Fortunet e Commerce : MAJOR TRANSACTION DEEMED DISPOSAL OF EQUITY INTEREST IN A SUBSIDIARY

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CHANGYOU ALLIANCE GROUP LIMITED

暢 由 聯 盟 集 團 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1039)

MAJOR TRANSACTION

DEEMED DISPOSAL OF EQUITY INTEREST IN A SUBSIDIARY

SUBSCRIPTION AGREEMENT

On 29 July 2020 (after trading hours), PCL, an indirect non-wholly owned subsidiary of the Company, entered into a Subscription Agreement with Sendlink, pursuant to which, among other things, PCL conditionally agreed to allot and issue, and Sendlink conditionally agreed to subscribe for (or shall procure the Investor Nominee to subscribe for), not less than 61,078,767 but not more than 73,287,671 Subscription Shares at the Subscription Price of not less than US$35,670,000 but not more than US$42,800,000.

Upon completion of the Subscription, (i) assuming the minimum of 61,078,767 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, PCL will be held as to approximately 44.56% by Pointsea Holdings, approximately 49.77% by the Original Investors in aggregate and approximately 5.67% by the Investor of the issued share capital of PCL as enlarged by the issue of the Subscription Shares; and (ii) assuming the maximum of 73,287,671 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, PCL will be held as to approximately 44.06% by Pointsea Holdings, approximately 49.21% by the Original Investors in aggregate and approximately 6.73% by the Investor of the issued share capital of PCL as enlarged by the issue of the Subscription Shares.

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LISTING RULES IMPLICATIONS

Upon completion of the Subscription, (i) assuming the minimum of 61,078,767 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, Pointsea Holdings' equity interest in PCL will be reduced from approximately 47.24% to approximately 44.56% and the Group's effective equity interest in PCL will be reduced from approximately 18.93% to approximately 17.86%; and (ii) assuming the maximum of 73,287,671 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, Pointsea Holdings' equity interest in PCL will be reduced from approximately 47.24% to approximately 44.06% and the Group's effective equity interest in PCL will be reduced from approximately 18.93% to approximately 17.66%. Accordingly, the Subscription constitutes a deemed disposal of the Group under Rule 14.29 of the Listing Rules. As the Investor shall not be entitled to nominate or appoint any person to act as a director of PCL, the Subscription will not result in the Group losing its control of the board of directors of PCL, and therefore PCL will continue to be a subsidiary of the Group.

As one or more of the applicable percentage ratios in respect of the Subscription are more than 25% and all of such ratios are less than 75%, the Subscription constitutes a major transaction of the Company under Chapter 14 of the Listing Rules and is therefore subject to the reporting, announcement and Shareholders' approval requirements under Chapter 14 of the Listing Rules.

A circular containing, among other things, (i) further details of the Subscription Agreement and the transactions contemplated thereunder; and (ii) other information as required by the Listing Rules, together with the notice convening the EGM and the proxy form in respect of the EGM, is expected to be despatched to the Shareholders on or before 13 August 2020 in accordance with the Listing Rules.

Shareholders and potential investors of the Company should note that completion of the Subscription is subject to the fulfilment of the condition precedents set out in the Subscription Agreement, and there is no assurance that the transactions contemplated under the Subscription Agreement will be completed. Accordingly, Shareholders and potential investors of the Company should exercise caution when dealing in the Shares.

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SUBSCRIPTION AGREEMENT

Date

29 July 2020 (after trading hours)

Parties

1. PCL; and
2. Sendlink.

To the best of the knowledge, information and belief of the Directors after having made all reasonable enquiries, Sendlink and its ultimate beneficial owners are third parties independent of the Company and its connected persons as at the date of this announcement.

The principal terms of the Subscription Agreement are set out below:

Subscription Shares and Subscription Price

Pursuant to the Subscription Agreement, PCL conditionally agreed to allot and issue, and Sendlink conditionally agreed to subscribe for (or shall procure the Investor Nominee to subscribe for), not less than 61,078,767 but not more than 73,287,671 Subscription Shares at the Subscription Price of not less than US$35,670,000 but not more than US$42,800,000.

The Subscription Price payable by the Investor to PCL was determined after arm's length negotiations between PCL and the Investor on the basis of a pre-money valuation of PCL of approximately US$593 million which is based on the innovative business model and the continued expansion of the user base of PCL; the introduction of new partners to the Changyou digital point business ecosystem alliance (the "Changyou Alliance") in the future which will attract further potential users; the increase in the utilisation rate of shopping malls and financial services provided by future digital point-based platforms; and the expanding business model of the Changyou Alliance which allows PCL to further enrich and deepen its business operations.

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Conditions precedent

Completion of the Subscription is subject to, among other things, the following conditions being satisfied (or waived, as the case may be):

1. the Investor shall have obtained its final internal approval for the consummation of the transactions contemplated under the Subscription Agreement and executed the Deed of Accession to join as a party to the JV Agreement in its capacity as a shareholder of PCL on or before the completion of the Subscription;
2. all necessary consents, waivers (including the waivers to be obtained from the relevant shareholders of PCL with respect to their respective rights of pre-emption in relation to the Subscription) and approvals (including all internal approvals of PCL and/or approvals by the direct or indirect shareholders of PCL (if required)) for the consummation of the transactions contemplated under the Subscription Agreement, and all other third party consents, authorisations, permits, approvals and waivers, shall have been obtained; and
3. the Company shall have complied with all applicable disclosure, shareholders' approval and other requirements under the Listing Rules for the consummation of the transactions contemplated under the Subscription Agreement.

PCL and Sendlink shall use all reasonable efforts within their respective capacity to satisfy the above conditions on or before 30 June 2021 (or such later date as may be agreed between PCL and Sendlink in writing) (the "Long Stop Date") and proceed to the completion of the Subscription. If any of the above conditions is not satisfied or waived (as the case may be) in accordance with the Subscription Agreement by the Long Stop Date, the Subscription Agreement shall be automatically terminated with immediate effect and a party will not have any claim under the Subscription Agreement of any nature whatsoever against the other party except in respect of any rights and obligations which have accrued before such termination.

Completion

Completion of the Subscription shall take place on a Business Day falling within ten (10) Business Days after the date on which all of the conditions set out above are satisfied (or waived, as the case may be) or on such other date as may be agreed between PCL and Sendlink in writing.

Upon completion of the Subscription, the Subscription Shares shall be issued as fully paid up.

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Upon completion of the Subscription, (i) assuming the minimum of 61,078,767 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, PCL will be held as to approximately 44.56% by Pointsea Holdings, approximately 49.77% by the Original Investors in aggregate and approximately 5.67% by the Investor of the issued share capital of PCL as enlarged by the issue of the Subscription Shares; and (ii) assuming the maximum of 73,287,671 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, PCL will be held as to approximately 44.06% by Pointsea Holdings, approximately 49.21% by the Original Investors in aggregate and approximately 6.73% by the Investor of the issued share capital of PCL as enlarged by the issue of the Subscription Shares.

Upon completion of the Subscription, (i) assuming the minimum of 61,078,767 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, Pointsea Holdings' equity interest in PCL will be reduced from approximately 47.24% to approximately 44.56% and the Group's effective equity interest in PCL will be reduced from approximately 18.93% to approximately 17.86%; and (ii) assuming the maximum of 73,287,671 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, Pointsea Holdings' equity interest in PCL will be reduced from approximately 47.24% to approximately 44.06% and the Group's effective equity interest in PCL will be reduced from approximately 18.93% to approximately 17.66%. The shareholdings in PCL before and immediately after the completion of the Subscription are set out below:

As the Investor shall not be entitled to nominate or appoint any person to act as a director of PCL, the Subscription will not result in the Group losing its control of the board of directors of PCL, and therefore PCL will continue to be a subsidiary of the Group.

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Undertakings

PCL undertakes to the Investor that, if, in another series of financing of PCL following the completion of the Subscription involving a further subscription of PCL Share(s) by new investor(s), the pre-money valuation of PCL (the "Actual Valuation") is less than US$400 million, PCL shall, subject to the relevant laws and regulations and the memorandum and articles of association of PCL, compensate the Investor by allotting and issuing additional PCL Shares (the "Compensation Shares") to the Investor, credited as fully paid up, based on 85% of the Actual Valuation in accordance with the following formula:

Transfer of the equity interest in PCL

If the Investor, in its capacity as a shareholder of PCL, upon completion of the Subscription, proposes to sell, assign, transfer or otherwise dispose of its legal or beneficial interest in any equity securities of PCL to any party (other than its Affiliates), the Investor shall provide written notice of such proposal (the "Transfer Notice") to certain shareholder(s) of PCL pursuant to the terms of the JV Agreement and the memorandum and articles of association of PCL. Such shareholder(s) of PCL shall have the right to purchase all or part of such equity interest on the same terms and conditions prescribed in such Transfer Notice.

FINANCIAL EFFECT OF THE DEEMED DISPOSAL ON THE GROUP

Upon completion of the Subscription, (i) assuming the minimum of 61,078,767 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, PCL will be held as to approximately 44.56% by Pointsea Holdings, approximately 49.77% by the Original Investors in aggregate and approximately 5.67% by the Investor of the issued share capital of PCL as enlarged by the issue of the Subscription Shares; and (ii) assuming the maximum of 73,287,671 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, PCL will be held as to approximately 44.06% by Pointsea Holdings, approximately 49.21% by the Original Investors in aggregate and approximately 6.73% by the Investor of the issued share capital of PCL as enlarged by the issue of the Subscription Shares.

Upon completion of the Subscription, (i) assuming the minimum of 61,078,767 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, Pointsea Holdings' equity interest in PCL will be reduced from approximately 47.24% to approximately 44.56% and the Group's effective equity interest in PCL will be reduced from approximately 18.93% to approximately 17.86%; and (ii) assuming the maximum of 73,287,671 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, Pointsea Holdings' equity interest in PCL will be reduced from approximately 47.24% to approximately 44.06% and the Group's effective equity interest in PCL will be reduced from approximately 18.93% to approximately 17.66%.

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As the Investor shall not be entitled to nominate or appoint any person to act as a director of PCL, the Subscription will not result in the Group losing its control of the board of directors of PCL, and therefore PCL will continue to be a subsidiary of the Group. Accordingly, the financial position and results of PCL will continue to be consolidated with the financial statements of the Company after completion of the Subscription. The Subscription will be accounted for as an equity transaction and will not result in any gain or loss being accrued to the Company.

REASONS FOR AND BENEFITS OF THE SUBSCRIPTION AND INTENDED USE OF PROCEEDS FROM THE SUBSCRIPTION

It is intended that the proceeds from the Subscription shall be utilised for the development and expansion of the "Changyou" digital points business of the Group, capital expenditure and general working capital of PCL and its subsidiaries.

The Board (including the independent non-executive Directors) considers that the terms of the Subscription Agreement are normal commercial terms and are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

INFORMATION ON SENDLINK

Sendlink is an investment holding company incorporated in the BVI with limited liability and is principally engaged in investments in high-tech and other technological innovation industries.

INFORMATION ON PCL

PCL is an investment holding company incorporated in the Cayman Islands with limited liability. PCL and its subsidiaries are engaged in the integration and redemption of digital membership points through the Group's electronic platform, "Changyou".

Set out below is a summary of the audited consolidated financial statements of PCL for (i) the financial year ended 31 December 2018; and (ii) the financial year ended 31 December 2019:

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The audited net liabilities value of PCL was approximately RMB103,385,000 as at 31 December 2018. The audited net liabilities value of PCL was approximately RMB28,576,000 as at 31 December 2019. The decrease in the audited net liabilities value for 2018 as compared to 2019 was attributable to the receipt of net proceeds from the subscription of PCL Shares by Zhongjin Qizhi and Senran Investment, which was completed in March 2019, and the decreased loss for the financial year ended 31 December 2019 as compared to the financial year ended 31 December 2018. This was mainly represented by the increase in trade and other receivables of approximately RMB84,783,000, increase in cash and cash equivalents of approximately RMB17,289,000, increase in trade and other payables of approximately RMB96,499,000, and decrease in the loan from the Company of approximately RMB69,729,000.

INFORMATION ON THE COMPANY AND THE GROUP

The Company is an investment holding company incorporated in the Cayman Islands with limited liability. The Group is engaged in the development and operations of the electronic platform, "Changyou", which aims to integrate the digital membership points, resources and strategic advantages of business partners in the Changyou Alliance. The digital membership points from various partnership entities and industries are redeemable and can be purchased, earned and used by customers for the purchase and consumption of merchandise, games and entertainment, financial services and other commercial transactions.

LISTING RULES IMPLICATIONS

Upon completion of the Subscription, (i) assuming the minimum of 61,078,767 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, Pointsea Holdings' equity interest in PCL will be reduced from approximately 47.24% to approximately 44.56% and the Group's effective equity interest in PCL will be reduced from approximately 18.93% to approximately 17.86%; and (ii) assuming the maximum of 73,287,671 Subscription Shares are subscribed by the Investor pursuant to the Subscription Agreement, Pointsea Holdings' equity interest in PCL will be reduced from approximately 47.24% to approximately 44.06% and the Group's effective equity interest in PCL will be reduced from approximately 18.93% to approximately 17.66%. Accordingly, the Subscription constitutes a deemed disposal of the Group under Rule 14.29 of the Listing Rules. As the Investor shall not be entitled to nominate or appoint any person to act as a director of PCL, the Subscription will not result in the Group losing its control of the board of directors of PCL, and therefore PCL will continue to be a subsidiary of the Group.

As one or more of the applicable percentage ratios in respect of the Subscription are more than 25% and all of such ratios are less than 75%, the Subscription constitutes a major transaction of the Company under Chapter 14 of the Listing Rules and is therefore subject to the reporting, announcement and Shareholders' approval requirements under Chapter 14 of the Listing Rules.

To the best of the knowledge, information and belief of the Directors, after having made all reasonable enquiries, no Shareholders or any of their respective associates have any material interest in the Subscription Agreement and the transactions contemplated thereunder. As such, none of the Shareholders would be required to abstain from voting in favour of the resolution approving the Subscription Agreement and the transactions contemplated thereunder at the EGM.

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GENERAL

A circular containing, among other things, (i) further details of the Subscription Agreement and the transactions contemplated thereunder; and (ii) other information as required by the Listing Rules, together with the notice convening the EGM and the proxy form in respect of the EGM, is expected to be despatched to the Shareholders on or before 13 August 2020 in accordance with the Listing Rules.

Shareholders and potential investors of the Company should note that completion of the Subscription is subject to the fulfilment of the condition precedents set out in the Subscription Agreement, and there is no assurance that the transactions contemplated under the Subscription Agreement will be completed. Accordingly, Shareholders and potential investors of the Company should exercise caution when dealing in the Shares.

DEFINITIONS

In this announcement, the following terms and expressions have the following meanings unless the contexts otherwise requires:

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"Subscription Agreement" the subscription agreement entered into between PCL and Sendlink on 29 July 2020 in relation to the Subscription

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By order of the Board

Changyou Alliance Group Limited

Mr. Cheng Jerome

Chairman

• The English translation of the names of these entities are for reference only and the official names of these entities are in Chinese

Hong Kong, 29 July 2020

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

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