the event or condition or notifies the Grantee in writing that it will not remedy or cure the event or condition and the Grantee resigns within 30 days after the end of the cure period or, if earlier, the date the Company notifies the Grantee in writing that the Company will not remedy or cure the event or condition that the Grantee asserts constitutes Good Reason.
(l)“Invested Capital” shall mean the book value of all long-term indebtedness plus the book value of total equity, including common and preferred equity, after comparable adjustment for the company’s portion of these items related to unconsolidated entities and joint ventures, as determined in the good faith discretion of the Committee.
(m) “Involuntary Termination” shall mean cessation of the Grantee’s employment with the Company (or any of its controlled group affiliates) by reason of the Grantee’s death, termination by the Company due to the Grantee’s disability (disability to be determined in accordance with the Company’s then applicable long-term disability insurance policy plan), termination by the Company (or any of its controlled group affiliates) without Cause or termination by the Grantee for Good Reason.

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(n)“Measuring Period” shall mean a three-year period beginning at market close of the New York Stock Exchange on _________, 20__, and ending with market close of the New York Stock Exchange on _________, 20__, except that in the case of a Change in Control of the Company before _________, 20__, or an Involuntary Termination before _________, 20__, the Measuring Period shall mean a three-year period beginning at market close of the New York Stock Exchange on _________, 20__, and ending with market close of the New York Stock Exchange on the date provided in Section 4.
(o)“NAREIT Equity Index” shall mean the NAREIT Equity Index published by the National Association of Real Estate Investment Trusts or such other index as selected by the Committee in the event that the NAREIT Equity Index is discontinued or materially modified.
(p)“Peer Group” shall mean a group consisting of the Company and each of the following constituent companies: (i) Ashford Hospitality Trust, Inc., (ii) DiamondRock Hospitality Company, (iii) FelCor Lodging Trust Incorporated, (iv) Host Hotels & Resorts, Inc., (v) Strategic Hotels & Resorts, Inc., (vi) Sunstone Hotel Investors, Inc. and (vii) Pebblebrook Hotel Trust  In the event that a constituent company shall cease to exist as a Reporting Lodging REIT before or during the Measuring Period, it shall thereupon no longer be part of the Peer Group, effective retroactively to the date of the commencement of the Measuring Period.  If, by operation of the immediately preceding sentence, the total number of companies constituting the Peer Group shall become fewer than five before or during the Measuring Period, the Committee shall have the discretion, after consultation with the Company’s executive management team, to amend the definition of Peer Group to add one or more Reporting Lodging REITs to the Peer Group (in the case of a company ceasing to exist as a Reporting Lodging REIT during the Measuring Period, effective retroactively to the date of the commencement of the Measuring Period).  Pursuant to this Section 14(p), the Committee may increase the Peer Group so that it again consists of up to eight Reporting Lodging REITs, except that the Committee may not add a company to the Peer Group unless the company shall have been a Reporting Lodging REIT at all times during any then elapsed portion of the Measuring Period, as applicable.  The Committee shall make a change to this Agreement pursuant to this Section 14(p), if any, within 90 days after each decrease in the number of companies constituting the Peer Group and promptly advise the Grantee of any changes to the Peer Group constituents pursuant to this Section 14(p).
(q)“Reporting Lodging REIT” shall mean a lodging or hospitality company that is qualified as a real estate investment trust for purposes of federal income taxation, that is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and that has shares of common equity listed on a securities exchange registered as a national securities exchange pursuant to Section 6 of the Exchange Act.
(r)“Return on Invested Capital” shall mean return on invested capital and shall be calculated as Average AFFO divided by Average Capital. See the exhibit attached to this Agreement and labeled “Performance Share Agreement Exhibit” for example calculations of Return on Invested Capital.

14

(s) “Severance Agreement” shall mean that certain Change in Control Severance Agreement effective as of _________, 20__, between the Company and the Grantee, as it may be amended from time to time.
(t)“Total Return” shall mean total return, as calculated by the NAREIT Equity Index, for the Measuring Period and shall be the increase in the per-share market price of a company’s common equity plus dividends declared per share of common equity and assuming such dividends are reinvested.

15

WITNESS the seal of the Company and the signature of its duly authorized officer.

Dated:  _________, 20__, 
LASALLE HOTEL PROPERTIES
By:  ________________________________
Name:    
Title:      
Acknowledged and Agreed:
GRANTEE
By:  _______________________________
Name:    

16Exhibit 4.32

 

EXECUTION COPY

	
 
    

 

Zuyu DING

 

Weijie MA

 

Shanghai Yifang Software Co., Ltd.

 

AND

 

Shanghai Kushuo Information Technology Co., Ltd.

 

 

Exclusive Call Option Agreement

 

In Respect Of Shanghai Kushuo Information Technology Co., Ltd.

 

 

December 31, 2013

	
 
    

 

 

EXCLUSIVE CALL OPTION AGREEMENT

 

This EXCLUSIVE CALL OPTION AGREEMENT (this “Agreement”) is entered into as of December 31, 2013 by and among the following parties:

 

1.                                      Zuyu DING

 

Identity Card No.:

 

2.                                      Weijie MA

 

Identity Card No.:

 

(Zuyu DING and Weijie MA are hereinafter referred to individually as a “Company Shareholder” and collectively as the “Company Shareholders”.)

 

3.                                      Shanghai Yifang Software Co., Ltd. (the “WFOE”)

 

Registered address:   Room 213, building 10, No. 1766, Gongye Road, Jinhui Town, Fengxian District, Shanghai

 

4.                                      Shanghai Kushuo Information Technology Co., Ltd. (the “Company”)

 

Registered address:   Rooms A482, building 7, No. 700, Wanrong Road, Zhabei District, Shanghai

 

(In this Agreement, the above parties are hereinafter referred to individually as a “Party” and collectively as the “Parties”.)

 

WHEREAS:

 

(1)                                 The Company Shareholders are shareholders of the Company, legally holding all the equity interest in the Company. Appendix 1 sets forth the capital contribution amount and the shareholding percentage of each Company Shareholder in the registered capital of the Company as of the signing date of this Agreement.

 

(2)                                 To the extent not in violation of the PRC Law, the Company Shareholders intend to transfer all their respective equity interest in the Company to the WFOE and/or any other entity or individual designated by the WFOE after the Equity Interest Transfer takes effect, and the WFOE intends to accept such transfer.

 

(3)                                 To the extent not in violation of the PRC Law, the Company intends to transfer its assets to the WFOE and/or any other entity or individual designated by the WFOE after the Equity Interest Transfer takes effect, and the WFOE intends to accept such transfer.

 

(4)                                 For the purpose of the foregoing equity interest and asset transfer, the Company Shareholders and the Company agree to grant to the WFOE the exclusive and irrevocable Equity Transfer Option (as defined below) and Asset Purchase Option (as defined below) respectively after the Equity Interest Transfer takes effect. Pursuant to such Equity Transfer Option and Asset Purchase Option, at the WFOE’s request, the Shareholders or the Company shall, to the extent permitted by the PRC Law, transfer the Option Equity (as defined below) or the Company Assets (as defined below) to the WFOE and/or any other entity or individual designated by the WFOE pursuant to the provisions of this Agreement.

 

(5)                                 The Company agrees that the Company Shareholders grant the Equity Transfer Option to the WFOE pursuant to the provisions of this Agreement.

 

 

(6)                                 The Company Shareholders agree that the Company grants the Asset Purchase Option to the WFOE pursuant to the provisions of this Agreement.

 

NOW, THEREFORE, the Parties, after consultations, hereby agree as follows:

 

Article 1 Definitions

 

1.1                               As used in this Agreement, the following terms shall be interpreted to have the following meanings, unless otherwise interpreted pursuant to the context:

 

“Equity Transfer Option” shall mean the option to purchase the equity interest in the Company as granted to the WFOE by the Company Shareholders pursuant to the terms and conditions of this Agreement.

 

“Asset Purchase Option” shall mean the option to purchase any Company Assets as granted to the WFOE by the Company pursuant to the terms and conditions of this Agreement.

 

“Option Equity” shall mean, in respect of each of the Company Shareholders, all the equity interest held by him in the Company Registered Capital respectively as of the effective date of this Agreement; in respect of all the Company Shareholders, the equity interest covering 100% of the Company Registered Capital as of the effective date of this Agreement.

 

“Company Registered Capital” shall mean the registered capital of the Company as of the effective date of this Agreement, i.e. RMB10,000,000, which shall include any expanded registered capital as a result of any capital increase in any form within the term of this Agreement.

 

“Transferred Equity” shall mean the equity interest in the Company which the WFOE has the right to request either of the Company Shareholders to transfer to it or its designated entity or individual in accordance with Article 3 hereof when the WFOE exercises its Equity Transfer Option, the quantity of which may be all or part of the Option Equity and the specific amount of which shall be determined by the WFOE at its sole discretion in accordance with the then-effective PRC Law and based on its commercial consideration.

 

“Transferred Assets” shall mean the Company Assets which the WFOE has the right to require the Company to transfer to it or its designated entity or individual in accordance with Article 3 hereof when the WFOE exercises its Asset Purchase Option, the quantity of which may be all or part of the Company Assets and the details of which shall be determined by the WFOE at its sole discretion in accordance with the then-effective PRC Law and based on its commercial consideration.

 

“Exercise of Option” shall mean the exercising of the Equity Transfer Option or the Asset Purchase Option by the WFOE.

 

“Transfer Price” shall mean all the consideration that the WFOE or its designated entity or individual is required to pay to the Company Shareholders or the Company in order to obtain the Transferred Equity or the Transferred Assets upon each Exercise of Option.

 

 

“Business Permits” shall mean any approvals, permits, filings, registrations, etc which the Company is required to have for legally and validly operating all its businesses, including without limitation, Business License of Corporate Legal Person, Operation Permit of Value-added Telecommunication Service and such other relevant permits and licenses as required by the then-effective PRC Law.

 

“Company Assets” shall mean all the tangible and intangible assets which the Company owns or has the right to dispose of during the valid term of this Agreement, including without limitation, any immoveable and moveable assets, intellectual property rights such as trademarks, copyrights, patents, know-how, domain names and software use rights, and any investment interest.

 

“Material Asset” shall mean any asset which has a book value of RMB100,000 or more or has a material effect on the business operations of any Party.

 

“Material Agreement” shall mean, in respect of the Company, any agreement to which the Company is a party and which has a material effect on the business or assets of the Company; in respect of a Subsidiary, any agreement to which such Subsidiary is a party and which has a material effect on the business or assets of such Subsidiary.

 

“PRC” shall mean the People’s Republic of China, which, for purpose of this Agreement only, excludes Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan.

 

“PRC Law” shall mean the then-effective laws, administrative regulations, administrative rules, local regulations, judicial interpretations and other binding regulatory documents of the PRC.

 

“Exercise Notice” shall have the meaning prescribed to such term in Article 3.7 hereof.

 

“Subsidiary” shall have the meaning prescribed to such term in Article 6.1.10 hereof.

 

“Confidential Information” shall have the meaning prescribed to such term in Article 8.1 hereof.

 

“Disclosing Party” shall have the meaning prescribed to such term in Article 8.1 hereof.

 

“Receiving Party” shall have the meaning prescribed to such term in Article 8.1 hereof.

 

“Defaulting Party” shall have the meaning prescribed to such term in Article 11.1 hereof.

 

“Default” shall have the meaning prescribed to such term in Article 11.1 hereof.

 

“Available Rights” shall have the meaning prescribed to such term in Article 12.5 hereof.

 

1.2                               The references to any PRC Law herein shall be deemed:

 

(1)                                 simultaneously to include the references to the amendments, changes, supplements and restatement of such PRC Law, irrespective of whether they take effect before or after the execution of this Agreement; and

 

(2)                                 simultaneously to include the references to other decisions, notices and regulations enacted in accordance therewith or effective as a result  thereof.

 

 

1.3                               Except as otherwise stated in the context herein, all references to an Article, clause, item or paragraph shall refer to the corresponding part of this Agreement.

 

Article 2 Grant of Equity Transfer Option and Asset Purchase Option

 

2.1                               The Company Shareholders hereby severally and jointly agree to grant, upon this Agreement taking effect, the WFOE an irrevocable, unconditional and exclusive Equity Transfer Option. Pursuant to such Equity Transfer Option, the WFOE is entitled to, to the extent permitted by the PRC Law, request the Company Shareholders to transfer the Option Equity to the WFOE or its designated entity or individual according to the terms and conditions hereunder. The WFOE also agrees to accept such Equity Transfer Option.

 

2.2                               The Company hereby agrees that the Company Shareholders grant such Equity Transfer Option to the WFOE according to Article 2.1 above and other provisions of this Agreement.

 

2.3                               The Company hereby agrees to grant, upon this Agreement taking effect, the WFOE an irrevocable, unconditional and exclusive Asset Purchase Option. Pursuant to such Asset Purchase Option, the WFOE is entitled to, to the extent permitted by the PRC Law, request the Company to transfer all or part of the Company Assets to the WFOE or its designated entity or individual according to the terms and conditions hereunder. The WFOE also agrees to accept such Asset Purchase Option.

 

2.4                               The Company Shareholders hereby severally and jointly agree that the Company grants such Asset Purchase Option to the WFOE according to Article 2.3 above and other provisions of this Agreement.

 

Article 3 Method of Exercise of Option

 

3.1.                            Subject to the terms and conditions of this Agreement, the WFOE shall have the absolute sole discretion to determine the specific time, method and times of its Exercise of Option to the extent permitted by the PRC Law.

 

3.2.                            Subject to the terms and conditions of this Agreement and to the extent not in violation of the then-effective PRC Law, the WFOE shall have the right to, at any time, request to acquire the Transferred Equity from the Company Shareholders by itself or through any other entity or individual designated by it.

 

3.3.                            Subject to the terms and conditions of this Agreement and to the extent not in violation of the then-effective PRC Law, the WFOE shall have the right to, at any time, request to acquire the Transferred Assets from the Company by itself or through any other entity or individual designated by it.

 

3.4.                            With regard to the Equity Transfer Option, at each Exercise of Option, the WFOE shall have the right to arbitrarily determine the amount of the Transferred Equity to be transferred by the Company Shareholders to the WFOE and/or any other entity or individual designated by it. The Company Shareholders shall  respectively transfer the Transferred Equity to the WFOE and/or any other entity or individual designated by it in the amount requested by the WFOE. The WFOE and/or any other entity or individual designated by it shall pay the Transfer Price with respect to the Transferred Equity acquired at each Exercise of Option to the Company Shareholder transferring such Transferred Equity.

 

 

3.5.                            With regard to the Asset Purchase Option, at each Exercise of Option, the WFOE shall have the right to determine the specific Company Assets to be transferred by the Company to the WFOE and/or any other entity or individual designated by it. The Company shall transfer the Transferred Assets to the WFOE and/or any other entity or individual designated by it in accordance with the WFOE’s requirement. The WFOE and/or any other entity or individual designated by it shall pay the Transfer Price to the Company with respect to the Transferred Assets acquired at each Exercise of Option.

 

3.6.                            At each Exercise of Option, the WFOE may acquire the Transferred Equity or Transferred Assets by itself or designate any third party to acquire all or part of the Transferred Equity or Transferred Assets.

 

3.7.                            Having decided each Exercise of Option, the WFOE shall issue to the Company Shareholders or the Company a notice for exercising the Equity Transfer Option or a notice for exercising the Asset Purchase Option (the “Exercise Notice”, the form of which are set out in Annex 2 and Annex 3 hereto). The Company Shareholders or the Company shall, upon receipt of the Exercise Notice, forthwith transfer all the Transferred Equity or Transferred Assets in accordance with the Exercise Notice to the WFOE and/or any other entity or individual designated by the WFOE in such method as described in Article 3.4 or Article 3.5 hereof.

 

Article 4 Transfer Price

 

4.1.                            With regard to the Equity Transfer Option, the total Transfer Price to be paid by the WFOE or any other entity or individual designated by the WFOE to each Company Shareholder at each Exercise of Option by the WFOE shall be the capital contribution mirrored by the corresponding Transferred Equity in the Company Registered Capital. But if the lowest price permitted by the then-effective PRC Law is higher than the above capital contribution, the Transfer Price shall be the lowest price permitted by the PRC Law.

 

4.2.                            With regard to the Asset Purchase Option, the Transfer Price to be paid by the WFOE or any other entity or individual designated by the WFOE to the Company at each Exercise of Option by the WFOE shall be the net book value of the relevant Transferred Assets. But if the lowest price permitted by the then-effective PRC Law is higher than the net book value of the Transferred Assets, the Transfer Price shall be the lowest price permitted by the PRC Law.

 

 

Article 5 Representations and Warranties

 

5.1                               The Company Shareholders hereby severally and jointly represent and warrant that:

 

5.1.1.                  Each of the Company Shareholders is a Chinese citizen with full capacity. Each of them has the full and independent legal status and legal capacity to execute, deliver and perform this Agreement and may act independently as a party to lawsuit.

 

5.1.2.                  The Company is a limited liability company duly registered and legitimately existing under the PRC Law with an independent legal personality. It has the full and independent legal status and legal capacity to execute, deliver and perform this Agreement and may act independently as a party to lawsuit.

 

5.1.3.                  Upon this Agreement taking effect, each of them has the full power and authority to execute, deliver and perform this Agreement and all other documents relating to the transaction contemplated hereby and to be executed by him. Each of them has the full power and authority to consummate the transaction contemplated hereby.

 

5.1.4.                  This Agreement is legally and duly executed and delivered by the Company Shareholders. After taking effect, this Agreement shall constitute their legal and binding obligations and shall be enforceable against them in accordance with the terms of this Agreement.

 

5.1.5.                  The Company Shareholders are the legitimate owners of the Option Equity as of the effective date of this Agreement, and except for the rights created under the Equity Pledge Agreement and Shareholder Voting Rights Proxy Agreement executed by the Company, the WFOE and the Company Shareholders on the date hereof, the Option Equity is free from and clear of any lien, pledge, claim and other encumbrances and third party rights. Pursuant to this Agreement, the WFOE and/or any other entity or individual designated by it may, after the Exercise of Option, acquire a good title to the Transferred Equity, free from and clear of any lien, pledge, claim and other encumbrances or third party rights.

 

5.1.6.                  To the knowledge of the Company Shareholders, as of the effective date of this Agreement, the Company Assets are free from and clear of any lien, mortgage, claim and other encumbrances and third party rights. Pursuant to this Agreement, the WFOE and/or any other entity or individual designated by it may, after the Exercise of Option, acquire a good title to the Company Assets, free from and clear of any lien, mortgage, claim and other encumbrances or third party rights.

 

5.1.7.                  The execution, delivery and performance by the Company Shareholders of this Agreement and the consummation by the Company Shareholders of the transaction contemplated hereby do not violate any PRC Law or any agreement, contract or other arrangement with any third party by which they are bound.

 

5.2                               The Company hereby represents and warrants that:

 

5.2.1                     The Company is a limited liability company duly registered and legitimately existing under the PRC Law with an independent legal personality. It has the full and independent legal status and legal capacity to execute, deliver and perform this Agreement and may act independently as a party to lawsuit.

 

5.2.2                     The Company has the full internal corporate power and authority to  execute, deliver and perform this Agreement and all other documents relating to the transaction contemplated hereby and to be executed by it. It has the full power and authority to consummate the transaction contemplated hereby.

 

 

5.2.3                     This Agreement is legally and duly executed and delivered by the Company. After taking effect, this Agreement shall constitute the legal and binding obligation against it.

 

5.2.4                     The Company Assets are free from and clear of any lien, mortgage, claim and other encumbrances and third party rights. Pursuant to this Agreement, the WFOE and/or any other entity or individual designated by it may, after the Exercise of Option, acquire a good title to the Company Assets, free from and clear of any lien, mortgage, claim and other encumbrances or third party rights.

 

5.2.5                     The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transaction contemplated hereby do not violate any PRC Law or any agreement, contract or other arrangement with any third party by which it is bound.

 

5.3                               The WFOE hereby represents and warrants that:

 

5.3.1.                  The WFOE is a wholly foreign-owned enterprise duly registered and legitimately existing under the PRC Law with an independent legal personality. The WFOE has the full and independent legal status and legal capacity to execute, deliver and perform this Agreement and may act independently as a party to lawsuit.

 

5.3.2.                  The WFOE has the full internal corporate power and authority to execute, deliver and perform this Agreement and all other documents relating to the transaction contemplated hereby and to be executed by it. It has the full power and authority to consummate the transaction contemplated hereby.

 

5.3.3.                  This Agreement is legally and duly executed and delivered by the WFOE. After taking effect, this Agreement shall constitute the legal and binding obligation against it.

 

Article 6 Undertakings by the Company Shareholders

 

Each of the Company Shareholders hereby severally undertakes that:

 

6.1                               Within the valid term of this Agreement, without the WFOE’s prior written consent:

 

6.1.1.                  any Company Shareholder shall not transfer or otherwise dispose of any Option Equity or create any encumbrance or other third party rights on any Option Equity;

 

6.1.2.                  he shall not increase or decrease the Company Registered Capital or cause or permit the Company to be divided or merged with any other entity;

 

6.1.3.                  he shall not dispose of or cause the management of the Company to dispose of any Material Asset (other than in the ordinary course of business), or create any encumbrance or other third party rights on any Material Asset;

 

 

6.1.4.                  he shall not terminate or cause the management of the Company to terminate any Material Agreement entered into by the Company, or enter into any other agreement in conflict with the existing Material Agreements;

 

6.1.5.                  he shall not appoint or dismiss and replace any director or supervisor of the Company or any other management personnel of the Company who shall be appointed or dismissed by the Company Shareholders;

 

6.1.6.                  he shall not cause the Company to declare the distribution of or in practice release any distributable profit, dividend, share profit or share interest;

 

6.1.7.                  he shall ensure that the Company validly exists and is not terminated, liquidated or dissolved;

 

6.1.8.                  he shall not amend the articles of association of the Company;

 

6.1.9.                  he shall ensure that the Company will not lend or borrow any money, or provide any guaranty or engage in security activities in any other form, or bear any substantial obligations other than in the ordinary course of business; and

 

6.1.10.           it shall not cause the Company or the management of the Company to approve any of the following acts of any of the Company’s subsidiaries or affiliates (collectively, the “Subsidiaries”):

 

(a)                     increase or decrease any Subsidiary’s registered capital or cause or permit any Subsidiary to be divided or merged with any other entity;

 

(b)                     dispose of or cause the management of the Subsidiaries to dispose of any Material Asset of any Subsidiary (other than in the ordinary course of business), or create any encumbrance or other third party rights on such assets;

 

(c)                      terminate or cause the management of the Subsidiaries to terminate any Material Agreement entered into by any Subsidiary, or enter into any other agreement in conflict with the existing Material Agreements;

 

(d)                     appoint or dismiss and replace any director or supervisor of any Subsidiary or any other management personnel of such Subsidiary who shall be appointed or dismissed by the Company;

 

(e)                      terminate, liquidate or dissolve any Subsidiary or act in any way that damages or is likely to damage the valid existence of any Subsidiary;

 

(f)                       amend the articles of association of any Subsidiary; and

 

(g)                      lend or borrow any money, or provide any guaranty or engage in security activities in any other form, or bear any substantial obligations other than in the ordinary course of business.

 

 

6.2                               Within the valid term of this Agreement, he shall use his best endeavor to develop the business of the Company and ensure that the Company’s operations are legal and in compliance with the regulations, and he will not engage in any act or omission which may damage the Company’s (including the Subsidiaries’) assets and goodwill or affect the validity of the Business Permits of the Company.

 

6.3                               Within the valid term of this Agreement, he shall timely notify the WFOE of any circumstances that may have a material adverse effect on the existence, business operations, financial conditions, assets or goodwill of the Company (including the Subsidiaries) and timely take all the measures approved by the WFOE to remove such adverse circumstances or take effective remedial measures with respect thereto.

 

6.4                               With the valid term of this Agreement, once the WFOE gives the Exercise Notice,

 

6.4.1.                  he shall promptly convene a shareholders’ meeting, pass shareholders’ resolutions and take all other necessary actions to approve any Company Shareholder or the Company to transfer all the Transferred Equity or the Transferred Assets at the Transfer Price to the WFOE and/or any other entity or individual designated by the WFOE, and waive any preemptive right to purchase enjoyed by him (if any);

 

6.4.2.                  he shall promptly enter into an equity transfer agreement with the WFOE and/or any other entity or individual designated by the WFOE to transfer all the Transferred Equity at the Transfer Price to the WFOE and/or any other entity or individual designated by the WFOE and provide necessary support to the WFOE (including provision and execution of all relevant legal documents, performing all government approval and registration procedures and assuming all relevant obligations) in accordance with the WFOE’s requirements and the PRC Law so that the WFOE and/or any other entity or individual designated by the WFOE may acquire all the Transferred Equity, free from and clear of any legal defect or any encumbrance, third party restriction or any other restrictions on the Transferred Equity.

 

6.5                               If the total Transfer Price obtained by any Company Shareholder with respect to the Transferred Equity held by him is higher than the capital contribution corresponded with such Transferred Equity in the Company Registered Capital, or he receives any form of profit distribution, share profit, share interest or dividend from the Company, then such Company Shareholder agrees to, to the extent no in violation of the PRC Law, waive the premium earnings and any profit distribution, share profit, share interest or dividend (after the deduction of relevant taxes) and the WFOE is entitled thereto. Otherwise, such Company Shareholder shall compensate the WFOE and/or any other entity or individual designated by the WFOE for any loss incurred as a result thereof.

 

 

Article 7 Undertakings by the Company

 

7.1                               The Company hereby undertakes that:

 

7.1.1.                  If any consent, permit, waiver or authorization by any third party, or any approval, permit or exemption by any government authority, or any registration or filing formalities (if required by law) with any government authority needs to be obtained or handled with respect to the execution and performance of this Agreement and the grant of the Equity Transfer Option or Asset Purchase Option hereunder, the Company shall endeavor to assist in satisfying the above conditions.

 

7.1.2.                  Without the WFOE’s prior written consent, the Company shall not assist or permit the Company Shareholders to transfer or otherwise dispose of any Option Equity or create any encumbrance or other third party rights on any Option Equity.

 

7.1.3.                  Without the WFOE’s prior written consent, the Company shall not transfer or otherwise dispose of any Material Asset (other than in the ordinary course of business) or create any encumbrance or other third party rights on any Company Assets.

 

7.1.4.                  The Company shall not do or permit to be done any behavior or action that may adversely affect the interests of the WFOE under this Agreement, including without limitation, any behavior and action that is subject to Article 6.1.

 

7.2                               With the valid term of this Agreement, once the WFOE gives the Exercise Notice,

 

7.2.1                     it shall promptly cause the Company Shareholders to convene a shareholders’ meeting, pass shareholders’ resolutions and take all other necessary actions to approve the Company to transfer all the Transferred Assets at the Transfer Price to the WFOE and/or any other entity or individual designated by the WFOE;

 

7.2.2                     it shall promptly enter into an asset transfer agreement with the WFOE and/or any other entity or individual designated by the WFOE to transfer all the Transferred Assets at the Transfer Price to the WFOE and/or any other entity or individual designated by the WFOE, and cause the Company Shareholders to provide necessary support to the WFOE (including provision and execution of all relevant legal documents, performing all government approval and registration procedures and assuming all relevant obligations) in accordance with the WFOE’s requirements and the PRC Law so that the WFOE and/or any other entity or individual designated by the WFOE may acquire all the Transferred Assets, free from and clear of any legal defect or any encumbrance, third party restriction or any other restrictions on the Transferred Assets.

 

Article 8 Confidentiality Obligations

 

8.1                               Regardless of whether this Agreement is terminated or not, each Party shall keep strictly confidential all the business secrets, proprietary information, customer information and all other information of a confidential nature about the other Parties known by it during the execution and performance of this Agreement (collectively, the “Confidential Information”). Unless a prior written consent is obtained from the Party disclosing the Confidential Information (the “Disclosing Party”) or unless it is required to be disclosed to third parties according to the stipulation of relevant laws and regulations or the requirement of the place where its affiliate is listed on a stock exchange, the Party receiving the Confidential Information (the “Receiving Party”) shall not disclose to any third party any Confidential Information. The Receiving Party shall not use any Confidential Information other than for the purpose of performing this Agreement.

 

 

8.2                               The following information shall not be deemed part of the Confidential Information:

 

(a)                     any information that has been lawfully acquired by the receiving Party before as evidenced by written documents;

 

(b)                     any information entering the public domain not attributable to the fault of the Party receiving the information; or

 

(c)                      any information lawfully acquired by the Party receiving the information through other sources after its receipt of such information.

 

8.3                               For purpose of performing this Agreement, the Receiving Party may disclose the Confidential Information to its relevant employees, agents or professionals retained by it. However, the Receiving Party shall ensure that the aforesaid persons shall comply with the relevant terms and conditions of this Article 8. In addition, the Receiving Party shall be responsible for any liability incurred as a result of such persons’ breach of the relevant terms and conditions of this Article 8.

 

8.4                               Notwithstanding any other provision herein, the effect of this Article 8 shall not be affected by the termination of this Agreement.

 

Article 9 Term of Agreement

 

After being duly executed by the Parties, this Agreement shall become effective immediately upon the Equity Interest Transfer taking effect. This Agreement shall terminate after all the Option Equity and the Company Assets are lawfully transferred to the WFOE and/or any other entity or individual designated by the WFOE pursuant to the provisions of this Agreement.

 

Article 10 Notices

 

10.1                        Any notice, request, demand and other correspondences required by this Agreement or made in accordance with this Agreement shall be delivered in writing to the relevant Party.

 

10.2                        If any of such notice or other correspondences is transmitted by facsimile or telex, it shall be treated as delivered immediately upon transmission; if delivered in person, it shall be treated as delivered at the time of delivery; if posted by mail, it shall be treated as delivered five (5) days after posting.

 

 

Article 11 Defaulting Liability

 

11.1                        The Parties agree and confirm that, if any of the Parties (the “Defaulting Party”) substantially violates any agreement herein or substantially fails to perform or delays performance of any of the obligations hereunder, such violation, failure or delay shall constitute a default under this Agreement (a “Default”). The non-defaulting Party shall have the right to request the Defaulting Party to rectify or take remedial actions within a reasonable period. If the Defaulting Party fails to rectify such Default or take remedial actions within such reasonable period or within ten (10) days after the non-defaulting Party notifies the Defaulting Party in writing requiring the Default to be rectified, then the non-defaulting Party is entitled to decide at its own discretion that:

 

11.1.1.           if any Company Shareholder or the Company is the Defaulting Party, the WFOE shall be entitled to terminate this Agreement and require the Defaulting Party to indemnify the damages;

 

11.1.2.           if the WFOE is the Defaulting Party, the non-defaulting Party shall be entitled to require the Defaulting Party to indemnify the damages, but unless otherwise provided for by the PRC Law, the non-defaulting Party has no right to terminate or cancel this Agreement in any circumstances.

 

11.2                        Notwithstanding any other provision herein, the effect of this Article 11 shall not be affected by the termination of this Agreement.

 

Article 12 Miscellaneous

 

12.1                        This Agreement is written in Chinese and executed in four (4) originals, with one (1) original to be retained by each Party hereto.

 

12.2                        The execution, effectiveness, performance, revision, interpretation and termination of this Agreement shall be governed by the PRC Law.

 

12.3                        Any dispute arising out of and in connection with this Agreement shall be resolved through consultations among the Parties. In case the Parties fail to reach agreement within thirty (30) days after the dispute arises, such dispute shall be submitted to China International Economic and Trade Arbitration Commission Shanghai Commission for arbitration in Shanghai in accordance with such Commission’s arbitration rules in effect at the time of applying for arbitration, and the arbitration award shall be final and binding on the Parties.

 

12.4                        None of the rights, powers or remedies granted to any Party by any provision herein shall preclude any other rights, powers or remedies available to such Party at law and under the other provisions of this Agreement. In addition, the exercising by one Party of any of its rights, powers and remedies shall not exclude such Party from exercising any of its other rights, powers and remedies.

 

12.5                        No failure or delay by a Party in exercising any rights, powers and remedies available to it hereunder or at law (the “Available Rights”) shall result in a waiver thereof, nor shall the waiver of any single or partial exercise of the Available Rights shall exclude such Party from exercising such rights in any other way and exercising the other Available Rights.

 

 

12.6                        The headings of the provisions herein are for reference only, and in no event shall such headings be used for or affect the interpretation of the provisions hereof.

 

12.7                        Each provision contained herein shall be severable and independent from each of the other provisions. If any one or more provisions herein become(s) invalid, illegal or unenforceable at any time, the validity, legality and enforceability of the remaining provisions herein shall not be affected as a result thereof.

 

12.8                        This Agreement, when effective, shall supersede any prior other legal documents executed by and among the Parties with respect to the subject matter hereof. Any amendment or supplement hereto shall be made in writing and shall become effective only upon due execution by the Parties hereto.

 

12.9                        Without the WFOE’s prior written consent, each Company Shareholder or the Company shall not transfer any of its rights and/or obligations hereunder to any third party. The Company Shareholders and the Company hereby agree that the WFOE is entitled to transfer any of its rights and/or obligations hereunder to any third party upon written notice thereof to the Company Shareholders and the Company.

 

12.10                 This Agreement shall be binding on the legal assignees or successors of the Parties.

 

[The remainder of this page intentionally left blank]

 

 

[SIGNATURE PAGE]

 

IN WITNESS WHEREOF, the following Parties have executed this Exclusive Call Option Agreement as of the date first above written.

 

 

	
Zuyu DING
    	
 
    
	
By: 
    	
/s/ Zuyu DING
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Weijie   MA
    	
 
    
	
By: 
    	
/s/ Weijie MA
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Shanghai   Yifang Software Co., Ltd.
    	
 
    
	
(Seal)
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
/s/ Shanghai Yifang Software Co., Ltd.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Shanghai Kushuo   Information Technology Co., Ltd.
    	
 
    
	
(Seal)
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
/s/ Shanghai   Kushuo Information Technology Co., Ltd.
    	
 
    

 

 

Annex 1:

 

Company’s General Information

 

	
Company name:
    	
Shanghai Kushuo   Information Technology Co., Ltd.
    
	
 
    	
 
    
	
Registered address:
    	
Rooms A482,   building 7, No. 700, Wanrong Road, Zhabei District, Shanghai
    
	
 
    	
 
    
	
Registered capital:
    	
RMB10,000,000
    
	
 
    	
 
    
	
Legal Representative: 
    	
Zuyu DING
    

 

Shareholding structure:

 

	
Shareholder’s name
    	
 
    	
Contribution in
   registered capital
    	
 
    	
Percentage of
   contribution
    	
 
    	
Method of
   contribution
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Zuyu DING
    	
 
    	
RMB
    	
5,000,000
    	
 
    	
50
    	
%
    	
Currency
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Weijie MA
    	
 
    	
RMB
    	
5,000,000
    	
 
    	
50
    	
%
    	
Currency
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total
    	
 
    	
RMB
    	
10,000,000
    	
 
    	
100
    	
%
    	
/
    

 

 

Annex 2:

 

Form of Exercise Notice

 

To: [Name of the Company Shareholder]

 

WHEREAS, we, Shanghai Kushuo Information Technology Co., Ltd. (the “Company”), [name of the other Company Shareholder] and you entered into an Exclusive Call Option Agreement (the “Option Agreement”) on December 31, 2013 and reached an agreement that you shall transfer the equity interest you hold in the Company to us or any third party designated by us at our request to the extent permitted by the PRC laws and regulations.

 

Therefore, we hereby give this notice to you as follows:

 

We hereby request to exercise the Equity Transfer Option under the Option Agreement and we/[name of company/individual] designated by us will acquire the [·]% of the equity interest you hold in the Company (the “Proposed Acquired Equity”). Upon your receipt of this notice, you shall immediately transfer all the Proposed Acquired Equity to us/[name of designated company/individual] pursuant to the provisions of the Option Agreement.

 

	
Regards,
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Shanghai Yifang   Software Co., Ltd.
    
	
 
    	
(Seal)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Authorized   representative:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Date:
    

 

 

Annex 3:

 

Form of Exercise Notice

 

To: Shanghai Kushuo Information Technology Co., Ltd.

 

WHEREAS, we, Zuyu DING, Weijie MA and you entered into an Exclusive Call Option Agreement (the “Option Agreement”) on December 31, 2013 and reached an agreement that you shall transfer your assets to us or any third party designated by us at our request to the extent permitted by the PRC laws and regulations.

 

Therefore, we hereby give this notice to you as follows:

 

We hereby require to exercise the Asset Purchase Option under the Option Agreement and we/[name of company/individual] designated by us will acquire the assets owned by you as stated in a separate list (the “Proposed Acquired Assets”). Upon your receipt of this notice, you shall immediately transfer all the Proposed Acquired Assets to us/[name of designated company/individual] pursuant to the provisions of the Option Agreement.

 

	
Regards,
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Shanghai Yifang   Software Co., Ltd.
    
	
 
    	
(Seal)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Authorized   representative:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Date:

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