e424b2
CALCULATION OF REGISTRATION FEE
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Title of each class of |
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Proposed maximum |
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securities to be |
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offering price per |
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Proposed maximum |
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Amount of |
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registered(1) |
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Amount to be registered(2) |
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share |
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aggregate offering price |
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registration fee(3) |
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Ordinary shares,
par value $0.01 per share
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1,638,750 |
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US$144.00 |
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US$235,980,000 |
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US$16,825.37 |
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(1) |
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These ordinary shares are represented by American depositary shares, or ADSs, each of which represents 0.25 of an ordinary share. |
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(2) |
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Assuming the underwriters exercise their option to purchase an additional 213,750 ordinary shares in full. |
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(3) |
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Calculated in accordance with Rule 457(r) under the Securities Act of 1933, as amended and
relates to the registration statement on Form F-3 (File No. 333-165150) filed by the Registrant. |
Filed pursuant to
Rule 424(b)(2)
Registration
No. 333-165150
Prospectus Supplement
(To Prospectus Dated March 2, 2010)
5,700,000 American Depositary
Shares
Ctrip.com
International, Ltd.
Representing 1,425,000 Ordinary
Shares
We are offering 5,700,000 American depositary shares, or ADSs,
representing 1,425,000 ordinary shares of Ctrip.com
International, Ltd., with this prospectus supplement and the
accompanying base prospectus. Each ADS represents 0.25 of an
ordinary share.
Our ADSs are listed on the Nasdaq Global Select Market under the
symbol CTRP. On March 3, 2010, the reported
last sale price for the ADSs was US$36.42 per ADS.
See Risk Factors on
page S-10
of this prospectus supplement and page 4 of the
accompanying prospectus to read about factors you should
consider before buying our ADSs.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus
supplement or the accompanying prospectus. Any representation to
the contrary is a criminal offense.
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Per ADS
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Total
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Price to public
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$
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36.00
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$
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205,200,000
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Underwriting discount
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$
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0.90
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$
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5,130,000
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Proceeds, before expenses, to us
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$
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35.10
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$
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200,070,000
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To the extent that the underwriter sells more than 5,700,000
ADSs, the underwriter has an option to purchase up to an
additional 855,000 ADSs from us at the price to the public less
the underwriting discount.
The underwriter expects to deliver the ADSs against payment in
New York, New York on March 9, 2010.
Goldman Sachs (Asia)
L.L.C.
Prospectus
Supplement dated March 3, 2010
TABLE OF
CONTENTS
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Prospectus Supplement
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Page
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S-1
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S-8
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S-10
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S-29
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S-30
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S-31
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S-32
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S-33
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S-34
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S-35
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S-36
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S-40
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S-40
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S-41
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Prospectus
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Page
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2
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2
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3
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4
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5
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5
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8
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14
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15
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19
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21
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21
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21
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21
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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus supplement. You must not rely on any unauthorized
information or representations. This prospectus supplement is an
offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so.
The information contained in this prospectus supplement is
current only as of its date.
This document is in two parts. The first part is this prospectus
supplement and the documents incorporated by reference herein,
which, among other things, describe the specific terms of this
offering. The second part, the accompanying prospectus and the
documents incorporated by reference therein, give more general
information, some of which may not apply to this offering. If
the description of this offering varies between this prospectus
supplement and the accompanying prospectus, you should rely on
the information in this prospectus supplement.
S-i
PROSPECTUS
SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and
should be read in conjunction with, the more detailed
information and financial statements and notes thereto appearing
elsewhere in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference. In
addition to this summary, we urge you to read the entire
prospectus supplement, the accompanying prospectus and the
documents incorporated by reference carefully, especially the
risks of investing in our ADSs discussed under Risk
Factors, before deciding whether to purchase our ADSs.
Ctrip.com
International, Ltd.
Our
Company
We are a leading travel service provider for hotel
accommodations, airline tickets and packaged tours in China. We
aggregate information on hotels and flights and enable our
customers to make informed and cost-effective hotel and flight
bookings. We also sell packaged tours that include
transportation and accommodations, as well as guided tours in
some instances. Since commencing operations in 1999, we have
become one of the best-known travel brands in China. We
pioneered the development of a reservation and fulfillment
infrastructure that enables our customers to:
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choose and reserve hotel rooms in cities throughout China and
selected cities abroad;
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book and purchase air tickets for domestic flights and
international flights originating in China; and
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choose and reserve packaged tours that include transportation
and accommodations, as well as guided tours in some instances.
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We target our services primarily at business and leisure
travelers in China who do not travel in groups. These types of
travelers, who are referred to in the travel industry as FITs
(frequent independent travelers) and whom we refer to as
independent travelers in this prospectus supplement, form a
traditionally under-served yet fast-growing segment of the China
travel market. We act as an agent in substantially all of our
transactions and generally do not take inventory risks with
respect to the hotel rooms and airline tickets booked through
us. We derive our hotel reservation, air-ticketing and
packaged-tour revenues mainly through commissions from our
travel suppliers, primarily based on the transaction value of
the rooms, airline tickets and packaged-tour products,
respectively, booked through our services.
We believe that we are the largest consolidator of hotel
accommodations in China in terms of the number of room nights
booked. As of December 31, 2009, we had secured room supply
relationships with approximately 9,800 hotels in China and
approximately 19,000 hotels abroad, which cover a broad range of
hotels in terms of price and geographical location. As of
December 31, 2009, we had guaranteed room allotments, which
allow us to sell hotel rooms to our customers even during peak
seasons and provide instant confirmation, with approximately 70%
of the hotels in China with whom we have a supply relationship.
Rooms booked in hotels with guaranteed allotment arrangement
accounted for approximately 80% of our hotel transactions for
the year ended December 31, 2009. The quality and depth of
our hotel supplier network enable us to offer our customers a
wide selection of hotel accommodations. We believe our ability
to offer reservations at highly rated hotels is particularly
appealing to our customers. Revenues from our bookings for
three-, four- and five-star hotels comprised approximately 80%
of our revenues from our hotel reservation business in 2009.
We believe that we are the largest consolidator of airline
tickets in China in terms of the total number of airline tickets
booked and sold. Our airline ticket suppliers include all major
Chinese airlines and many international airlines that operate
flights originating in China. We are among the few airline
ticket consolidators in China that maintain a centralized
reservation system and ticket fulfillment infrastructure
covering substantially all of the economically prosperous
regions of China. Our
S-1
customers can make flight reservations on their chosen routes
and arrange ticket payment and delivery through our ticketing
offices and third-party agencies located in over 50 major cities
in China.
We also offer independent leisure travelers bundled
packaged-tour products, which include transportation and
accommodation, as well as guided tours in some instances. Our
packaged-tour products cover a variety of domestic and
international destinations.
We offer our services to customers through an advanced
transaction and service platform consisting of our centralized
toll-free,
24-hour
customer service centers and bilingual websites. In 2009,
transactions effected through our customer service centers
accounted for approximately two-thirds of our transaction
volume, while our websites accounted for the balance.
We have experienced significant growth since we commenced
operations in 1999. Our revenues grew from RMB 559 million
in 2005 to RMB 2.1 billion (US$311 million) in 2009,
which represented a compound annual growth rate, or CAGR, of 40%
and our net income grew from RMB 225 million in 2005 to RMB
667 million (US$98 million) in 2009, which represented
a CAGR of 31%. Our cumulative customers grew significantly from
approximately 1.2 million as of March 31, 2005 to
approximately 8.9 million as of December 31, 2009.
Cumulative customers are customers who have used our
travel-related services at least once. The table below sets
forth the approximate number of cumulative customers as of the
end of the quarters indicated.
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Cumulative
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Customers
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(approximate
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Period
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in millions)
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2005
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First Quarter
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1.2
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Second Quarter
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1.4
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Third Quarter
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1.5
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Fourth Quarter
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1.7
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2006
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First Quarter
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1.9
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Second Quarter
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2.1
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Third Quarter
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2.3
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Fourth Quarter
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2.6
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2007
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First Quarter
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2.9
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Second Quarter
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3.3
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Third Quarter
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3.7
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Fourth Quarter
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4.2
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2008
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First Quarter
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4.5
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Second Quarter
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5.0
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Third Quarter
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5.6
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Fourth Quarter
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6.2
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2009
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First Quarter
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6.9
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Second Quarter
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7.5
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Third Quarter
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8.2
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Fourth Quarter
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8.9
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Our
Strategies
Our goal is to create long-term shareholder value by enhancing
our position as a leading travel service provider in China. We
believe that Chinas highly fragmented travel industry and
under-served
S-2
independent traveler market provide us with significant growth
opportunities. We intend to pursue the following strategies to
achieve this goal:
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leverage our Ctrip brand to attract new travel suppliers and
negotiate more favorable contractual terms with our existing
suppliers, and strengthen our Ctrip brand by continuing to
pursue a focused marketing and advertising campaign;
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expand our hotel supplier network and room inventory, primarily
through focusing on hotels with three-, four- and five-star
ratings and continuing to pursue guaranteed room allotment
arrangements with our hotel suppliers, as well as maintaining
seamless connections between our information and reservation
systems and those of our hotel suppliers;
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expand our air-ticketing business, primarily through geographic
expansion into the less developed regions and further enhance
our nationwide air-ticketing distribution network;
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expand our packaged-tour services, primarily through
diversifying our packaged-tour products and further promoting
packaged-tour products to our existing customers of our other
services as well as to new customers;
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further develop our corporate travel services by attracting new
customers and retaining existing customers by leveraging our
extensive travel supplier network, high-quality services and
efficient transaction and service platform;
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expand into new service regions through acquisitions and
strategic alliances that would allow us to expand the reach and
scope of our travel services and broaden our customer base;
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pursue strategic investments in and acquisitions of
complementary businesses, assets and technologies to maintain
and strengthen our leading market position in China;
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expand our other travel-related products and services, including
limousine services, advertisement services and travel-related
insurance services; and
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enhance our transaction and service platform, primarily through
continuing to invest in the training of our customer service
representatives and upgrading the information technology systems
underlying our customer service centers and websites.
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Corporate
Information
Our principal executive offices are located at 99 Fu Quan Road,
Shanghai 200335, Peoples Republic of China, and our
telephone number is
(8621) 3406-4880.
Our principal website address is www.ctrip.com. The information
on our websites should not be deemed to be part of this
prospectus supplement or the accompanying prospectus. Our agent
for service of process in the United States is CT Corporation
System, 111 Eighth Avenue, New York, New York 10011.
Conventions that
Apply to this Prospectus Supplement
Unless otherwise indicated or the context otherwise requires and
for purposes of this prospectus supplement only:
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the terms we, us, our
company, our and Ctrip refer to
Ctrip.com International, Ltd., its predecessor entities and
subsidiaries and, in the context of describing our operations
and consolidated financial information, also include its
affiliated Chinese entities;
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shares and ordinary shares refer to our
ordinary shares, par value of US$0.01 per ordinary share;
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ADSs refers to our American depositary shares, each
of which represents 0.25 of an ordinary share;
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S-3
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China and PRC refer to the Peoples
Republic of China and, solely for the purpose of this prospectus
supplement, exclude Taiwan, Hong Kong and Macau, and
Greater China refers to the Peoples Republic
of China, Taiwan, Hong Kong and Macau; and
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all references to RMB and Renminbi are
to the legal currency of China and all references to
U.S. dollars, US$,
dollars and $ are to the legal currency
of the United States.
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S-4
THE
OFFERING
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Offering price |
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US$36.00 per ADS |
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ADSs offered by us |
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5,700,000 ADSs |
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ADSs outstanding immediately after this offering |
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145,967,120 ADSs (or 146,822,120 ADSs if the underwriter
exercises the option to purchase additional ADSs in full.) |
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The ADSs |
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Each ADS represents 0.25 of an ordinary share, par value US$0.01
per ordinary share. See Description of American Depositary
Shares in the accompanying prospectus. |
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Depositary for the ADSs |
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The Bank of New York Mellon |
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Ordinary shares outstanding immediately after this offering |
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36,965,116 ordinary shares (including the 1,465,031 ordinary
shares that we reserved for issuance upon the exercise of our
outstanding options). As of the date of this prospectus
supplement, there are 4,392,369 options issued and outstanding
under our share incentive plans, which, once vested, are
exercisable for the equivalent amount of our ordinary shares. |
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Use of proceeds |
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We intend to use the net proceeds from this offering for
strategic acquisitions of, and investments in, complementary
businesses and assets, and for other general corporate purposes. |
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Lock-up |
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Subject to certain exceptions, our company and our directors and
executive officers have agreed with the underwriter not to sell,
transfer or dispose of any ADSs or ordinary shares for a period
of 90 days after the date of this prospectus supplement.
See Underwriting. |
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Risk factors |
|
See Risk Factors and other information included in
this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference in this prospectus
supplement or the accompanying prospectus for a discussion of
factors you should carefully consider before deciding to invest
in the ADSs. |
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Nasdaq Global Select Market symbol |
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CTRP |
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Timing and settlement for ADSs |
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The underwriter expects to deliver the ADSs against payment
therefor through the facilities of the Depository
Trust Company on March 9, 2010. |
S-5
SUMMARY
CONSOLIDATED FINANCIAL DATA
The summary consolidated statement of income data for the years
ended December 31, 2007, 2008 and 2009 and the summary
balance sheet data as of December 31, 2008 and 2009 set
forth below are derived from our audited consolidated financial
statements included in our annual report on
Form 20-F
incorporated by reference into this prospectus supplement and
should be read in conjunction with, and are qualified in their
entirety by reference to, these financial statements and the
related notes. The translations of financial data for the year
ended December 31, 2009 from RMB to U.S. dollars were
made at a rate of RMB 6.8259 to US$1.00, the certified exchange
rate published by the Federal Reserve Board of the United States
in effect as of December 31, 2009. Our consolidated
financial statements are prepared in accordance with
U.S. GAAP.
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For The Year Ended December 31,
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2007
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2008
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2009
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RMB
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RMB
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RMB
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US$
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(In thousands)
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(In thousands)
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(In thousands)
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(In thousands)
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Revenues:
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Hotel reservation
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676,511
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763,727
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955,824
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140,029
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Air ticketing
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503,453
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659,398
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888,011
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130,094
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Packaged-tour(1)
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71,496
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109,245
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177,299
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25,975
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Others
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35,818
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55,969
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101,428
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14,859
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Total revenues
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1,287,278
|
|
|
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1,588,339
|
|
|
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2,122,562
|
|
|
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310,957
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Less: Business tax and related surcharges
|
|
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(88,167
|
)
|
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(106,335
|
)
|
|
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(134,555
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)
|
|
|
(19,712
|
)
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Net revenues
|
|
|
1,199,111
|
|
|
|
1,482,004
|
|
|
|
1,988,007
|
|
|
|
291,245
|
|
Cost of revenues
|
|
|
(236,226
|
)
|
|
|
(326,610
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)
|
|
|
(450,603
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)
|
|
|
(66,014
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)
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Gross profit
|
|
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962,885
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|
|
|
1,155,394
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|
|
|
1,537,404
|
|
|
|
225,231
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development(2)
|
|
|
(177,302
|
)
|
|
|
(235,800
|
)
|
|
|
(308,452
|
)
|
|
|
(45,188
|
)
|
Sales and marketing(2)
|
|
|
(243,314
|
)
|
|
|
(286,693
|
)
|
|
|
(345,289
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)
|
|
|
(50,585
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)
|
General and administrative(2 )
|
|
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(137,944
|
)
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|
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(171,694
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)
|
|
|
(196,297
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)
|
|
|
(28,758
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)
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Total operating expenses
|
|
|
(558,560
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)
|
|
|
(694,187
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)
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|
|
(850,038
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)
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|
|
(124,531
|
)
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Income from operations
|
|
|
404,325
|
|
|
|
461,207
|
|
|
|
687,366
|
|
|
|
100,700
|
|
Interest income
|
|
|
16,704
|
|
|
|
31,100
|
|
|
|
17,393
|
|
|
|
2,548
|
|
Other income
|
|
|
35,297
|
|
|
|
54,945
|
|
|
|
60,801
|
|
|
|
8,907
|
|
Income before income tax expense and equity income
|
|
|
456,326
|
|
|
|
547,252
|
|
|
|
765,560
|
|
|
|
112,155
|
|
Income tax expense
|
|
|
(58,006
|
)
|
|
|
(102,914
|
)
|
|
|
(131,658
|
)
|
|
|
(19,288
|
)
|
Equity in income of affiliates
|
|
|
|
|
|
|
|
|
|
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32,869
|
|
|
|
4,816
|
|
Net income
|
|
|
398,320
|
|
|
|
444,338
|
|
|
|
666,771
|
|
|
|
97,683
|
|
Less: Net loss/(income) attributable to noncontrolling interests
|
|
|
4
|
|
|
|
(230
|
)
|
|
|
(7,797
|
)
|
|
|
(1,143
|
)
|
Net income attributable to Ctrips shareholders
|
|
|
398,324
|
|
|
|
444,108
|
|
|
|
658,974
|
|
|
|
96,540
|
|
Earnings per ordinary share(3):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12.10
|
|
|
|
13.32
|
|
|
|
19.62
|
|
|
|
2.87
|
|
Diluted
|
|
|
11.67
|
|
|
|
12.90
|
|
|
|
18.69
|
|
|
|
2.74
|
|
Earnings per ADS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3.02
|
|
|
|
3.33
|
|
|
|
4.90
|
|
|
|
0.72
|
|
Diluted
|
|
|
2.92
|
|
|
|
3.23
|
|
|
|
4.67
|
|
|
|
0.68
|
|
|
|
|
(1) |
|
Certain of our packaged-tour revenues were booked on a gross
basis. |
|
(2) |
|
Share-based compensation was included in the associated
operating expense categories as follows: |
S-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
|
2007
|
|
2008
|
|
2009
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
(In thousands)
|
|
(In thousands)
|
|
(In thousands)
|
|
(In thousands)
|
|
Product development
|
|
|
(22,708
|
)
|
|
|
(32,666
|
)
|
|
|
(33,863
|
)
|
|
|
(4,961
|
)
|
Sales and marketing
|
|
|
(13,649
|
)
|
|
|
(18,816
|
)
|
|
|
(18,864
|
)
|
|
|
(2,764
|
)
|
General and administrative
|
|
|
(50,557
|
)
|
|
|
(77,035
|
)
|
|
|
(77,802
|
)
|
|
|
(11,398
|
)
|
|
|
|
(3) |
|
Each ADS represents 0.25 of an ordinary share. |
The following table presents a summary of our condensed
consolidated balance sheet data as of December 31, 2008 and
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2008
|
|
2009
|
|
2009
|
|
|
RMB
|
|
RMB
|
|
US$
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,069,827
|
|
|
|
1,434,618
|
|
|
|
210,173
|
|
Restricted cash
|
|
|
6,600
|
|
|
|
113,150
|
|
|
|
16,577
|
|
Short-term investment
|
|
|
176,586
|
|
|
|
180,184
|
|
|
|
26,397
|
|
Accounts receivable, net
|
|
|
274,302
|
|
|
|
420,579
|
|
|
|
61,615
|
|
Other current assets
|
|
|
103,992
|
|
|
|
157,764
|
|
|
|
23,113
|
|
Non-current assets
|
|
|
1,010,142
|
|
|
|
1,850,465
|
|
|
|
271,094
|
|
Total assets
|
|
|
2,641,449
|
|
|
|
4,156,760
|
|
|
|
608,969
|
|
Current liabilities
|
|
|
626,037
|
|
|
|
1,158,542
|
|
|
|
169,728
|
|
Other long-term liabilities
|
|
|
813
|
|
|
|
11,510
|
|
|
|
1,686
|
|
Total Ctrips shareholders equity
|
|
|
2,011,971
|
|
|
|
2,925,048
|
|
|
|
428,522
|
|
Noncontrolling interests
|
|
|
2,628
|
|
|
|
61,660
|
|
|
|
9,033
|
|
Total shareholders equity
|
|
|
2,014,599
|
|
|
|
2,986,708
|
|
|
|
437,555
|
|
S-7
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Many statements made in this prospectus supplement contain
forward-looking statements that reflect our current expectations
and views of future events. These statements are made under the
safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995. You can identify these
forward-looking statements by terminology such as
may, will, expect,
anticipate, future, intend,
plan, believe, estimate,
is/are likely to or other similar expressions. We
have based these forward-looking statements largely on our
current expectations and projections about future events and
financial trends that we believe may affect our financial
condition, results of operations, business strategy and
financial needs. These forward-looking statements include, among
other things:
|
|
|
|
|
our anticipated growth strategies;
|
|
|
|
our future business development, results of operations and
financial condition;
|
|
|
|
our ability to continue to control costs and maintain
profitability; and
|
|
|
|
the expected growth of and change in the travel and online
commerce industries in China.
|
The forward-looking statements included in the prospectus
supplement are subject to risks, uncertainties and assumptions
about our company. Our actual results of operations may differ
materially from the forward-looking statements as a result of
the risk factors described under Risk Factors
included elsewhere in this prospectus supplement, including the
following risks:
|
|
|
|
|
the slow-down of economic growth in China and the global
economic downturn have adversely affected our business, and may
materially and adversely affect our business growth and
profitability;
|
|
|
|
general declines or disruptions in the travel industry due to
outbreak of a serious contagious disease or any other reasons
may materially and adversely affect our business and results of
operations;
|
|
|
|
the trading price of our ADSs has been volatile historically and
may continue to be volatile regardless of our operating
performance;
|
|
|
|
if we are unable to maintain existing relationships with travel
suppliers and strategic alliances, or establish new arrangements
with travel suppliers and strategic alliances similar to those
we currently have, our business may suffer;
|
|
|
|
if we fail to further increase our brand recognition, we may
face difficulty in obtaining new business partners and
consumers, and our business may be harmed;
|
|
|
|
if we do not compete successfully against new and existing
competitors, we may lose our market share, and our profitability
may be adversely affected;
|
|
|
|
our business could suffer if we do not successfully manage
current growth and potential future growth;
|
|
|
|
our strategy to acquire or invest in complementary businesses
and assets involves significant risks and uncertainty that may
prevent us from achieving our objectives and harm our financial
condition and results of operations;
|
|
|
|
our quarterly results are likely to fluctuate because of
seasonality in the travel industry in Greater China;
|
|
|
|
our business may be harmed if our infrastructure and technology
are damaged or otherwise fail or become obsolete;
|
|
|
|
our business may be severely disrupted if we lose the services
of our key executives;
|
|
|
|
inflation in China and in other countries may disrupt our
business and have an adverse effect on our financial condition
and results of operations; and
|
S-8
|
|
|
|
|
if the ownership structure of our affiliated Chinese entities
and the contractual arrangements among us, our consolidated
affiliated Chinese entities and their shareholders are found to
be in violation of any PRC laws or regulations, we
and/or our
affiliated Chinese entities may be subject to fines and other
penalties, which may adversely affect our business and results
of operations.
|
These risks are not exhaustive. Other sections of this
prospectus supplement or the documents incorporated by reference
in this prospectus supplement include additional factors that
could adversely impact our business and financial performance.
Moreover, we operate in an emerging and evolving environment.
New risk factors may emerge from time to time, and it is not
possible for our management to predict all risk factors, nor can
we assess the impact of all factors on our business or the
extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any
forward-looking statements.
You should not rely upon forward-looking statements as
predictions of future events. We undertake no obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
S-9
RISK
FACTORS
Investing in our ADSs involves a high degree of risk. You
should carefully consider the risks described below together
with the other information contained in this prospectus
supplement and the accompanying prospectus, including the
documents incorporated by reference, before making an investment
decision. The trading price of our ADSs could decline due to any
of these risks and you may lose all or part of your
investment.
Risks Related to
Our Company
The slow-down
of economic growth in China and the global economic downturn
have adversely affected our business, and may materially and
adversely affect our business growth and
profitability.
Our business and operations are primarily based in China and the
majority of our revenues are derived from our operations in
China. Accordingly, our financial results have been, and are
expected to continue to be, affected by the economy and travel
industry in China. Although the economy in China has grown
significantly in the past decades, any slow-down of economic
growth in China could reduce expenditures for travel, which in
turn may adversely affect our operating results and financial
condition.
The global financial markets have experienced significant
disruptions since 2008, and most of the worlds major
economies have entered into recession. Chinas economy has
slowed down significantly since the second half of 2008.
Although the Chinese economy has recovered recently, it is
uncertain whether such recovery will continue into the rest of
2010 and beyond. Since we derive the majority of our revenues
from hotel reservation, air-ticketing and packaged-tour services
in China, the economic slow-down in China negatively affected
our operating results in the second half of 2008. Any persistent
slow-down in Chinas economy or the recurrence of any
financial disruptions may materially and adversely affect our
business, operating results and financial condition in a number
of ways. For example, the weakness in the economy could erode
consumer confidence which, in turn, could result in changes to
consumer spending patterns relating to travel products and
services. If consumer demand for travel products and services we
offer decreases, our revenues may decline. Furthermore, the
recent financial turmoil affecting the financial markets and
banking system may significantly restrict our ability to obtain
financing in the capital markets or from financial institutions
on commercially reasonable terms, or at all. Although we are
uncertain about the extent to which the recent global financial
and economic crisis and slow-down of the Chinese economy may
impact our business in the short term and long term, there is a
risk that our business, results of operations and prospects
would be materially and adversely affected by the continuing
global economic downturn and the slow-down of the Chinese
economy.
General
declines or disruptions in the travel industry may materially
and adversely affect our business and results of
operations.
Our business is significantly affected by the trends that occur
in the travel industry in China, including the hotel, air
ticketing and packaged-tour sectors. As the travel industry is
highly sensitive to business and personal discretionary spending
levels, it tends to decline during general economic downturns.
The recent worldwide recession has led to a weakening in the
demand for travel services. Other trends or events that tend to
reduce travel and are likely to reduce our revenues include:
|
|
|
|
|
an outbreak of H1N1 influenza, avian flu, severe acute
respiratory syndrome, or SARS, or any other serious contagious
diseases;
|
|
|
|
increased prices in the hotel, air-ticketing, or other
travel-related sectors;
|
|
|
|
increased occurrence of travel-related accidents;
|
|
|
|
natural disasters or poor weather conditions;
|
S-10
|
|
|
|
|
terrorist attacks or threats of terrorist attacks or
wars; and
|
|
|
|
any travel restrictions or other security procedures implemented
in connection with any major events in China.
|
We could be severely and adversely affected by declines or
disruptions in the travel industry and, in many cases, have
little or no control over the occurrence of such events. Such
events could result in a decrease in demand for our travel
services. This decrease in demand, depending on the scope and
duration, could significantly and adversely affect our business
and financial performance over the short and long term.
The trading
price of our ADSs has been volatile historically and may
continue to be volatile regardless of our operating
performance.
The trading price of our ADSs has been and may continue to be
subject to wide fluctuations. In particular, in 2009, the
trading prices of shares and ADSs listed on major
U.S. stock exchanges experienced wide fluctuations, due in
part to the worldwide financial and economic turmoil. The
trading price of our ADSs has also experienced wide fluctuations
during that period. In 2009, the trading prices of our ADSs on
the Nasdaq Global Select Market ranged from US$9.20 to US$39.30
per ADS, and the closing price on March 3, 2010 was
US$36.42 per ADS. The price of our ADSs may fluctuate in
response to a number of events and factors, including the
following:
|
|
|
|
|
actual or anticipated fluctuations in our quarterly operating
results;
|
|
|
|
changes in financial estimates by securities analysts;
|
|
|
|
conditions in the Internet, online commerce or travel industries;
|
|
|
|
changes in the economic performance or market valuations of
other Internet, online commerce or travel companies;
|
|
|
|
changes in the economic performance or market valuations of
other companies that focus on the China market;
|
|
|
|
announcements by us or our competitors of new products or
services, significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
|
|
|
|
additions or departures of key personnel;
|
|
|
|
potential litigation; and
|
|
|
|
market and volume fluctuations in the stock market in general.
|
In addition, market prices for Internet-related companies and
companies with operations in China in particular have
experienced volatility that often has been unrelated to the
operating performance of such companies. These broad market and
industry fluctuations may adversely affect the price of our
ADSs, regardless of our operating performance. Additionally,
volatility or a lack of positive performance in our stock price
may adversely affect our ability to retain key employees, all of
whom have been granted share-based awards.
If we are
unable to maintain existing relationships with travel suppliers
and strategic alliances, or establish new arrangements with
travel suppliers and strategic alliances similar to those we
currently have, our business may suffer.
If we are unable to maintain satisfactory relationships with our
existing hotel suppliers, or if our hotel suppliers establish
similar or more favorable relationships with our competitors, or
if our hotel suppliers increase their competition with us
through their direct sales, our operating results and our
business would be harmed, because we would not have the
necessary supply of hotel rooms or hotel rooms at satisfactory
rates to meet the needs of our customers, or because of reduced
demand for our services. Our business depends significantly upon
our ability to contract with hotels in advance for
S-11
the guaranteed availability of certain hotel rooms. We rely on
hotel suppliers to provide us with rooms at discounted prices.
However, our contracts with our hotel suppliers are not
exclusive and most of the contracts must be renewed
semi-annually or annually. We cannot assure you that our hotel
suppliers will renew our contracts in the future on terms
similar to those we currently have agreed. Furthermore, in order
to maintain and grow our business, we will need to establish new
arrangements with hotels in our existing markets and in new
markets. We cannot assure you that we will be able to identify
appropriate hotels or enter into arrangements with those hotels
on favorable terms, if at all. This failure could harm the
growth of our business and adversely affect our operating
results and financial condition, which consequently will impact
the price of our ADSs.
We derive revenues and other significant benefits from our
arrangements with major domestic airlines in China and
international airlines operating flights originating from China.
Our airline ticket suppliers allow us to book and sell tickets
on their behalf and collect commissions on tickets booked and
sold through us. Although we currently have supply relationships
with these airlines, they also compete with us for ticket
bookings and have entered into similar arrangements with many of
our competitors and may continue to do so in the future. Such
arrangements may be on better terms than we have. We cannot
assure you that any of these airlines will continue to have
supplier relationships with us. The loss of these supplier
relationships would impair our operating results and financial
condition as we would lose an increasingly significant source of
our revenues.
Part of the revenues that we derive from our hotel suppliers,
airline ticket suppliers and other travel service providers are
obtained through our strategic alliances with various third
parties. We cannot assure you, however, that we will be able to
successfully establish and maintain strategic alliances with
third parties which are effective and beneficial for our
business. Our inability to do so could have a material adverse
effect on our market penetration, revenue growth and
profitability.
If we fail to
further increase our brand recognition, we may face difficulty
in obtaining new business partners and customers, and our
business may be harmed.
We believe that maintaining and enhancing the Ctrip brand is a
critical aspect of our efforts to grow our customer base and
obtain new business partners. Some of our potential competitors
already have well-established brands in the travel industry. The
successful promotion of our brand will depend largely on our
ability to maintain a sizeable and active customer base, provide
high-quality customer service and organize effective marketing
and advertising programs. If our customer base significantly
declines, or the quality of our customer services substantially
deteriorates, we may not be able to cost-effectively maintain
and promote our brand, and our business, operating results and
financial condition may be materially and adversely affected.
If we do not
compete successfully against new and existing competitors, we
may lose our market share, and our business may be materially
and adversely affected.
We compete primarily with other consolidators of hotel
accommodations and flight reservation services based in China,
such as eLong, Inc., and Mangocity.com. We also compete with
traditional travel agencies and new travel searching engines,
such as Qunar.com and Taobao.com. In the future, we may also
face competition from new players in the hotel consolidation
market in China and abroad that may enter China.
We may face more competition from hotels and airlines as they
enter the discount rate market directly or through alliances
with other travel consolidators. In addition, international
travelers have become an increasingly important customer base.
Competitors that have strategic alliances with consolidators
abroad may have more effective channels to direct on-line
booking requests to their websites for travel needs in China.
Furthermore, like all other consolidators, we do not have
exclusive arrangements with our travel suppliers. The
combination of these two factors means that potential entrants
to our industry face relatively low entry barriers.
S-12
Increased competition could reduce our operating margins and
profitability and result in loss of market share. Some of our
existing and potential competitors may have competitive
advantages, such as significantly greater financial, marketing
and strategic relationships and alliances or other resources or
name recognition, and may be able to imitate and adopt our
business model. We cannot assure you that we will be able to
successfully compete against new or existing competitors. In the
event we are not able to compete successfully, our business will
be materially and adversely affected.
Our business
could suffer if we do not successfully manage current growth and
potential future growth.
Our business has grown rapidly during the past several years,
both as a result of organic growth of existing operations and
acquisitions. We have rapidly expanded our operations and
anticipate further expansion of our operations and workforce.
Our growth to date has placed, and our anticipated future
operations will continue to place, a significant strain on our
management, systems and resources. In addition to training and
managing our workforce, we will need to continue to improve and
develop our financial and managerial controls and our reporting
systems and procedures. We cannot assure you that we will be
able to efficiently or effectively manage the growth of our
operations, and any failure to do so may limit our future growth
and hamper our business strategy.
Our strategy
to acquire or invest in complementary businesses and assets and
establish strategic alliances involves significant risk and
uncertainty that may prevent us from achieving our objectives
and harm our financial condition and results of
operations.
As part of our plan to expand our product and service offerings,
we have made and intend to make strategic acquisitions or
investments in the highly fragmented travel service industries
in mainland China, Taiwan, Hong Kong and overseas. Our strategic
acquisitions and investments could subject us to uncertainties
and risks, including:
|
|
|
|
|
high acquisition and financing costs;
|
|
|
|
potential ongoing financial obligations and unforeseen or hidden
liabilities;
|
|
|
|
failure to achieve our intended objectives, benefits or
revenue-enhancing opportunities;
|
|
|
|
cost of, and difficulties in, integrating acquired businesses
and managing a larger business;
|
|
|
|
potential claims or litigation regarding our boards
exercise of its duty of care and other duties required under
applicable law in connection with any of our significant
acquisitions or investments approved by the board; and
|
|
|
|
diversion of our resources and management attention.
|
Our failure to address these uncertainties and risks may have a
material adverse effect on our financial condition and results
of operations. In addition, we establish strategic alliances
with various third parties to further our business purpose from
time to time. Strategic alliances with third parties could
subject us to a number of risks, including risks associated with
sharing proprietary information, non-performance by the
counter-party, and an increase in expenses incurred in
establishing new strategic alliances, any of which may
materially and adversely affect our business.
We have invested through open market purchases and in a private
placement transaction a total of US$92 million in
approximately 18% stake in Home Inns & Hotels
Management Inc., a leading economy hotel chain in China. The
purchase prices were determined based on the trading prices of
Home Inns ADSs on the Nasdaq Global Market at the time of
each open market purchase or the average closing prices of Home
Inns ADSs as stipulated in the relevant purchase
agreement. If Home Inns experiences a net loss in the future, we
would share the net loss of Home Inns proportionate to our
equity interest in Home Inns. In addition, if the ADS price of
Home Inns declines and becomes lower than our share purchase
price, we could incur impairment loss under U.S. GAAP,
which in turn would adversely affect our financial results for
the relevant periods.
S-13
In February 2010, our wholly owned subsidiary, C-Travel
International Limited, entered into an agreement with Wing On
Travel (Holdings) Limited, or Wing On Travel, whereby C-Travel
International Limited agrees to invest and Wing On Travel agrees
to sell 90% of the issued share capital of Wing On Travels
travel service segment (operated through Wing On Travels
subsidiary, HKWOT (BVI) Limited). The closing of this
transaction is subject to certain conditions, including approval
by public shareholders of Wing On Travel, a Hong Kong listed
company. We cannot assure you that the required
shareholders approval of Wing On Travel will be obtained
or all the other closing conditions will be met to our
satisfaction in a timely manner. Any actual or perceived delay
in the completion of this transaction or our failure to complete
this transaction as planned may cause the trading prices of our
ADSs to decline.
Our quarterly
results are likely to fluctuate because of seasonality in the
travel industry in Greater China.
Our business experiences fluctuations, reflecting seasonal
variations in demand for travel services. For example, the first
quarter of each year generally contributes the lowest portion of
our annual net revenues primarily due to a slowdown in business
activity around and during the Chinese New Year holiday, which
occurs during the period. Consequently, our results of
operations may fluctuate from quarter to quarter.
Our business
may be harmed if our infrastructure and technology are damaged
or otherwise fail or become obsolete.
Our first customer service center and substantially all of our
computer and communications systems are located at a single
facility in Shanghai. Our second customer service center is
currently under construction in Nantong, China. Therefore our
computer and communication systems are vulnerable to damage or
interruption from human error, computer viruses, fire, flood,
power loss, telecommunications failure, physical or electronic
break-ins, sabotage, vandalism, natural disasters and other
similar events. We do not carry business interruption insurance
to compensate us for losses that may occur.
We use an internally developed booking software system that
supports nearly all aspects of our booking transactions. Our
business may be harmed if we are unable to upgrade our systems
and infrastructure quickly enough to accommodate future traffic
levels, avoid obsolescence or successfully integrate any newly
developed or purchased technology with our existing system.
Capacity constraints could cause unanticipated system
disruptions, slower response times, poor customer service,
impaired quality and speed of reservations and confirmations and
delays in reporting accurate financial and operating
information. These factors could cause us to lose customers and
suppliers, which would have a material adverse effect on our
results of operations and financial condition.
Our business
depends substantially on the continuing efforts of our key
executives, and our business may be severely disrupted if we
lose their services.
Our future success depends heavily upon the continued services
of our key executives. We rely on their expertise in business
operations, finance and travel services and on their
relationships with our suppliers, shareholders, and business
partners. We do not maintain key-man life insurance for any of
our key executives. If one or more of our key executives are
unable or unwilling to continue in their present positions, we
may not be able to easily replace them. In that case, our
business may be severely disrupted, we may incur additional
expenses to recruit and train personnel and our financial
condition and results of operations may be materially and
adversely affected.
In addition, if any of these key executives joins a competitor
or forms a competing company, we may lose customers and
suppliers. Each of our executive officers has entered into an
employment agreement with us that contains confidentiality and
non-competition provisions. If any disputes arise between our
executive officers and us, we cannot assure you of the extent to
which any of these
S-14
agreements would be enforced in China, where most of these
executive officers reside and hold most of their assets, in
light of the uncertainties with Chinas legal system. See
Risks Related to Doing Business in
China Uncertainties with respect to the PRC legal
system could adversely affect us.
If we are
unable to attract, train and retain key individuals and highly
skilled employees, our business may be adversely
affected.
If our business continues to expand, we will need to hire
additional employees, including travel supplier management
personnel to maintain and expand our travel supplier network,
information technology and engineering personnel to maintain and
expand our websites, customer service centers and systems, and
customer service representatives to serve an increasing number
of customers. If we are unable to identify, attract, hire, train
and retain sufficient employees in these areas, users of our
websites and customer service centers may have negative
experiences and turn to our competitors, which could adversely
affect our business and results of operations.
The PRC
government regulates the air-ticketing, travel agency,
advertising and Internet industries. If we fail to obtain or
maintain all pertinent permits and approvals or if the PRC
government imposes more restrictions on these industries, our
business may be adversely affected.
The PRC government regulates the air-ticketing, travel agency,
advertising and Internet industries. We are required to obtain
applicable permits or approvals from different regulatory
authorities to conduct our business, including separate licenses
for value-added telecommunications, air-ticketing, advertising
and travel agency activities. If we fail to obtain or maintain
any of the required permits or approvals in the future, we may
be subject to various penalties, such as fines or suspension of
operations in these regulated businesses, which could severely
disrupt our business operations. As a result, our financial
condition and results of operations may be adversely affected.
In particular, the Civil Aviation Administration of China, or
CAAC, together with National Development and Reform Commission,
or NDRC, regulates pricing of air tickets. CAAC also supervises
commissions payable to air-ticketing agencies together with
China National Aviation Transportation Association, or CNATA. If
restrictive policies are adopted by CAAC, NDRC, or CNATA, or any
of their regional branches, our air-ticketing revenues may be
adversely affected.
We may not be
able to prevent others from using our intellectual property,
which may harm our business and expose us to
litigation.
We regard our domain names, trade names, trademarks and similar
intellectual property as critical to our success. We try to
protect our intellectual property rights by relying on trademark
protection and confidentiality laws and contracts. Trademark and
confidentiality protection in China may not be as effective as
that in the United States. Policing unauthorized use of
proprietary technology is difficult and expensive.
The steps we have taken may be inadequate to prevent the
misappropriation of our proprietary technology. Any
misappropriation could have a negative effect on our business
and operating results. Furthermore, we may need to go to court
to enforce our intellectual property rights. Litigation relating
to our intellectual property might result in substantial costs
and diversion of resources and management attention. See
Risks Related to Doing Business in
China Uncertainties with respect to the PRC legal
system could adversely affect us.
We rely on
services from third parties to carry out our business and to
deliver our products to customers, and if there is any
interruption or deterioration in the quality of these services,
our customers may not continue using our services.
We rely on third-party computer systems to host our websites, as
well as third-party licenses for some of the software underlying
our technology platform. In addition, we rely on third-party
S-15
air-ticketing
agencies to issue air tickets and travel insurance products,
confirmations and deliveries in some cities in Greater China. We
also rely on third party local operators to deliver
on-site
services to our packaged-tour customers. Any interruption in our
ability to obtain the products or services of these or other
third parties or deterioration in their performance could impair
the timing and quality of our own service. If our service
providers fail to provide high quality services in a timely
manner to our customers or violate any applicable rules and
regulations, our services will not meet the expectations of our
customers and our reputation and brand will be damaged.
Furthermore, if our arrangement with any of these third parties
is terminated, we may not find an alternative source of support
on a timely basis or on favorable terms to us.
If our hotel
suppliers or customers provide us with untrue information
regarding our customers stay, we may not be able to
recognize and collect revenues to which we are
entitled.
A substantial portion of our revenues are represented by
commissions which hotels pay us for room nights booked through
us. Generally, we do not receive payment from our customers on
behalf of our hotel suppliers, as our customers pay hotels
directly. To confirm whether a customer adheres to the booked
itinerary, we routinely make inquiries with the hotel and,
occasionally, with the customer. We rely on the hotel and the
customer to provide us truthful information regarding the
customers check-in and check-out dates, which forms the
basis for calculating the commission we are entitled to receive
from the hotel. If our hotel suppliers or customers provide us
with untrue information with respect to our customers
length of stay at the hotels, we would not be able to collect
revenues to which we are entitled. In addition, using such
untrue information may lead to inaccurate business projections
and plans, which may adversely affect our business planning and
strategy.
We may suffer
losses if we are unable to predict the amount of inventory we
will need to purchase during the peak holiday
seasons.
During the peak holiday seasons in China, we establish limited
merchant business relationships with selected travel service
suppliers, particularly for our packaged-tour products, in order
to secure adequate supplies for our customers. In the merchant
business relationship, we buy hotel rooms
and/or air
tickets before selling them to our customers and thereby incur
inventory risk. If we are unable to correctly predict demand for
hotel rooms and air tickets that we are committed to purchase,
we would be responsible for covering the cost of the hotel rooms
and air tickets we are unable to sell, and our financial
condition and results of operations would be adversely affected.
The recurrence
of SARS and other similar outbreaks such as H1N1 influenza
(swine flu) or avian flu as well as natural disasters may
materially and adversely affect our business and operating
results.
In early 2003, several regions in Asia, including Hong Kong and
China, were affected by the outbreak of SARS. The travel
industry in China, Hong Kong and some other parts of Asia
suffered tremendously as a result of the outbreak. Furthermore,
in early 2008, severe snowstorms hit many areas of China and
particularly affected southern China. The travel industry was
severely and adversely affected during and after the snowstorms.
Additionally, in May 2008, a major earthquake struck
Chinas populous Sichuan Province, causing great loss of
life, numerous injuries, property loss and disruption to the
local economy. The earthquake had an immediate impact on our
business as a result of the sharp decrease in travel in the
relevant earthquake affected areas in Sichuan Province. Finally,
in April 2009, an outbreak of H1N1 influenza (swine flu)
occurred in Mexico and the United States and human cases of
swine flu were and continue to be discovered in China and Hong
Kong. Our business and operating results were adversely affected
in all cases.
Any future outbreak of SARS, avian flu or similar adverse public
health development or an increase in the severity of H1N1
influenza or other contagious diseases, extreme unexpected bad
weather or severe natural disasters would adversely affect our
business and operating results. Ongoing concerns regarding
contagious disease or natural disasters, particularly its effect
on travel,
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could negatively impact our China-based customers desire
to travel. If there is a recurrence of an outbreak of certain
contagious diseases or natural disasters, travel to and from
affected regions could be curtailed. Government advice
regarding, or restrictions on, travel to and from these and
other regions on account of an outbreak of any contagious
disease or occurrence of natural disasters could have a material
adverse effect on our business and operating results.
If tax
benefits available to our subsidiaries in China are reduced or
repealed, our results of operations could suffer.
Under the PRC Enterprise Income Tax Law, or the EIT Law,
effective on January 1, 2008, foreign invested enterprises,
or FIEs, and domestic enterprises are subject to EIT at a
uniform rate of 25%. Certain enterprises will benefit from a
preferential tax rate of 15% under the EIT Law if they qualify
as high and new technology enterprises, subject to
certain general restrictions described in the EIT Law and the
related regulations.
In December 2008, our PRC subsidiaries, Ctrip Computer
Technology, Ctrip Travel Information and Ctrip Travel Network
were each designated by relevant local authorities in Shanghai
as a high and new technology enterprise under the
EIT Law. Therefore, these entities are entitled to enjoy a
preferential tax rate of 15% as long as they maintain their
qualifications for high and new technology
enterprises, which are subject to review every three
years. We cannot assure you that our subsidiaries will continue
to qualify as high and new technology enterprises when they are
subject to reevaluation in the future. In the event that the
preferential tax treatment for them is discontinued, these
entities will become subject to the standard tax rate at 25%,
which would materially increase our tax obligations.
We have
sustained losses in the past and may experience earnings
declines or net losses in the future.
We sustained net losses in the periods prior to 2002. We cannot
assure you that we can sustain profitability or avoid net losses
in the future. We expect that our operating expenses will
increase and the degree of increase in these expenses is largely
based on anticipated organizational growth and revenue trends.
As a result, any decrease or delay in generating additional
sales volume and revenues could result in substantial operating
losses.
We may be
subject to litigation regarding information provided on our
websites, which may be time-consuming to defend.
Our websites contain information about hotels, flights, popular
vacation destinations and other travel-related topics. It is
possible that if any information accessible on our websites
contains errors or false or misleading information, third
parties could take action against us for losses incurred in
connection with the use of such information. Any such claims,
with or without merit, could be time-consuming and costly to
defend, result in litigation and divert managements
attention and resources.
We could be
liable for breaches of security on our websites and fraudulent
transactions by users of our websites.
We conduct a portion of our transactions through our websites.
In such transactions, secured transmission of confidential
information (such as customers itineraries, hotel and
other reservation information, credit card information, personal
information and billing addresses) over public networks is
essential to maintain consumer and supplier confidence. Our
current security measures may not be adequate. Security breaches
could expose us to litigation and possible liability for failing
to secure confidential customer or supplier information and
could harm our reputation and ability to attract customers.
S-17
We have
limited business insurance coverage in China.
Insurance companies in China offer limited business insurance
products and generally do not, to our knowledge, offer business
liability insurance. Business disruption insurance is available
to a limited extent in China, but we have determined that the
risks of disruption, the cost of such insurance and the
difficulties associated with acquiring such insurance make it
impractical for us to have such insurance. We do not maintain
insurance coverage for any kinds of business liabilities or
disruptions and would have to bear the costs and expenses
associated with any such events out of our own resources.
We face a
greater risk of doubtful accounts as our corporate travel
business increases in scale.
Since we began providing travel booking services to corporate
customers who generally request credit terms, our accounts
receivable have increased. We cannot assure you that we will be
able to collect payment fully and in a timely manner on our
outstanding accounts receivable from our corporate travel
service customers. As a result, we may face a greater risk of
non-payment of our accounts receivable and, as our corporate
travel business grows in scale, we may need to make increased
provisions for doubtful accounts. Our operating results and
financial condition may be materially and adversely affected if
we are unable to successfully manage our accounts receivable.
As we have
commenced accounting for employee share options using the fair
value method beginning from 2006, such accounting treatment
could continue to significantly reduce our net
income.
Since 2006, we have accounted for share-based compensation in
accordance with ASC 718 Stock Compensation, or ASC
718, which requires a public company to recognize, as an
expense, the fair value of share options and other share-based
compensation to employees based on the requisite service period
of the share-based awards. Prior to 2006, we recorded
share-based compensation to the extent that the fair value of
the shares on the date of grant exceeded the exercise price of
the option. Our board of directors has the discretion to change
terms of any previously issued share options and any such change
may significantly increase the amount of our share-based
compensation expenses for the period that the change takes
effect as well as those for any future periods. In February
2009, our board of directors approved to reduce the exercise
price of all outstanding unvested options that were granted by
us in 2007 and 2008 under our 2007 Plan to the then fair market
value of our ordinary shares underlying such options and, in
December 2009, our board of directors approved to extend the
expiration dates of all stock options granted in 2005 and 2006
to eight years after the respective original grant dates of
these options. As a result of such changes, our share-based
compensation expense of 2009 reduced our diluted earnings per
ADS by approximately US$0.14. The application of ASC 718 will
continue to have a significant impact on our net income. In
addition, future changes to various assumptions used to
determine the fair value of awards issued or the amount and type
of equity awards granted may also create uncertainty as to the
amount of future share-based compensation expense.
Failure to
maintain effective internal control over financial reporting
could result in errors in our published financial statements,
which in turn could have a material adverse effect on the
trading price of our ADSs.
We are subject to the reporting obligations under the
U.S. securities laws. The Securities and Exchange
Commission, or the SEC, as required under Section 404 of
the Sarbanes-Oxley Act of 2002, has adopted rules requiring
public companies to include a report of management on the
effectiveness of such companies internal control over
financial reporting in its annual report. In addition, an
independent registered public accounting firm for a public
company must issue an attestation report on the effectiveness of
the companys internal control over financial reporting.
Our management conducted an evaluation of the effectiveness of
our internal control over financial
S-18
reporting and concluded that our internal control over financial
reporting was effective as of December 31, 2009. In
addition, our independent registered public accounting firm
attested the effectiveness of our internal control and reported
that our internal control over financial reporting was effective
as of December 31, 2009. If we fail to maintain the
effectiveness of our internal control over financial reporting,
we may not be able to conclude on an ongoing basis that we have
effective internal control over financial reporting in
accordance with the Sarbanes-Oxley Act. Moreover, effective
internal control over financial reporting is necessary for us to
produce reliable financial reports. As a result, any failure to
maintain effective internal control over financial reporting
could result in the loss of investor confidence in the
reliability of our financial statements, which in turn could
negatively impact the trading price of our ADSs. Furthermore, we
may need to incur additional costs and use additional management
and other resources in an effort to comply with Section 404
of the Sarbanes-Oxley Act and other requirements going forward.
We may need
additional capital and we may not be able to obtain
it.
We believe that our current cash and cash equivalents, our cash
flow from operations and proceeds from our financing activities
will be sufficient to meet our anticipated cash needs for the
foreseeable future. We may, however, require additional cash
resources due to changed business conditions or other future
developments, including any investments or acquisitions we may
decide to pursue. If these resources are insufficient to satisfy
our cash requirements, we may seek to sell additional equity or
debt securities or obtain a credit facility. The sale of
additional equity securities could result in additional dilution
to our shareholders. The incurrence of indebtedness would result
in increased debt service obligations and could result in
operating and financing covenants that would restrict our
operations. We cannot assure you that financing will be
available in amounts or on terms acceptable to us, if at all. In
particular, the recent financial turmoil affecting the financial
markets and banking system may significantly restrict our
ability to obtain financing in the capital markets or from
financial institutions on commercially reasonable terms, or at
all.
Risks Related to
Our Corporate Structure
PRC laws and
regulations restrict foreign investment in the air-ticketing,
travel agency, advertising and value-added telecommunications
businesses, and substantial uncertainties exist with respect to
the application and implementation of PRC laws and
regulations.
We are a Cayman Islands company and a foreign person under PRC
law. Due to foreign ownership restrictions in the air-ticketing,
travel agency, advertising and value-added telecommunications
industries, we conduct part of our business through contractual
arrangements with our affiliated Chinese entities. These
entities hold the licenses and approvals that are essential for
our business operations.
In the opinion of our PRC counsel, Commerce & Finance
Law Offices, our current ownership structure, the ownership
structure of our subsidiaries and our affiliated Chinese
entities, the contractual arrangements among us, our
subsidiaries, our affiliated Chinese entities and their
shareholders and our business operations, as described in the
annual report on
Form 20-F
for the year ended December 31, 2009, which is incorporated
by reference into this prospectus supplement, are in compliance
with existing PRC laws, rules and regulations. There are,
however, substantial uncertainties regarding the interpretation
and application of current or future PRC laws and regulations.
Accordingly, we cannot assure you that PRC government
authorities will not ultimately take a view contrary to the
opinion of our PRC legal counsel.
If we and our affiliated Chinese entities are found to be in
violation of any existing or future PRC laws or regulations, the
relevant governmental authorities would have broad discretion in
dealing with such violation, including, without limitation,
levying fines, confiscating our income or the income of our
affiliated Chinese entities, revoking our business licenses or
the business licenses of our affiliated Chinese entities,
requiring us and our affiliated Chinese entities to restructure
our ownership structure
S-19
or operations and requiring us or our affiliated Chinese
entities to discontinue any portion or all of our value-added
telecommunications, air-ticketing, travel agency or advertising
businesses. Any of these actions could cause significant
disruption to our business operations, and may materially and
adversely affect our business, financial condition and results
of operations.
Under the equity pledge agreements between our subsidiaries and
the shareholders of our affiliated Chinese entities, the
shareholders of our affiliated Chinese entities pledged their
respective equity interests in these entities to our
subsidiaries. Such pledges were duly created by recording the
pledge in the relevant affiliated Chinese entities
register of shareholders in accordance with the PRC Collateral
Law. However, according to the PRC Property Rights Law,
effective as of October 1, 2007, and the Measures for the
Registration of Equity Pledge with the Administration for
Industry and Commerce, effective as of October 1, 2008, the
effectiveness of the pledges will be denied if the pledges are
not registered with the relevant administration for industry and
commerce. Some of our affiliated Chinese entities and our
subsidiaries are in the process of preparing the application
forms and relevant documents for registration pursuant to the
Measures for the Registration of Equity Pledge. Before such
registration procedures are completed, we cannot assure you that
the effectiveness of the pledges will be recognized by PRC
courts if disputes arise on certain pledged equity interests or
that our subsidiaries interests as pledgees will prevail
over those of third parties.
If our
affiliated Chinese entities violate our contractual arrangements
with them, our business could be disrupted, our reputation may
be harmed and we may have to resort to litigation to enforce our
rights, which may be time-consuming and expensive.
As the PRC government restricts foreign ownership of value-added
telecommunications, air-ticketing, travel agency and advertising
businesses in China, we depend on our affiliated Chinese
entities, in which we have no ownership interest, to conduct
part of our non-hotel reservation business activities through a
series of contractual arrangements, which are intended to
provide us with effective control over these entities and allow
us to obtain economic benefits from them. Although we have been
advised by our PRC counsel, Commerce & Finance Law
Offices, that these contractual arrangements are valid, binding
and enforceable under current PRC laws, these arrangements are
not as effective in providing control as direct ownership of
these businesses. For example, our affiliated Chinese entities
could violate our contractual arrangements with them by, among
other things, failing to operate our air-ticketing,
packaged-tour or advertising business in an acceptable manner or
pay us for our consulting or other services. In any such event,
we would have to rely on the PRC legal system for the
enforcement of those agreements, which could have uncertain
results. Any legal proceeding could result in the disruption of
our business, damage to our reputation, diversion of our
resources and incurrence of substantial costs. See
Risks Related to Doing Business in
China Uncertainties with respect to the PRC legal
system could adversely affect us.
The principal
shareholders of our affiliated Chinese entities have potential
conflicts of interest with us, which may adversely affect our
business.
Our director, chief executive officer and president, Min Fan,
our officers, Jianmin Zhu, Tao Yang and Gangyi Yan and a family
member of a senior officer, Fengying Zhang were also the
principal shareholders of our consolidated affiliated Chinese
entities as of December 31, 2009. Thus, conflicts of
interest between their duties to our company and our affiliated
Chinese entities may arise. We cannot assure you that when
conflicts of interest arise, these persons will act entirely in
our interests or that the conflicts of interest will be resolved
in our favor. In addition, these persons could violate their
non-competition or employment agreements with us or their legal
duties by diverting business opportunities from us to others,
resulting in our loss of corporate opportunities. In any such
event, we would have to rely on the PRC legal system for the
enforcement of these agreements, which could have uncertain
results. Any legal proceeding could result in the disruption of
our business, diversion of our resources and incurrence of
substantial costs. See Risks Related to Doing
Business in China Uncertainties with respect to the
PRC legal system could adversely affect us.
S-20
Our
contractual arrangements with our affiliated Chinese entities
may result in adverse tax consequences to us.
As a result of our corporate structure and the contractual
arrangements between us and our affiliated Chinese entities, we
are effectively subject to the 5% PRC business tax on both
revenues generated by our affiliated Chinese entities
operations in China and revenues derived from our contractual
arrangements with our affiliated Chinese entities. We may be
subject to adverse tax consequences if the PRC tax authorities
were to determine that the contracts between us and our
affiliated Chinese entities were not made on an arms
length basis and therefore constitute favorable transfer pricing
arrangements. If this occurs, the PRC tax authorities could
request that our affiliated Chinese entities adjust their
taxable income upward for PRC tax purposes. Such a pricing
adjustment could adversely affect us by increasing our
affiliated Chinese entities tax expenses without reducing
our tax expenses, which could subject our affiliated Chinese
entities to late payment fees and other penalties for
underpayment of taxes,
and/or
result in the loss of the tax benefits available to our
subsidiaries in China. The EIT Law requires every enterprise in
China to submit its annual enterprise income tax return together
with a report on transactions with its affiliates to the
relevant tax authorities. The tax authorities may impose
reasonable adjustments on taxation if they have identified any
related party transactions that are inconsistent with arms
length principles. As a result, our contractual arrangements
with our affiliated Chinese entities may result in adverse tax
consequences to us.
Our
subsidiaries and affiliated Chinese entities in China are
subject to restrictions on paying dividends or making other
payments to us, which may restrict our ability to satisfy our
liquidity requirements.
We are a holding company incorporated in the Cayman Islands. We
rely on dividends from our subsidiaries in China and consulting
and other fees paid to us by our affiliated Chinese entities.
Current PRC regulations permit our subsidiaries to pay dividends
to us only out of their accumulated profits, if any, determined
in accordance with Chinese accounting standards and regulations.
In addition, our subsidiaries in China are required to set aside
at least 10% of their respective accumulated profits each year,
if any, to fund certain reserve funds unless these reserves have
reached 50% of the subsidiaries registered capital. These
reserves are not distributable as cash dividends. Furthermore,
if our subsidiaries and affiliated Chinese entities in China
incur debt on their own behalf in the future, the instruments
governing the debt may restrict their ability to pay dividends
or make other payments to us, which may restrict our ability to
satisfy our liquidity requirements.
Pursuant to the EIT Law and a circular issued by the PRC
Ministry of Finance and the PRC State Administration of
Taxation, or the SAT, in February 2008, the dividends declared
out of the profits earned after January 1, 2008 by an FIE
to its immediate holding company outside China would be subject
to a 10% withholding tax unless any such foreign investors
jurisdiction of incorporation has a tax treaty with China that
provides for a different withholding arrangement, and certain
supplementary requirements and procedures stipulated by the SAT
for such tax treaty are met and observed. Our subsidiaries in
China are considered FIEs and are directly held by our
subsidiary in Hong Kong. According to the currently effective
tax treaty between China and Hong Kong, dividends payable by an
FIE in China to a company in Hong Kong which directly holds at
least 25% of the equity interests in the FIE will be subject to
a withholding tax of 5%. In February 2009, the SAT issued a new
notice, or Notice No. 81. According to Notice No. 81,
in order to enjoy the preferential treatment on dividend
withholding tax rates, an enterprise must be the
beneficial owner of the relevant dividend income,
and no enterprise is entitled to enjoy preferential treatment
pursuant to any tax treaties if such enterprise qualifies for
such preferential tax rates through any transaction or
arrangement, the major purpose of which is to obtain such
preferential tax treatment. The tax authority in charge has the
right to make adjustments to the applicable tax rates, if it
determines that any taxpayer has enjoyed preferential treatment
under tax treaties as a result of such transaction or
arrangement. In October 2009, the SAT issued another notice on
this matter, or Notice No. 601, to provide guidance on the
criteria to determine whether an enterprise qualifies as the
beneficial owner of the PRC sourced
S-21
income for the purpose of obtaining preferential treatment under
tax treaties. Pursuant to Notice No. 601, the PRC tax
authorities will review and grant tax preferential treatment on
a
case-by-case
basis and adopt the substance over form principle in
the review. Notice 601 specifies that a beneficial owner should
generally carry out substantial business activities and own and
have control over the income, the assets or other rights
generating the income. Therefore, an agent or a conduit company
will not be regarded as a beneficial owner of such income. Since
the two notices were issued, it has remained unclear how the PRC
tax authorities will implement them in practice and to what
extent they will affect the dividend withholding tax rates for
dividends distributed by our subsidiaries in China to our Hong
Kong subsidiary. If the relevant tax authority determines that
our Hong Kong subsidiary is a conduit company and does not
qualify as the beneficial owner of the dividend
income it receives from our PRC subsidiaries, the higher 10%
withholding tax rate may apply to such dividends.
Under the EIT Law, an enterprise established outside of China
with its de facto management body within China is
considered a resident enterprise and will be subject to
enterprise income tax at the rate of 25% on its worldwide
income. The de facto management body is defined as
the organizational body that effectively exercises overall
management and control over production and business operations,
personnel, finance and accounting, and properties of the
enterprise. It remains unclear how the PRC tax authorities will
interpret such a broad definition. If the PRC tax authorities
determine that we should be classified as a resident enterprise,
our global income will be subject to income tax at a uniform
rate of 25%, which may have a material adverse effect on our
financial condition and results of operations. Notwithstanding
the foregoing provision, the EIT Law also provides that, if a
resident enterprise directly invests in another resident
enterprise, the dividends received by the investing resident
enterprise from the invested enterprise are exempted from income
tax, subject to certain conditions. However, it remains unclear
how the PRC tax authorities will interpret the PRC tax resident
treatment of an offshore company, like us, having indirect
ownership interests in PRC enterprises through intermediary
holding vehicles.
Moreover, under the EIT Law, foreign ADS holders may be subject
to a 10% withholding tax upon dividends payable by a Chinese
entity and gains realized on the sale or other disposition of
ADSs or ordinary shares, if such income is considered as income
derived from within China. Any such tax will reduce the returns
on your investment in our ADSs.
Risks Related to
Doing Business in China
Adverse
changes in economic and political policies of the PRC government
could have a material adverse effect on the overall economic
growth of China, which could adversely affect our
business.
The majority of our business operations are conducted in
mainland China. Accordingly, our results of operations,
financial condition and prospects are subject to a significant
degree to economic, political and legal developments in China.
Chinas economy differs from the economies of most
developed countries in many respects, including with respect to
the amount of government involvement, level of development,
growth rate, control of foreign exchange and allocation of
resources. While the PRC economy has experienced significant
growth in the past decades, growth has been uneven across
different regions and among various economic sectors of China.
The PRC government has implemented various measures to encourage
economic development and guide the allocation of resources. Some
of these measures benefit the overall PRC economy, but may also
have a negative effect on us. For example, our financial
condition and results of operations may be adversely affected by
government control over capital investments or changes in tax
regulations that are applicable to us. In addition, future
measures to control the pace of economic growth may cause a
decrease in the level of economic activity in China, which in
turn could adversely affect our results of operations and
financial condition.
S-22
Future
movements in exchange rates between the U.S. dollar and the RMB
may adversely affect the value of our ADSs.
The value of the RMB against the U.S. dollar and other
currencies may fluctuate and is affected by, among other things,
changes in political and economic conditions. The conversion of
the RMB into foreign currencies, including the U.S. dollar,
has been based on rates set by the Peoples Bank of China.
On July 21, 2005, the PRC government changed its decade-old
policy of pegging the value of the RMB to the U.S. dollar.
Under the new policy, the RMB is permitted to fluctuate within a
narrow and managed band against a basket of certain foreign
currencies. This change in policy has resulted in a greater
fluctuation range between the RMB and the U.S. dollar and
caused the RMB to appreciate approximately 20% against the
U.S. dollar as of December 31, 2009. On May 19,
2007, the Peoples Bank of China announced a policy to
expand the maximum daily floating range of the RMB trading
prices against the U.S. dollar in the inter-bank spot
foreign exchange market from 0.3% to 0.5%. With this increased
floating range, the RMBs value may appreciate or
depreciate significantly against the U.S. dollar or other
foreign currencies in the long term, depending on the
fluctuation of the basket of currencies against which it is
currently valued. For example, the RMB appreciated approximately
27% against the Euro between July 2008 and November 2008. It is
difficult to predict how long the current situation may last and
when and how it may change again.
The majority of our revenues and costs are denominated in RMB,
while a portion of our financial assets and our dividend
payments are denominated in U.S. dollars. We have not used
any forward contracts or currency borrowings to hedge our
exposure to foreign currency risk. Any significant revaluation
of the RMB or the U.S. dollar may adversely affect our cash
flows, earnings and financial position, and the value of, and
any dividends payable on, our ADSs. For example, an appreciation
of the RMB against the U.S. dollar would make any new
RMB-denominated investments or expenditures more costly to us,
to the extent that we need to convert U.S. dollars into RMB
for such purposes. An appreciation of the RMB against the
U.S. dollar would also result in foreign currency
translation losses for financial reporting purposes when we
translate our U.S. dollar-denominated financial assets into
RMB, our reporting currency.
Restrictions
on currency exchange may limit our ability to receive and use
our revenues effectively.
Because the majority of our revenues are in the form of RMB, any
restrictions on currency exchange may limit our ability to use
revenues generated in RMB to fund our business activities
outside China or to make dividend payments in U.S. dollars.
The principal regulation governing foreign currency exchange in
China is the Foreign Currency Administration Rules, as amended,
or the Rules. Under the Rules, RMB is freely convertible for
trade and service-related foreign exchange transactions, but not
for direct investment, loan or investment in securities outside
China unless the prior approval of the State Administration of
Foreign Exchange, or SAFE, is obtained. Although the PRC
government regulations now allow greater convertibility of RMB
for current account transactions, significant restrictions still
remain. For example, foreign exchange transactions under our
subsidiaries capital account, including principal payments
in respect of foreign currency-denominated obligations, remain
subject to significant foreign exchange controls and the
approval of SAFE. These limitations could affect our ability to
obtain foreign exchange for capital expenditures. We cannot be
certain that the PRC regulatory authorities will not impose more
stringent restrictions on the convertibility of RMB, especially
with respect to foreign exchange transactions.
Inflation in
China may disrupt our business and have an adverse effect on our
financial condition and results of operations.
Historically, China has experienced significant inflation and we
cannot assure you that further inflation will not occur in the
future. If inflation recurs, the scope and the extent of
inflation could adversely affect the Chinese economy and the
travel patterns of both business and personal travelers. If
inflation leads to a reduction in business and leisure travel,
our business, financial condition and
S-23
results of operations would be adversely impacted. Furthermore,
we cannot assure you that, under competitive pressure, we will
be able to implement price increases, which could adversely
impact our business, financial condition and results of
operations.
PRC
regulations relating to the establishment of offshore special
purpose companies by PRC residents and the grant of employee
stock options by overseas-listed companies may subject our PRC
resident shareholders to personal liability and limit our
ability to inject capital into our PRC subsidiaries, limit our
subsidiaries ability to distribute profits to us, or
otherwise adversely affect us.
SAFE issued a public notice, or Notice 75, in October 2005
requiring PRC residents to register with the local SAFE branch
before establishing or controlling any company outside of China
for the purpose of capital financing with assets or equity
interests in any onshore enterprise located in China, referred
to in the notice as a special purpose company. On
May 29, 2007, SAFE further promulgated the guideline for
Notice 75, or Guideline 106, which clarifies certain
implementation questions of Notice 75. According to Notice 75
and Guideline 106, any PRC resident who is a direct or indirect
shareholder of a special purpose company is also required to
file or update the registration with the local branch of SAFE,
with respect to that special purpose company for any material
change involving its round-trip investment, capital variation,
such as an increase or decrease in capital, transfer or swap of
shares, merger, division, long-term equity or debt investment or
the creation of any security interest. Moreover, the PRC
subsidiaries of that special purpose company are required to
urge the PRC resident shareholders to update their SAFE
registration with the local branch of SAFE when such updates are
required under applicable SAFE regulations.
We have notified holders of ordinary shares of our company who
we know are PRC residents to register with the local SAFE branch
as required under the SAFE notice. The failure or inability of
our shareholders resident in China to comply with the
registration procedures set forth therein may subject them to
fines and legal sanctions and may also limit our ability to
contribute additional capital into our PRC subsidiaries, limit
our PRC subsidiaries ability to distribute profits to our
company or otherwise adversely affect our business.
In addition, on March 28, 2007, SAFE promulgated the
Application Procedure of Foreign Exchange Administration for
Domestic Individuals Participating in an Employee Stock Holding
Plan or Stock Option Plan of an Overseas-Listed Company, or the
Stock Option Rule. Under the Stock Option Rule, PRC citizens who
are granted stock options by an overseas publicly listed company
are required, through a PRC agent or PRC subsidiary of such
overseas publicly listed company, to register with SAFE and
complete certain other procedures. We and our PRC employees who
have been granted stock options are subject to the Stock Option
Rule. If we or our PRC optionees fail to comply with these
regulations, we or our PRC optionees may be subject to fines and
legal sanctions.
Online payment
systems in China are at an early stage of development and may
restrict our ability to expand our online commerce
business.
Online payment systems in China are at an early stage of
development. Although major Chinese banks are instituting online
payment systems, these systems are not as widely acceptable to
consumers in China as in the United States and other developed
countries. The lack of wide acceptance of online payment systems
and concerns regarding the adequacy of system security may limit
the number of online commercial transactions that we can
service. If online payment services and their security
capabilities are not significantly enhanced, our ability to grow
our online commerce business may be limited.
The Internet market has not been proven as an effective
commercial medium in China. The market for Internet products and
services in China has only recently begun to develop. The
Internet penetration rate in China is lower than those in the
United States and other developed countries. Since the Internet
is an unproven medium for commerce in China, our future
operating results from
S-24
online services will depend substantially upon the increased use
and acceptance of the Internet for distribution of products and
services and facilitation of commerce in China.
The Internet may not become a viable commercial marketplace in
China for various reasons in the foreseeable future. More
salient impediments to Internet development in China include:
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consumer dependence on traditional means of commerce;
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inexperience with the Internet as a sales and distribution
channel;
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inadequate development of the necessary infrastructure to
facilitate online commerce;
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concerns about security, reliability, cost, ease of deployment,
administration and quality of service associated with conducting
business and settling payment over the Internet;
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inexperience with credit card usage or with other means of
electronic payment; and
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limited use of personal computers.
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If the Internet is not widely accepted as a medium for online
commerce in China, our ability to grow our online business would
be impeded.
Uncertainties
with respect to the PRC legal system could adversely affect
us.
We conduct our business primarily through our wholly owned
subsidiaries incorporated in China. Our subsidiaries are
generally subject to laws and regulations applicable to foreign
investment in China and, in particular, laws applicable to
wholly foreign owned enterprises. In addition, we depend on
several affiliated Chinese entities in China to honor their
service agreements with us. Almost all of these agreements are
governed by PRC law and disputes arising out of these agreements
are expected to be decided by arbitration in China. The PRC
legal system is based on written statutes. Prior court decisions
may be cited for reference but have limited precedential value.
Since 1979, PRC legislation and regulations have significantly
enhanced the protections afforded to various forms of foreign
investments in China. However, since the PRC legal system is
still evolving, the interpretations of many laws, regulations
and rules are not always uniform and enforcement of these laws,
regulations and rules involve uncertainties, which may limit
remedies available to us. In addition, any litigation in China
may be protracted and result in substantial costs and diversion
of resources and management attention.
We have
attempted to comply with the PRC government regulations
regarding licensing requirements by entering into a series of
agreements with our affiliated Chinese entities. If the PRC laws
and regulations change, our business in China may be adversely
affected.
To comply with the PRC government regulations regarding
licensing requirements, we have entered into a series of
agreements with our affiliated Chinese entities to exert our
operational control over them and secure consulting fees and
other payments from them. Although we have been advised by our
PRC counsel, Commerce & Finance Law Offices, that our
arrangements with our affiliated Chinese entities are valid
under current PRC law and regulations, we cannot assure you that
we will not be required to restructure our organizational
structure and operations in China to comply with changing and
new PRC laws and regulations. Restructuring of our operations
may result in disruption of our business, diversion of
management attention and the incurrence of substantial costs.
The continued
growth of the Chinese Internet market depends on the
establishment of an adequate telecommunications
infrastructure.
Although private sector Internet service providers currently
exist in China, almost all access to the Internet is maintained
through state-owned telecommunication operations under the
administrative control and regulatory supervision of
Chinas Ministry of Industry and Information Technology. In
addition, the national networks in China connect to the Internet
through government-controlled
S-25
international gateways. These international gateways are the
only channels through which a domestic Chinese user can connect
to the international Internet network. We rely on this
infrastructure, primarily China Telecom and China Unicom, to
provide data communications capacity. Although the government
has announced plans to aggressively develop the national
information infrastructure, we cannot assure you that this
infrastructure will be developed. In addition, we will have no
access to alternative networks and services, on a timely basis
if at all, in the event of any infrastructure disruption or
failure. The Internet infrastructure in China may not support
the demands associated with continued growth in Internet usage.
Risks Related to
Our Ordinary Shares and ADSs
The future
sales by our existing shareholders of a substantial number of
our ADSs in the public market could adversely affect the price
of our ADSs.
If our existing shareholders sell substantial amounts of our
ADSs, including those issued upon the exercise of outstanding
options, in the public market, the market price of our ADSs
could fall. Such sales also might make it more difficult for us
to sell equity or equity-related securities in the future at a
time and price that we deem appropriate. Any future sales of a
substantial number of our ADSs in the public market could
adversely affect the price of our ADSs.
You may face
difficulties in protecting your interests, and our ability to
protect our rights through the U.S. federal courts may be
limited, because we are incorporated under Cayman Islands
law.
Our corporate affairs are governed by our memorandum and
articles of association and by the Companies Law (2009 Revision)
and common law of the Cayman Islands. The rights of our
shareholders and the fiduciary responsibilities of our directors
under Cayman Islands law are not as clearly established as they
would be under statutes or judicial precedents in some
jurisdictions in the United States. In particular, the Cayman
Islands has a less developed body of securities laws as compared
to the United States. Therefore, our public shareholders may
have more difficulties in protecting their interests in the face
of actions by our management, directors or controlling
shareholders than would shareholders of a corporation
incorporated in a jurisdiction in the United States.
Your ability
to bring an action against us or against our directors and
officers, or to enforce a judgment against us or them, may be
limited because we are incorporated in the Cayman Islands, and
because we conduct the majority of our operations in China and
because the majority of our directors and officers reside
outside of the United States.
We are incorporated in the Cayman Islands, and we conduct the
majority of our operations in China through our wholly owned
subsidiaries and several affiliated Chinese entities in China.
Most of our directors and officers reside outside of the United
States and most of the assets of those persons are located
outside of the United States. As a result, it may be difficult
for you to bring an action in the United States upon these
persons. It may also be difficult for you to enforce in United
States courts judgments obtained in United States courts based
on the civil liability provisions of the United States federal
securities laws against us and our officers and directors, most
of whom are not residents in the United States and the
substantial majority of whose assets are located outside of the
United States. Even if you are successful in bringing an action
of this kind, the laws of the Cayman Islands or China may render
you unable to enforce a judgment against our assets or the
assets of our directors and officers. For more information
regarding the relevant laws of the Cayman Islands and China, see
Enforceability of Civil Liabilities.
You may not be
able to exercise your right to vote.
As a holder of ADSs, you may instruct the depositary of our ADSs
to vote the shares underlying your ADSs. Otherwise, you will not
be able to exercise your right to vote unless you withdraw the
S-26
ordinary shares. However, you may not know about the meeting
enough in advance to withdraw the ordinary shares. If we ask for
your instructions, the depositary will notify you of the
upcoming vote and arrange to deliver our voting materials to
you. We cannot assure you that you will receive the voting
materials in time to ensure that you can instruct the depositary
to vote your shares. In addition, the depositary and its agents
are not responsible for failing to carry out voting instructions
or for the manner of carrying out voting instructions. This
means that you may not be able to exercise your right to vote
and there may be nothing you can do if the shares underlying
your ADSs are not voted as you requested.
Under our deposit agreement, the depositary will give us a
discretionary proxy to vote the ordinary shares underlying your
ADSs at shareholders meetings if you do not vote, unless
we have instructed the depositary that we do not wish a
discretionary proxy to be given or any of the other situations
specified under the deposit agreement takes place. The effect of
this discretionary proxy is that you cannot prevent ordinary
shares underlying your ADSs from being voted, absent the
situations described above, and it may make it more difficult
for shareholders to influence the management of our company.
Holders of our ordinary shares are not subject to this
discretionary proxy.
Your right to
participate in any future rights offerings may be limited, which
may cause dilution to your holdings.
We may from time to time distribute rights to our shareholders,
including rights to acquire our securities. However, we cannot
make rights available to you in the United States unless we
register the rights and the securities to which the rights
relate under the Securities Act of 1933, as amended, or the
Securities Act, or an exemption from the registration
requirements is available. Also, under the deposit agreement,
the depositary bank will not make those rights available to you
unless the distribution to ADS holders of both the rights and
any related securities are either registered under the
Securities Act, or exempt from registration under the Securities
Act. We are under no obligation to file a registration statement
with respect to any such rights or securities or to endeavor to
cause such a registration statement to be declared effective.
Moreover, we may not be able to establish an exemption from
registration under the Securities Act. Accordingly, you may be
unable to participate in our rights offerings and may experience
dilution in your holdings.
You may not
receive distributions on ordinary shares or any value for them
if it is illegal or impractical to make them available to
you.
The depositary of our ADSs has agreed to pay to you the cash
dividends or other distributions it or the custodian receives on
ordinary shares or other deposited securities after deducting
its fees and expenses. You will receive these distributions in
proportion to the number of ordinary shares your ADSs represent.
However, the depositary is not responsible if it decides that it
is unlawful or impractical to make a distribution available to
any holders of ADSs. We have no obligation to register ADSs,
ordinary shares, rights or other securities under
U.S. securities laws. We also have no obligation to take
any other action to permit the distribution of ADSs, ordinary
shares, rights or anything else to holders of ADSs. This means
that you may not receive the distribution we make on our
ordinary shares or any value for them if it is illegal or
impractical for us to make them available to you. These
restrictions may have a material adverse effect on the value of
your ADSs.
You may be
subject to limitations on transfer of your ADSs.
Your ADSs represented by the ADRs are transferable on the books
of the depositary. However, the depositary may close its
transfer books at any time or from time to time when it deems
expedient in connection with the performance of its duties. In
addition, the depositary may refuse to deliver, transfer or
register transfers of ADSs generally when our books or the books
of the depositary are closed, or at any time if we or the
depositary thinks it advisable to do so because of any
requirement of law or of any government or governmental body, or
under any provision of the deposit agreement, or for any other
reason.
S-27
Provisions of
our shareholder rights plan could delay or prevent an
acquisition of our company, even if the acquisition would be
beneficial to our shareholders.
In November 2007, we adopted a shareholder rights plan. Although
the rights plan will not prevent a takeover, it is intended to
encourage anyone seeking to acquire our company to negotiate
with our board of directors prior to attempting a takeover by
potentially significantly diluting an acquirers ownership
interest in our outstanding capital stock. The existence of the
rights plan may also discourage transactions that otherwise
could involve payment of a premium over prevailing market prices
for our ADSs.
S-28
USE OF
PROCEEDS
We will receive net proceeds of approximately
US$199.2 million (after deducting underwriting discount and
estimated offering expenses) from the issuance of ADSs in this
offering, assuming that the underwriters over-allotment
option is not exercised. We intend to use the net proceeds from
this offering for strategic acquisitions of, and investments in,
complementary businesses and assets, and for other general
corporate purposes. We have not entered into any binding
agreement for any strategic acquisition or investment as of the
date of this prospectus supplement, other than those disclosed
herein.
S-29
CAPITALIZATION
The following table sets forth our capitalization as of
December 31, 2009:
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on an actual basis; and
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on an as adjusted basis to give effect to our sale of 5,700,000
ADSs in this offering at the public offering price of US$36.00,
after deducting the underwriting discount and estimated offering
expenses payable by us and assuming no exercise of the
underwriters option to purchase additional ADSs from us.
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The as adjusted information below is illustrative only. You
should read this table together with our consolidated financial
statements and the related notes and the information under
Item 5. Operating and Financial Review and
Prospects in our annual report on
Form 20-F
for the fiscal year ended December 31, 2009 which is
incorporated by reference in this prospectus supplement.
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As of December 31, 2009
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Actual
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As adjusted
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RMB
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US$
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RMB
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US$
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(In thousands, except share data)
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Shareholders equity:
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Ordinary shares, US$0.01 par value, 100,000,000 shares
authorized; 34,054,944 shares issued and outstanding(1)
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2,801
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410
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2,897
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424
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Additional paid-in capital
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1,219,815
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178,704
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2,579,097
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377,840
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Statutory reserves
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72,489
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10,620
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72,489
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10,620
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Cumulative foreign currency translation adjustments
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(77,742
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(11,389
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(77,742
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(11,389
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Retained earnings
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1,707,685
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250,177
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1,707,685
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250,177
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Total Ctrips shareholders equity
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2,925,048
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428,522
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4,284,426
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627,672
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Total capitalization(2)
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2,925,048
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428,522
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4,284,426
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627,672
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(1) |
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The number of ordinary shares issued and outstanding as of
December 31, 2009 excludes the 1,485,172 ordinary shares
that we reserved for issuance upon the exercise of our
outstanding options. As of the same date, there were 3,387,410
options issued and outstanding, which, once vested, are
exercisable for the equivalent amount of our ordinary shares. |
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We do not have any outstanding indebtedness as of the date of
this prospectus supplement. |
S-30
DIVIDEND
POLICY
On June 15, 2007, our shareholders approved the
distribution of 30% of our net income for 2007 to our
shareholders as dividends. On July 7, 2008, we distributed
dividends in the aggregate amount of RMB112 million
(US$16 million) to our shareholders of record as of
June 12, 2008, at a dividend rate of RMB3.38, or US$0.488,
per ordinary share. On November 23, 2007, our board of
directors declared a dividend of one ordinary share purchase
right for each of our ordinary shares outstanding as of the
close of business on December 3, 2007. See
Description of Share Capital Shareholder
Rights Plan in the accompanying prospectus. We made no
dividend distribution in 2009.
We have received dividends from our subsidiaries, which have
received consulting or other fees from our affiliated Chinese
entities. In accordance with current Chinese laws and
regulations, our subsidiaries and affiliated entities in China
are required to allocate to their general reserves at least 10%
of their respective after-tax profits for the year determined in
accordance with Chinese accounting standards and regulations.
Each of our subsidiaries and affiliated entities in China may
stop allocations to its general reserve if such reserve has
reached 50% of its registered capital. In addition, our
subsidiaries in China are required to allocate portions of their
respective after-tax profits to their enterprise expansion funds
and staff welfare and bonus funds at the discretion of their
boards of directors. Allocations to these statutory reserves and
funds can only be used for specified purposes and are not
transferable to us in the form of loans, advances, or cash
dividends.
Our board of directors has complete discretion as to whether we
will distribute dividends in the future, subject to the approval
of our shareholders. Even if our board of directors determines
to distribute dividends, the form, frequency and amount of our
dividends will depend upon our future operations and earnings,
capital requirements and surplus, general financial condition,
contractual restrictions, potential tax implications and other
factors as the board of directors may deem relevant. Any
dividend we declare will be paid to the holders of ADSs, subject
to the terms of the deposit agreement, to the same extent as
holders of our ordinary shares, less the fees and expenses
payable under the deposit agreement. Any dividend we declare
will be distributed by the depositary bank to the holders of our
ADSs. Cash dividends on our ordinary shares, including those
represented by the ADSs, if any, will be paid in
U.S. dollars.
S-31
MARKET PRICE
INFORMATION FOR OUR ADSs
Our ADSs have been listed on the Nasdaq Global Market since
December 2003 and on the Nasdaq Global Select Market since July
2006. Our ADSs are traded under the symbol CTRP.
The following table provides the high and low trading prices for
our ADSs on the Nasdaq Global Market and on the Nasdaq Global
Select Market for the periods presented and all prices have been
retroactively adjusted to reflect the current ADS to ordinary
share ratio of one ADS to 0.25 of an ordinary share effective on
January 21, 2010 for all periods presented. As of
March 3, 2010, the trading price of our ADSs is US$36.42.
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Trading Price
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Period
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High(1)
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Low(1)
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US$
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US$
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2005
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8.34
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4.52
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2006
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16.33
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6.96
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2007
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31.62
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13.77
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2008
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35.45
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8.21
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First Quarter
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31.50
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20.02
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Second Quarter
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35.45
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22.68
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Third Quarter
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27.44
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17.13
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Fourth Quarter
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20.44
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8.21
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2009
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39.30
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9.20
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First Quarter
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15.43
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9.20
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Second Quarter
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23.82
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13.20
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Third Quarter
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30.67
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19.46
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Fourth Quarter
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39.30
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26.52
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Monthly Highs and Lows
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September 2009
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30.67
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24.00
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October 2009
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31.90
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26.52
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November 2009
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36.96
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26.60
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December 2009
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39.30
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34.12
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January 2010
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38.50
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30.60
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February 2010
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38.46
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29.90
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(1) |
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Trading prices are adjusted for changes of the ratio of our ADSs
to ordinary shares from one ADS representing two ordinary shares
to one ADS representing one ordinary share which was effected on
April 11, 2006, from one ADS representing one ordinary
share to one ADS representing 0.5 of an ordinary share, which
was effected on July 31, 2007, and from one ADS
representing 0.5 of an ordinary share to one ADS representing
0.25 of an ordinary share, which was effected on
January 21, 2010. |
S-32
EXCHANGE RATE
INFORMATION
Our business is primarily conducted in China and the majority of
our revenues are denominated in RMB. However, periodic reports
made to shareholders will include certain amounts expressed in
U.S. dollars using the then current exchange rates. This
prospectus supplement, the accompanying prospectus and the
documents incorporated by reference contain translations of RMB
amounts into U.S. dollars at specific rates solely for the
convenience of the reader. For all dates and periods through
December 31, 2008, the conversion of RMB into
U.S. dollars in this prospectus supplement is based on the
noon buying rate in The City of New York for cable transfers of
RMB as certified for customs purposes by the Federal Reserve
Bank of New York. For January 1, 2009 and all later dates
and periods, the exchange rate refers to the exchange rate as
set forth in the H.10 statistical release of the Federal Reserve
Board. Unless otherwise noted, all translations of financial
data from RMB to U.S. dollars in this prospectus supplement
were made at a rate of RMB 6.8259 to US$1.00, the certified
exchange rate in effect as of December 31, 2009. We make no
representation that any RMB or U.S. dollar amounts could
have been, or could be, converted into U.S. dollars or RMB,
as the case may be, at any particular rate, the rates stated
below, or at all. The PRC government imposes control over its
foreign currency reserves in part through direct regulation of
the conversion of RMB into foreign exchange and through
restrictions on foreign trade. On March 1, 2010, the
certified exchange rate was RMB 6.8262 to US$1.00.
The following table sets forth information concerning exchange
rates between the RMB and the U.S. dollar for the periods
indicated. These rates are provided solely for your convenience
and are not necessarily the exchange rates that we used in this
prospectus supplement or will use in the preparation of our
periodic reports or any other information to be provided to you.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certified Exchange Rate
|
Period
|
|
Period-End
|
|
Average(1)
|
|
Low
|
|
High
|
|
|
(RMB per U.S. Dollar)
|
|
2005
|
|
|
8.0702
|
|
|
|
8.1826
|
|
|
|
8.2765
|
|
|
|
8.0702
|
|
2006
|
|
|
7.8041
|
|
|
|
7.9579
|
|
|
|
8.0702
|
|
|
|
7.8041
|
|
2007
|
|
|
7.2946
|
|
|
|
7.5806
|
|
|
|
7.8127
|
|
|
|
7.2946
|
|
2008
|
|
|
6.8225
|
|
|
|
6.9193
|
|
|
|
7.2946
|
|
|
|
6.7800
|
|
2009
|
|
|
6.8259
|
|
|
|
6.8295
|
|
|
|
6.8470
|
|
|
|
6.8176
|
|
September
|
|
|
6.8262
|
|
|
|
6.8277
|
|
|
|
6.8303
|
|
|
|
6.8247
|
|
October
|
|
|
6.8264
|
|
|
|
6.8267
|
|
|
|
6.8292
|
|
|
|
6.8248
|
|
November
|
|
|
6.8265
|
|
|
|
6.8271
|
|
|
|
6.8300
|
|
|
|
6.8255
|
|
December
|
|
|
6.8259
|
|
|
|
6.8275
|
|
|
|
6.8299
|
|
|
|
6.8244
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
6.8268
|
|
|
|
6.8269
|
|
|
|
6.8295
|
|
|
|
6.8258
|
|
February
|
|
|
6.8258
|
|
|
|
6.8285
|
|
|
|
6.8330
|
|
|
|
6.8258
|
|
|
|
|
(1) |
|
Annual averages are calculated using the average of month-end
rates of the relevant year. Monthly averages are calculated
using the average of the daily rates during the relevant period. |
S-33
RECENT
DEVELOPMENTS
Change of Ratio
of ADS to Ordinary Shares
Effective on January 21, 2010, we changed the ratio of our
ADSs to ordinary shares from two ADSs representing one ordinary
share to four ADSs representing one ordinary share. For our ADS
holders, this ratio change had the same effect as a
two-for-one
ADS split.
Investment in the
Travel Service Segment of Wing On Travel
In February 2010, our wholly owned subsidiary, C-Travel
International Limited, entered into an agreement with Wing On
Travel whereby C-Travel International Limited agrees to invest
and Wing On Travel agrees to sell 90% of the issued share
capital of Wing On Travels travel service segment
(operated through Wing On Travels subsidiary, HKWOT (BVI)
Limited), for a total consideration of approximately
US$88 million (or HK$684 million) in cash. The closing
of this transaction is subject to certain conditions, including
approval by public shareholders of Wing On Travel, a Hong Kong
listed company.
Changes in
Principal Shareholders
Based on various Form 13G filings and amendments thereto
made by certain of our shareholders since the filing of our
annual report on
Form 20-F
for the fiscal year ended December 31, 2009, our list of
principal shareholders and their respective beneficial ownership
have changed as follows: (1) the beneficial ownership of
entities affiliated with Lone Spruce decreased from 12.4% to
nil; (2) the beneficial ownership of Credit Suisse
decreased from 7.4% to 0.4%; (3) the beneficial ownership
of Schroeder Investment Management NA decreased from 5.7% to
1.28%; (4) the beneficial ownership of FMR LLC and Edward
Johnson 3rd increased to 8.256%; and (5) the
beneficial ownership of entities affiliated with Morgan Stanley
increased from 4.9% to 8.9%.
S-34
SHARES ELIGIBLE
FOR FUTURE SALE
Upon completion of this offering, we will have 145,967,120
outstanding ADSs representing approximately 99% of our ordinary
shares in issue assuming that the underwriter does not exercise
the option to purchase additional ADSs. All of the ADSs sold in
this offering will be freely transferable by persons other than
our affiliates who are subject to restriction under
the Securities Act. Sales of substantial amounts of our ADSs in
the public market could adversely affect prevailing market
prices of our ADSs.
Lock-Up
Agreements
We have agreed for a period of 90 days after the date of
this prospectus supplement, subject to the exceptions specified
in Underwriting, not to offer, pledge, sell,
contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, lend
or otherwise transfer or dispose of directly or indirectly, any
ordinary shares or any securities convertible into or
exercisable or exchangeable for ordinary shares; or enter into
any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership
of the ordinary shares.
Our directors and executive officers have agreed for a period of
90 days after the date of this prospectus supplement,
subject to the exceptions specified in Underwriting,
not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of directly or indirectly, any
ordinary shares or any securities convertible into or
exercisable or exchangeable for ordinary shares; or enter into
any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership
of the ordinary shares.
Rule 144
In general, under Rule 144, a person (or persons whose
shares are aggregated) who is not deemed to have been an
affiliate of ours at any time during the three months preceding
a sale, and who has beneficially owned restricted securities
within the meaning of Rule 144 for at least six months
(including any period of consecutive ownership of preceding
non-affiliated holders) would be entitled to sell those shares,
subject only to the availability of current public information
about us. A non-affiliated person who has beneficially owned
restricted securities within the meaning of Rule 144 for at
least one year would be entitled to sell those shares without
regard to the provisions of Rule 144.
In general, under Rule 144, our affiliates or persons
selling shares on behalf of our affiliates are entitled to sell
upon expiration of the
lock-up
agreements described above, a number of shares that does not
exceed the greater of:
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|
|
|
|
1.0% of the then outstanding ordinary shares, in the form of
ADSs or otherwise, which will equal approximately 369,651
ordinary shares immediately after this offering; or
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|
|
|
the average weekly trading volume of our ordinary shares in the
form of ADSs or otherwise, during the four calendar weeks
preceding the date on which notice of the sale is filed with the
SEC.
|
S-35
UNDERWRITING
We and Goldman Sachs (Asia) L.L.C., as the underwriter, have
entered into an underwriting agreement with respect to the ADSs
being offered. Subject to certain conditions, the underwriter
has agreed to purchase all of the 5,700,000 ADSs offered in this
offering.
The underwriter is committed to take and pay for all of the ADSs
being offered, if any are taken, other than the ADSs covered by
the option described below unless and until this option is
exercised.
If the underwriter sells more than 5,700,000 ADSs as discussed
above, it has an option to buy up to an additional 855,000 ADSs
from us. The underwriter may exercise that option for
30 days.
The following table shows the per ADS and total underwriting
discounts and commissions to be paid to the underwriter by us.
Such amounts are shown assuming both no exercise and full
exercise of the underwriters option to purchase additional
855,000 ADSs.
Paid by
Us
|
|
|
|
|
|
|
|
|
|
|
No Exercise
|
|
|
Full Exercise
|
|
|
Per ADS
|
|
$
|
0.90
|
|
|
$
|
0.90
|
|
Total
|
|
$
|
5,130,000
|
|
|
$
|
5,899,500
|
|
ADSs sold by the underwriter to the public will initially be
offered at the public offering price set forth on the cover of
this prospectus supplement. Any ADSs sold by the underwriter to
securities dealers may be sold at a discount of up to
$0.54 per ADS from the public offering price. If all the
ADSs are not sold at the public offering price, the underwriter
may change the offering price and the other selling terms. The
offering of the ADSs by the underwriter is subject to receipt
and acceptance and subject to the underwriters right to
reject any order in whole or in part.
We have agreed with the underwriter, subject to certain
exceptions, not to dispose of or hedge any of our ADSs or
ordinary shares or securities that are convertible into or
exchangeable for our ADSs or ordinary shares during the period
from the date of this prospectus supplement continuing through
the date 90 days after the date of this prospectus
supplement, except with the prior written consent of Goldman
Sachs (Asia) L.L.C. However, this agreement does not apply to
any existing employee benefit plans. Each of the directors and
executive officers of our company has also agreed to the similar
lockup arrangements with the underwriter. See
Shares Eligible for Future Sale for a
discussion of certain transfer restrictions.
In connection with the offering, the underwriter may purchase
and sell our ADSs in the open market. These transactions may
include short sales, stabilizing transactions and purchases to
cover positions created by short sales. Short sales involve the
sale by the underwriter of a greater number of ADSs than they
are required to purchase in the offering. Covered
short sales are sales made in an amount not greater than the
underwriters option to purchase additional ADSs from us in
the offering. The underwriter may close out any covered short
position by either exercising its option to purchase additional
ADSs or purchasing ADSs in the open market. In determining the
source of ADSs to close out the covered short position, the
underwriter will consider, among other things, the price of ADSs
available for purchase in the open market as compared to the
price at which it may purchase additional ADSs pursuant to the
option granted to it. Naked short sales are any
sales in excess of such option. The underwriter must close out
any naked short position by purchasing ADSs in the open market.
A naked short position is more likely to be created if the
underwriter is concerned that there may be downward pressure on
the price of the ADSs in the open market after pricing that
could adversely affect investors who purchase in the offering.
Stabilizing transactions consist of various bids for or
purchases of the ADSs made by the underwriter in the open market
prior to the completion of the offering.
S-36
Purchases to cover a short position and stabilizing
transactions, as well as other purchases by the underwriter for
its own accounts, may have the effect of preventing or retarding
a decline in the market price of our ADSs, and together with the
imposition of the penalty bid, may stabilize, maintain or
otherwise affect the market price of our ADSs. As a result, the
price of our ADSs may be higher than the price that otherwise
might exist in the open market. If these activities are
commenced, they may be discontinued at any time. These
transactions may be effected on NASDAQ Global Select Market, in
the
over-the-counter
market or otherwise.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), the underwriter has
represented and agreed that with effect from and including the
date on which the Prospectus Directive is implemented in that
Relevant Member State (the Relevant Implementation
Date), it has not made and will not make an offer of ADSs
to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the ADSs which has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the Prospectus Directive,
except that it may, with effect from and including the Relevant
Implementation Date, make an offer of ADSs to the public in that
Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the representatives
for any such offer; or
(d) in any other circumstances which do not require the
publication by us of a prospectus pursuant to Article 3 of
the Prospectus Directive.
For the purposes of this provision, the expression an
offer of ADSs to the public in relation to any ADSs
in any Relevant Member State means the communication in any form
and by any means of sufficient information on the terms of the
offer and the ADSs to be offered so as to enable an investor to
decide to purchase or subscribe the ADSs, as the same may be
varied in that Relevant Member State by any measure implementing
the Prospectus Directive in that Relevant Member State and the
expression Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each Relevant
Member State.
The underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of Financial Services and
Markets Act 2000, or the FSMA) received by it in connection with
the issue or sale of the ADSs in circumstances in which
Section 21(1) of the FSMA does not apply to us; and
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the ADSs in, from or otherwise involving the United
Kingdom.
The ADSs may not be offered or sold in Hong Kong by means of any
document other than (i) in circumstances which do not
constitute an offer to the public within the meaning of the
Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
prospectus within the
S-37
meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong),
and no advertisement, invitation or document relating to the
ADSs may be issued or may be in the possession of any person for
the purpose of issue (in each case whether in Hong Kong or
elsewhere), which is directed at, or the contents of which are
likely to be accessed or read by, the public in Hong Kong
(except if permitted to do so under the laws of Hong Kong) other
than with respect to ADSs which are or are intended to be
disposed of only to persons outside Hong Kong or only to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong)
and any rules made thereunder.
The ADSs may not be offered or sold, directly or indirectly, in
any province or territory of Canada or to or for the benefit of
any resident of any province or territory of Canada except
pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which the
offer or sale is made and only by a dealer duly registered under
applicable laws in circumstances where an exemption from
applicable registered dealer registration requirements is not
available.
This prospectus supplement has not been registered as a
prospectus with the Monetary Authority of Singapore.
Accordingly, this prospectus supplement and any other document
or material in connection with the offer or sale, or invitation
for subscription or purchase, of the ADSs may not be circulated
or distributed, nor may the ADSs be offered or sold, or be made
the subject of an invitation for subscription or purchase,
whether directly or indirectly, to persons in Singapore other
than (i) to an institutional investor under
Section 274 of the Securities and Futures Act,
Chapter 289 of Singapore (the SFA),
(ii) to a relevant person, or any person pursuant to
Section 275(1A), and in accordance with the conditions,
specified in Section 275 of the SFA or (iii) otherwise
pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA.
Where the ADSs are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for 6 months after
that corporation or that trust has acquired the ADSs under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
The ADSs have not been and will not be registered under the
Financial Instruments and Exchange Law of Japan (the Financial
Instruments and Exchange Law) and the underwriter has agreed
that it will not offer or sell any ADSs, directly or indirectly,
in Japan or to, or for the benefit of, any resident of Japan
(which term as used herein means any person resident in Japan,
including any corporation or other entity organized under the
laws of Japan), or to others for re-offering or resale, directly
or indirectly, in Japan or to a resident of Japan, except
pursuant to an exemption from the registration requirements of,
and otherwise in compliance with, the Financial Instruments and
Exchange Law and any other applicable laws, regulations and
ministerial guidelines of Japan.
This prospectus supplement does not constitute an invitation or
offer to the public in the Cayman Islands of the ADSs, whether
by way of sale or subscription. The underwriter has not offered
or sold, and will not offer or sell, directly or indirectly, any
ADSs in the Cayman Islands.
This prospectus supplement has not been and will not be
circulated or distributed in the PRC, and ADSs may not be
offered or sold, and will not be offered or sold to any person
for re-offering or resale, directly or indirectly, to any
resident of the PRC except pursuant to applicable laws and
regulations of the PRC. For the purpose of this paragraph only,
the PRC does not include Taiwan and the special administrative
regions of Hong Kong and Macau.
S-38
No action may be taken in any jurisdiction other than the United
States that would permit a public offering of the ADSs or the
possession, circulation or distribution of this prospectus
supplement in any jurisdiction where action for that purpose is
required. Accordingly, the ADSs may not be offered or sold,
directly or indirectly, and neither this prospectus supplement
nor any other offering material or advertisements in connection
with the ADSs may be distributed or published in or from any
country or jurisdiction except under circumstances that will
result in compliance with any applicable rules and regulations
of any such country or jurisdiction.
A prospectus supplement in electronic format will be made
available on the websites maintained by the underwriter or one
or more securities dealers. The underwriter may distribute this
prospectus supplement electronically. The underwriter may agree
to allocate a number of ADSs for sale to its online brokerage
account holders. ADSs to be sold pursuant to an Internet
distribution will be allocated on the same basis as other
allocations. In addition, ADSs may be sold by the underwriter to
securities dealers who resell ADSs to online brokerage account
holders.
Our total expenses for this offering are estimated to be
approximately $920,000, including SEC registration fee of
$16,825, legal and accounting fees and expenses of approximately
$800,000 and miscellaneous fees and expenses of approximately
$103,175. All amounts are estimated except for the SEC
registration fee.
We have agreed to indemnify the underwriter against certain
liabilities, including liabilities under the Securities Act of
1933.
The underwriter and its affiliates are full service financial
institutions engaged in various activities, which may include
securities trading, commercial and investment banking, financial
advisory, investment management, principal investment, hedging,
financing and brokerage activities. The underwriter and its
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory and investment
banking services for us, for which they received or will receive
customary fees and expenses.
In the ordinary course of their various business activities, the
underwriter and its affiliates may make or hold a broad array of
investments and actively trade debt and equity securities (or
related derivative securities) and financial instruments
(including bank loans) for their own account and for the
accounts of their customers and may at any time hold long and
short positions in such securities and instruments. Such
investment and securities activities may involve securities and
instruments of us.
S-39
LEGAL
MATTERS
The validity of the ADSs and certain other legal matters with
respect to U.S. federal and New York State laws in
connection with this offering will be passed upon for us by
Skadden, Arps, Slate, Meagher & Flom LLP. Certain
legal matters with respect to U.S. federal and New York
State laws in connection with this offering will be passed upon
for the underwriter by Shearman & Sterling LLP. The
validity of the ordinary shares represented by the ADSs offered
in this offering will be passed upon for us by Maples and
Calder. Legal matters as to PRC law will be passed upon for us
by Commerce & Finance Law Offices and for the
underwriter by Jingtian & Gongcheng. Skadden, Arps,
Slate, Meagher & Flom LLP may rely upon Maples and
Calder with respect to matters governed by Cayman Islands law
and upon Commerce & Finance Law Offices with respect
to matters governed by PRC law.
EXPERTS
The consolidated financial statements and managements
assessment of the effectiveness of internal control over
financial reporting (which is included in Managements
Report on Internal Control over Financial Reporting)
incorporated in this prospectus supplement by reference to the
annual report on
Form 20-F
for the year ended December 31, 2009 have been so
incorporated in reliance on the report of PricewaterhouseCoopers
Zhong Tian CPAs Limited Company, an independent registered
public accounting firm, given on the authority of said firm as
experts in auditing and accounting.
The offices of PricewaterhouseCoopers Zhong Tian CPAs Limited
Company are located at 11th Floor, PricewaterhouseCoopers
Centre, 202 Hu Bin Road, Shanghai, 200021, Peoples
Republic of China.
S-40
ADDITIONAL
INFORMATION
We have filed a registration statement with the SEC on
Form F-3
under the Securities Act relating to the ADSs and underlying
ordinary shares to be sold in this offering. This prospectus
supplement, which constitutes a part of that registration
statement, does not contain all of the information contained in
the registration statement. You should read the registration
statement and its exhibits and schedules for further information
with respect to us, our ordinary shares and our ADSs.
We are currently subject to periodic reporting and other
information requirements of the Securities Exchange Act of 1934,
as amended, or the Exchange Act, as applicable to foreign
private issuers. Accordingly, we are required to file or furnish
reports, including annual reports on
Form 20-F,
reports on
Form 6-K,
and other information with the SEC. As a foreign private issuer,
we are exempt from the rules of the Exchange Act prescribing the
furnishing and content of proxy statements and our officers,
directors and principal shareholders will be exempt from the
reporting and short-swing profit recovery provisions
of the Exchange Act.
All information filed with the SEC can be inspected and copied
at the public reference facilities of the SEC, at
100 F Street, N.E., Washington D.C. 20549. You can
request copies of these documents upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330
for further information on the public reference rooms. We file
reports with the SEC electronically. The reports that we have
filed with the SEC electronically are available to you over the
Internet at the SEC website at
http://www.sec.gov.
Our SEC filings, including this prospectus supplement, and other
information may also be inspected at the offices of the Nasdaq
Global Market, Reports Section, 1735 K Street, N.W.
Washington, D.C. 20006.
We furnish to The Bank of New York Mellon, as the depositary for
the ADSs, annual reports, which include annual audited
consolidated financial statements prepared in accordance with
U.S. GAAP. The depositary has agreed that, at our request,
it will promptly mail these reports to all registered holders of
ADSs. We also furnish to the depositary all notices of
shareholders meetings and other reports and communications
that are made generally available to our shareholders. The
depositary, upon our written request, will arrange for the
mailing of these documents to record holders of ADSs.
The SEC allows us to incorporate by reference
information into this prospectus supplement. This means that we
can disclose important information to you by referring you to
another document that we have filed separately with the SEC. The
information incorporated by reference is considered to be part
of this prospectus supplement, and certain later information
that we file with the SEC will automatically update and
supersede this information. We incorporate by reference the
following documents:
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our annual report on
Form 20-F
for the fiscal year ended December 31, 2009, filed with the
SEC on February 3, 2010;
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the description of the securities contained in our registration
statement on
Form 8-A
filed on November 25, 2003 pursuant to Section 12 of
the Exchange Act, together with all amendments and reports filed
for the purpose of updating that description; and
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any future information contained in filings on
Form 6-K
made with the SEC under the Exchange Act after the date of this
prospectus supplement and prior to the termination of the offer
as described in this prospectus supplement, that is identified
in such forms as being incorporated into this prospectus
supplement.
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We will provide, without charge, to each person, including any
beneficial owner, to whom this prospectus supplement is
delivered, upon written or oral request, a copy of any document
incorporated by reference into this prospectus supplement but
not delivered with this prospectus supplement. You should direct
your request for these filings to us at 99 Fu Quan Road,
Shanghai 200335, Peoples Republic of China, attention:
Investor Relationship Manager, telephone number:
(8621) 3406-4880.
You may also obtain these filings electronically at the
SECs worldwide website at
http://www.sec.gov/edgarhp/htm.
S-41
PROSPECTUS
Ctrip.com
International, Ltd.
American
Depositary Shares
(each representing 0.25 of an ordinary share, par value $0.01
per ordinary share)
This prospectus relates to the proposed sale from time to time
by us or any selling shareholder of American depositary shares,
or ADSs, of Ctrip.com International, Ltd., or Ctrip. Each ADS
represents 0.25 of an ordinary share, par value $0.01 per
ordinary share, of Ctrip. We will not receive any proceeds from
the ADSs sold by any selling shareholder.
This prospectus may not be used to consummate any sales of
securities unless accompanied by a prospectus supplement which
will describe the method and terms of the offering. We will
provide the specific terms of any offering and the offered
securities as well as information about the selling
shareholders, if any, in one or more supplements to this
prospectus. Any prospectus supplement may also add, update or
change information contained in this prospectus.
Investing in our ADSs involves a high degree of risk. You
should carefully consider the Risk Factors which may
be included in any prospectus supplement or which are
incorporated by reference into this prospectus.
We or any selling shareholder may sell the securities to or
through underwriters, to other purchasers, through agents, or
through a combination of these methods. The names of any
underwriters will be stated in the applicable prospectus
supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is March 2, 2010.
TABLE OF
CONTENTS
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1
ABOUT
THIS PROSPECTUS
You should read this prospectus and any prospectus supplement
together with the additional information described under the
heading Where You Can Find More Information About Us
and Incorporation of Documents by Reference.
In this prospectus, unless otherwise indicated or unless the
context otherwise requires:
(1) the terms we, us, our
company, our and Ctrip refer to
Ctrip.com International, Ltd., its predecessor entities and
subsidiaries and, in the context of describing our operations
and consolidated financial information, also include its
affiliated Chinese entities;
(2) shares and ordinary shares
refer to our ordinary shares, par value of US$0.01 per ordinary
share;
(3) ADSs refers to our American depositary
shares, each of which represents 0.25 of an ordinary share;
(4) China and PRC refer to the
Peoples Republic of China and, solely for the purpose of
this prospectus, exclude Taiwan, Hong Kong and Macau, and
Greater China refers to the Peoples Republic
of China, Taiwan, Hong Kong and Macau; and
(5) all references to RMB and
Renminbi are to the legal currency of China and all
references to U.S. dollars, US$,
dollars and $ are to the legal currency
of the United States.
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, or the SEC,
utilizing a shelf registration process. Under this
shelf process, we or any selling shareholder may sell the
securities described in this prospectus in one or more
offerings. This prospectus provides you with a general
description of the securities we may offer. Each time we or any
selling shareholder sell securities pursuant to the registration
statement, we will provide a prospectus supplement that will
contain specific information about the terms of that offering.
The prospectus supplement may also add, update or change
information contained or incorporated by reference in this
prospectus.
FORWARD-LOOKING
STATEMENTS
This prospectus and the documents incorporated by reference
contain forward-looking statements that reflect our current
expectations and views of future events. These statements are
made under the safe harbor provisions of the
U.S. Private Securities Litigation Reform Act of 1995. You
can identify these forward-looking statements by terminology
such as may, will, expect,
anticipate, future, intend,
plan, believe, estimate,
is/are likely to or other similar expressions. We
have based these forward-looking statements largely on our
current expectations and projections about future events and
financial trends that we believe may affect our financial
condition, results of operations, business strategy and
financial needs. These forward-looking statements include, among
other things:
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our anticipated growth strategies;
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our future business development, results of operations and
financial condition;
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our ability to continue to control costs and maintain
profitability; and
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the expected growth of and change in the travel and online
commerce industries in China.
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The forward-looking statements included in this prospectus and
the documents incorporated by reference are subject to risks,
uncertainties and assumptions about our company. Our actual
results of operations may differ materially from the
forward-looking statements as a result of the risk factors
disclosed in the documents incorporated by reference herein or
in any accompanying prospectus supplement, including the
following risks:
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the slow-down of economic growth in China and the global
economic downturn have adversely affected our business, and may
materially and adversely affect our business growth and
profitability;
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general declines or disruptions in the travel industry due to
outbreak of a serious contagious disease or any other reasons
may materially and adversely affect our business and results of
operations;
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the trading price of our ADSs has been volatile historically and
may continue to be volatile regardless of our operating
performance;
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if we are unable to maintain existing relationships with travel
suppliers and strategic alliances, or establish new arrangements
with travel suppliers and strategic alliances similar to those
we currently have, our business may suffer;
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if we fail to further increase our brand recognition, we may
face difficulty in obtaining new business partners and
consumers, and our business may be harmed;
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if we do not compete successfully against new and existing
competitors, we may lose our market share, and our profitability
may be adversely affected;
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our business could suffer if we do not successfully manage
current growth and potential future growth;
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our strategy to acquire or invest in complementary businesses
and assets involves significant risks and uncertainty that may
prevent us from achieving our objectives and harm our financial
condition and results of operations;
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our quarterly results are likely to fluctuate because of
seasonality in the travel industry in Greater China;
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our business may be harmed if our infrastructure and technology
are damaged or otherwise fail or become obsolete;
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our business may be severely disrupted if we lose the services
of our key executives;
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inflation in China and in other countries may disrupt our
business and have an adverse effect on our financial condition
and results of operations; and
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if the ownership structure of our affiliated Chinese entities
and the contractual arrangements among us, our consolidated
affiliated Chinese entities and their shareholders are found to
be in violation of any PRC laws or regulations, we
and/or our
affiliated Chinese entities may be subject to fines and other
penalties, which may adversely affect our business and results
of operations.
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We would like to caution you not to place undue reliance on
these forward-looking statements and you should read these
statements in conjunction with the risk factors disclosed in the
documents incorporated by reference herein or in any
accompanying prospectus supplement for a more complete
discussion of the risks of an investment in our securities and
other risks outlined in our other filings with the SEC. The
forward-looking statements included in this prospectus or
incorporated by reference into this prospectus are made only as
of the date of this prospectus or the date of the incorporated
document, and we do not undertake any obligation to update the
forward-looking statements except as required under applicable
law.
OUR
COMPANY
We are a leading travel service provider for hotel
accommodations, airline tickets and packaged tours in China. We
aggregate information on hotels and flights and enable our
customers to make informed and cost-effective hotel and flight
bookings. We also sell packaged tours that include
transportation and accommodations, as well as guided tours in
some instances. Since commencing operations in 1999, we have
become one of the best-known travel brands in China. We
pioneered the development of a reservation and fulfillment
infrastructure that enables our customers to:
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choose and reserve hotel rooms in cities throughout China and
selected cities abroad;
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book and purchase air tickets for domestic flights and
international flights originating in China; and
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choose and reserve packaged tours that include transportation
and accommodations, as well as guided tours in some instances.
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We target our services primarily at business and leisure
travelers in China who do not travel in groups. These types of
travelers, who are referred to in the travel industry as FITs
(frequent independent travelers) and whom we
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refer to as independent travelers in this prospectus, form a
traditionally under-served yet fast-growing segment of the China
travel market. We act as an agent in substantially all of our
transactions and generally do not take inventory risks with
respect to the hotel rooms and airline tickets booked through
us. We derive our hotel reservation, air-ticketing and
packaged-tour revenues mainly through commissions from our
travel suppliers, primarily based on the transaction value of
the rooms, airline tickets and packaged-tour products,
respectively, booked through our services.
We believe that we are the largest consolidator of hotel
accommodations in China in terms of the number of room nights
booked. As of December 31, 2009, we had secured room supply
relationships with approximately 9,800 hotels in China and
approximately 19,000 hotels abroad, which cover a broad range of
hotels in terms of price and geographical location. As of
December 31, 2009, we had guaranteed room allotments, which
allow us to sell hotel rooms to our customers even during peak
seasons and provide instant confirmation, with approximately 70%
of the hotels in China with whom we have a supply relationship.
Rooms booked in hotels with guaranteed allotment arrangement
accounted for approximately 80% of our hotel transactions for
the year ended December 31, 2009. The quality and depth of
our hotel supplier network enable us to offer our customers a
wide selection of hotel accommodations. We believe our ability
to offer reservations at highly rated hotels is particularly
appealing to our customers. Revenues from our bookings for
three-, four- and five-star hotels comprised approximately 80%
of our revenues from our hotel reservation business in 2009.
We believe that we are the largest consolidator of airline
tickets in China in terms of the total number of airline tickets
booked and sold. Our airline ticket suppliers include all major
Chinese airlines and many international airlines that operate
flights originating in China. We are among the few airline
ticket consolidators in China that maintain a centralized
reservation system and ticket fulfillment infrastructure
covering substantially all of the economically prosperous
regions of China. Our customers can make flight reservations on
their chosen routes and arrange ticket payment and delivery
through our ticketing offices and third-party agencies located
in over 50 major cities in China.
We also offer independent leisure travelers bundled
packaged-tour products, which include transportation and
accommodation, as well as guided tours in some instances. Our
packaged-tour products cover a variety of domestic and
international destinations.
We offer our services to customers through an advanced
transaction and service platform consisting of our centralized
toll-free,
24-hour
customer service centers and bilingual websites. In 2009,
transactions effected through our customer service centers
accounted for approximately two-thirds of our transaction
volume, while our websites accounted for the balance.
We have experienced significant growth since we commenced
operations in 1999. Our revenues grew from RMB 559 million
in 2005 to RMB 2.1 billion (US$311 million) in 2009,
which represented a compound annual growth rate, or CAGR, of 40%
and our net income grew from RMB 225 million in 2005 to RMB
667 million (US$98 million) in 2009, which represented
a CAGR of 31%.
We commenced our business in June 1999. In March 2000, we
established a new holding company, Ctrip.com International,
Ltd., in the Cayman Islands as an exempt company with limited
liability under the Companies Law of the Cayman Islands. Since
our inception, we have conducted the majority of our operations
in China and in 2009, expanded our operations in Greater China.
Our principal executive offices are located at 99 Fu Quan Road,
Shanghai 200335, Peoples Republic of China. Our telephone
number is
(86-21)
3406-4880
and our principal website address is www.ctrip.com. The contents
of our websites should not be deemed to be part of this
prospectus. Our agent for service of process in the United
States is CT Corporation System, 111 Eighth Avenue, New York,
New York 10011.
RISK
FACTORS
Please see the factors set forth under the heading Risk
Factors in our annual report on
Form 20-F
for the year ended December 31, 2009, which is incorporated
in this prospectus by reference, and any accompanying prospectus
supplement before investing in any securities that may be
offered pursuant to this prospectus.
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USE OF
PROCEEDS
Except as may be described otherwise in an accompanying
prospectus supplement, (i) we intend to use the net
proceeds from the sale of securities by us to fund capital
expenditures and for other general corporate purposes and
(ii) we will not receive any of the proceeds from the sale
of our securities by any selling shareholder.
DESCRIPTION
OF SHARE CAPITAL
As of the date of this prospectus, our authorized share capital
consists of 100,000,000 ordinary shares, par value US$0.01 each,
34,074,835 of which are issued and outstanding (excluding the
1,465,281 ordinary shares that we reserved for issuance upon the
exercise of our outstanding options). As of the same date, there
are 4,392,619 options issued and outstanding under our share
incentive plans, which, once vested, are exercisable for the
equivalent amount of our ordinary shares. We are a Cayman
Islands company and our affairs are governed by our memorandum
and articles of association and the Companies Law (2009
Revision) of the Cayman Islands, which is referred to as the
Companies Law below.
On August 15, 2007, Rakuten, Inc., a then shareholder of
our company completed a public offering and sale of 13,290,000
ADSs, each then representing one-half of an ordinary share, par
value US$0.01 per ordinary share.
On April 11, 2006, we effected a change of the ratio of our
ADSs to ordinary shares from one ADS representing two ordinary
shares to one ADS representing one ordinary share. On
July 31, 2007, we effected a further change of the ratio of
our ADSs to ordinary shares from one ADS representing one
ordinary share to two ADSs representing one ordinary share. On
January 21, 2010, we effected a further change of the ratio
of our ADSs to ordinary shares from two ADSs representing one
ordinary share to four ADSs representing one ordinary share.
Unless otherwise indicated, ADSs and per ADS amount in this
prospectus have been retroactively adjusted to reflect the
changes in ratio for all periods presented.
Ordinary
Shares
General. All of our outstanding ordinary
shares are fully paid and non-assessable. Certificates
representing the ordinary shares are issued in registered form.
Our shareholders who are nonresidents of the Cayman Islands may
freely hold and vote their shares.
Dividends. The holders of our ordinary shares
are entitled to such dividends as may be declared by our board
of directors subject to the Companies Law.
Voting Rights. Each ordinary share is entitled
to one vote on all matters upon which the ordinary shares are
entitled to vote. Voting at any meeting of shareholders is by
show of hands unless a poll is demanded. A poll may be demanded
by the chairman of our board of directors or any other
shareholder present in person or by proxy and holding at least
ten percent of the shares giving a right to vote at the meeting.
A quorum required for a meeting of shareholders consists of at
least two shareholders holding at least one-third of the
outstanding voting shares in our company, present or by proxy
or, if a corporation or other non-natural person, by its duly
authorized representative. Shareholders meetings are held
annually and may be convened by our board of directors on its
own initiative or upon a request to the directors by
shareholders holding in the aggregate ten percent or more of our
voting share capital. Advance notice of at least seven days is
required for the convening of our annual general
shareholders meeting and other shareholders meetings.
An ordinary resolution to be passed by the shareholders requires
the affirmative vote of a simple majority of the votes attaching
to the ordinary shares cast in a general meeting, while a
special resolution requires the affirmative vote of no less than
two-thirds of the votes cast attaching to the ordinary shares. A
special resolution is required for matters such as a change of
name or amending the memorandum and articles of association.
Holders of the ordinary shares may by ordinary resolution, among
other things, make changes in the amount of our authorized share
capital and consolidate and divide all or any of our share
capital into shares of larger amount than our existing share
capital and cancel any shares.
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Liquidation. On a return of capital on winding
up or otherwise (other than on conversion, redemption or
purchase of shares), assets available for distribution among the
holders of ordinary shares shall be distributed among the
holders of our ordinary shares on a pro rata basis. If our
assets available for distribution are insufficient to repay all
of the
paid-up
capital, the assets will be distributed so that the losses are
borne by our shareholders proportionately.
Calls on Shares and Forfeiture of Shares. Our
board of directors may from time to time make calls upon
shareholders for any amounts unpaid on their shares in a notice
served to such shareholders at least 14 days prior to the
specified time and place of payment. The shares that have been
called upon and remain unpaid are subject to forfeiture.
Redemption of Shares. Subject to the
provisions of the Companies Law, we may issue shares on the
terms that they are, or at our option or at the option of the
holders are, subject to redemption on such terms and in such
manner as may be determined by special resolution.
Variations of Rights of Shares. All or any of
the special rights attached to any class of shares may, subject
to the provisions of the Companies Law, be varied either with
the consent in writing of the holders of three-fourths of the
issued shares of that class or with the sanction of a special
resolution passed at a general meeting of the holders of the
shares of that class.
Shareholder
Rights Plan
On November 23, 2007, our board of directors declared a
dividend of one ordinary share purchase right, or a Right, for
each of our ordinary shares outstanding at the close of business
on December 3, 2007. As long as the Rights are attached to
the ordinary shares, we will issue one Right (subject to
adjustment) with each new ordinary share so that all such
ordinary shares will have attached Rights. When exercisable,
each Right will entitle the registered holder to purchase from
us one ordinary share at a price of $700 per ordinary share,
subject to adjustment.
The Rights will expire on November 23, 2017, subject to our
right to extend such date, and are exercisable upon the earlier
of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons has
acquired, or obtained the right to acquire, beneficial ownership
of 20% or more of the voting securities of our company, or
(ii) 10 business days following the commencement or
announcement of an intention to make a tender offer or exchange
offer, the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the voting
securities of our company. Upon exercise, all Rights holders
except for the potential acquirer will be entitled to acquire
our ordinary shares at a discount. We are entitled to redeem the
Rights in whole at any time on or before the tenth day following
acquisition by a person or group of 20% or more of our voting
securities (which for these purposes include ADSs representing
ordinary shares).
The Rights were not distributed in response to any specific
effort to acquire control of our company.
Differences
in Corporate Law
The Companies Law is modeled after that of the United Kingdom
but does not follow recent United Kingdom statutory enactments.
In addition, the Companies Law differs from laws applicable to
United States corporations and their shareholders. Set forth
below is a summary of the significant differences between the
provisions of the Companies Law applicable to us and the laws
applicable to companies incorporated in the United States and
their shareholders.
Mergers and Similar Arrangements. The
Companies Law permits mergers and consolidations between Cayman
Islands companies and between Cayman Islands companies and
non-Cayman Islands companies.
For these purposes, (a) merger means the
merging of two or more constituent companies and the vesting of
their undertaking, property and liabilities in one of such
companies as the surviving company and (b) a
consolidation means the combination of two or more
constituent companies into a consolidated company and the
vesting of the undertaking, property and liabilities of such
companies to the consolidated company. In order to effect such a
merger or consolidation, the directors of each constituent
company must approve a written plan of merger or consolidation
(a Plan), which must then be authorized by either
(a) a special resolution of the shareholders of each
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constituent company voting together as one class if the shares
to be issued to each shareholder in the consolidated or
surviving company will have the same rights and economic value
as the shares held in the relevant constituent company or
(b) a shareholder resolution of each constituent company
passed by a majority in number representing seventy-five percent
in value of the shareholders voting together as one class.
The Plan must be filed with the Registrar of Companies together
with a declaration as to the solvency of the consolidated or
surviving company, a list of the assets and liabilities of each
constituent company and an undertaking that a copy of the
certificate of merger or consolidation will be given to the
members and creditors of each constituent company and published
in the Cayman Islands Gazette. Dissenting shareholders have the
right to be paid the fair value of their shares (which, if not
agreed between the parties, will be determined by the Cayman
Islands court) if they follow the required procedures, subject
to certain exceptions. Court approval is not required for a
merger or consolidation which is effected in compliance with
these statutory procedures.
In addition, there are statutory provisions that facilitate the
reconstruction and amalgamation of companies, provided that the
arrangement in question is approved by a majority in number of
each class of shareholders and creditors with whom the
arrangement is to be made, and who must in addition represent
three-fourths in value of each such class of shareholders or
creditors, as the case may be, that are present and voting
either in person or by proxy at a meeting, or meetings convened
for that purpose. The convening of the meetings and subsequently
the arrangement must be sanctioned by the Grand Court of the
Cayman Islands. While a dissenting shareholder would have the
right to express to the court the view that the transaction
should not be approved, the court can be expected to approve the
arrangement if it satisfies itself that:
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the statutory provisions as to majority vote have been complied
with;
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the shareholders have been fairly represented at the meeting in
question;
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the arrangement is such as a businessman would reasonably
approve; and
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the arrangement is not one that would more properly be
sanctioned under some other provision of the Companies Law.
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When a take-over offer is made and accepted by holders of ninety
percent of the ordinary shares within four months, the offerer
may, within a two-month period, require the holders of the
remaining ordinary shares to transfer such ordinary shares on
the terms of the offer. An objection may be made to the Grand
Court of the Cayman Islands but is unlikely to succeed unless
there is evidence of fraud, bad faith or collusion.
If the arrangement and reconstruction are thus approved, any
dissenting shareholders would have no rights comparable to
appraisal rights, which would otherwise ordinarily be available
to dissenting shareholders of United States corporations,
providing rights to receive payment in cash for the judicially
determined value of the ordinary shares.
Shareholders Suits. The Cayman Islands
courts can be expected to follow English case law precedents.
The common law principles (namely the rule in Foss v.
Harbottle and the exceptions thereto) which permit a minority
shareholder to commence a class action against or derivative
actions in the name of the company to challenge (a) an act
which is ultra vires the company or illegal, (b) an act
which constitutes a fraud against the minority where the
wrongdoers are themselves in control of the company, and
(c) an action which requires a resolution with a qualified
(or special) majority which has not been obtained) have been
applied and followed by the courts in the Cayman Islands.
Inspection
of Books and Records
Holders of our ordinary shares will have no general right under
Cayman Islands law to inspect or obtain copies of our list of
shareholders or our corporate records. However, we will provide
our shareholders with our annual audited financial statements.
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Indemnification
Cayman Islands law does not limit the extent to which a
companys articles of association may provide for
indemnification of officers and directors, except to the extent
any such provision may be held by the Cayman Islands courts to
be contrary to public policy, such as to provide indemnification
against civil fraud or the consequences of committing a crime.
Our articles of association provide for indemnification of
officers and directors for losses, damages, costs and expenses
incurred in their capacities as such, except through their own
willful neglect or default.
Insofar as indemnification for liabilities arising under the
U.S. Securities Act of 1933, as amended, or the Securities
Act, may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, we have
been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the
Securities Act and therefore is unenforceable.
DESCRIPTION
OF AMERICAN DEPOSITARY SHARES
The Bank of New York Mellon is acting as the depositary for our
ADSs. The depositarys corporate trust office is at 101
Barclay Street, New York, New York 10286. Each ADS represents
0.25 of an ordinary share (or a right to receive 0.25 of an
ordinary share) or other securities, cash or other property
deposited with The Bank of New York Mellon but not distributed
to ADS holders. ADSs may be represented by certificates that are
commonly known as American depositary receipts, or
ADRs. The depositary appointed the Hong Kong office
of The Hongkong and Shanghai Banking Corporation Limited as the
custodian to safekeep the securities on deposit.
As an owner of ADSs, you may hold your ADSs either by means of
an ADR registered in your name, through a brokerage or
safekeeping account, or through an account established by the
depositary in your name reflecting the registration of
uncertificated ADSs directly on the books of the depositary
(commonly referred to as the direct registration
system, or DRS). The DRS reflects the uncertificated
(book-entry) registration of ownership of ADSs by the
depositary. Under the DRS, ownership of ADSs is evidenced by
periodic statements issued by the depositary to the holders of
the ADSs. The DRS includes automated transfers between the
depositary and The Depository Trust Company, or DTC, the
central book-entry clearing and settlement system for equity
securities in the United States. If you decide to hold your
ADSs through your brokerage or safekeeping account, you must
rely on the procedures of your broker or bank to assert your
rights as an ADS owner. Banks and brokers typically hold
securities such as the ADSs through clearing and settlement
systems such as DTC. The procedures of such clearing and
settlement systems may limit your ability to exercise your
rights as an owner of ADSs. Please consult with your broker or
bank if you have any questions concerning these limitations and
procedures. All ADSs held through DTC will be registered in the
name of a nominee of DTC. This summary description assumes you
have opted to own the ADSs directly by means of an ADS
registered in your name and, as such, we will refer to you as
the ADS holder. When we refer to you, we
assume the reader owns ADSs and will own ADSs at the relevant
time.
As an ADS holder, we will not treat you as one of our
shareholders and you will not have shareholder rights. The
depositary will be the holder of the ordinary shares underlying
your ADSs. However, as a holder of ADSs, you will have ADS
holder rights. A deposit agreement among us, the depositary and
you, as an ADS holder and the beneficial owners of ADSs set out
ADS holder rights as well as the rights and obligations of the
depositary. New York law governs the deposit agreement and
the ADSs.
We are providing you with a summary of the deposit agreement.
You should read this summary together with the deposit agreement
and the form of ADR attached thereto. A copy of the deposit
agreement is on file with the SEC as Exhibit 2.4 of our
annual report on
Form 20-F
(file
no. 001-33853)
filed with the SEC on April 29, 2008. You may obtain a copy
of the deposit agreement from the SECs Public Reference
Room at 100 F Street, N.W., Washington, D.C.
20549. You can also inspect a copy of the deposit agreement at
the corporate trust office of the depositary, currently located
at 101 Barclay Street, New York, New York 10286, and at the
principal offices of the custodian under the deposit agreement,
currently located at 1 Queens Road, Central, Hong Kong. We
urge you to review the deposit agreement in its entirety as well
as the form of ADR attached to the deposit agreement.
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Dividends
and Other Distributions
The Bank of New York Mellon has agreed to pay to you the cash
dividends or other distributions it or the custodian receives on
ordinary shares or other deposited securities after deducting
its fees and expenses. You will receive these distributions in
proportion to the number of ordinary shares your ADSs represent.
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Cash. The Bank of New York Mellon will convert
any cash dividend or other cash distribution we pay on the
ordinary shares into U.S. dollars, if it can do so on a
reasonable basis and can transfer the U.S. dollars to the
United States. If that is not possible or if any approval from
any government is needed and cannot be obtained without
excessively burdensome or otherwise unreasonable efforts, or
there are foreign exchange controls in place that prohibit such
transfer, the deposit agreement allows The Bank of New York
Mellon to distribute RMB only to those ADS holders to whom it is
possible to do so. It will hold RMB it cannot convert for the
account of the ADS holders who have not been paid. It will not
invest RMB and it will not be liable for interest.
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Before making a distribution, any withholding taxes that must be
paid will be deducted. See Taxation Certain
U.S. Federal Income Tax Consideration
Information Reporting and Backup Withholding and
Taxation PRC Taxation. The Bank of New
York Mellon will distribute only whole U.S. dollars and
cents and will round fractional cents to the nearest whole cent.
If the exchange rates fluctuate during a time when The Bank
of New York Mellon cannot convert RMB, you may lose some or all
of the value of the distribution.
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Shares. The Bank of New York Mellon may
distribute additional ADSs representing any ordinary shares we
may distribute as a dividend or free distribution, if we furnish
it promptly with satisfactory evidence that it is legal to do
so. The Bank of New York Mellon will only distribute whole ADSs.
It will sell ordinary shares which would require it to issue a
fractional ADS and distribute the net proceeds in the same way
as it does with cash. If The Bank of New York Mellon does not
distribute additional ADSs, each ADS will also represent the new
ordinary shares.
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Rights to Purchase Additional Shares. If we
offer holders of our ordinary shares any rights to subscribe for
additional ordinary shares or any other rights, The Bank of New
York Mellon may make these rights available to you. We must
first instruct The Bank of New York Mellon to do so and furnish
it with satisfactory evidence that it is legal to do so. If we
do not furnish this evidence
and/or give
these instructions, and The Bank of New York Mellon decides it
is practical to sell the rights, The Bank of New York Mellon
will sell the rights and distribute the proceeds, in the same
way as it does with cash. The Bank of New York Mellon may allow
rights that are not distributed or sold to lapse. In that case,
you will receive no value for them.
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If The Bank of New York Mellon makes rights available to you, it
will exercise the rights and purchase the ordinary shares on
your behalf. The depositary will then deposit the ordinary
shares and deliver the ADSs to you. It will only exercise rights
if you pay it the exercise price and any other charges the
rights require you to pay.
U.S. securities laws may restrict the sale, deposit,
cancellation and transfer of the ADSs issued after exercise of
rights. Under the deposit agreement, The Bank of New York Mellon
will not distribute rights to holders of ADSs unless the
distribution and sale of rights and the securities to which
these rights relate are either exempt from registration under
the Securities Act with respect to all holders of ADSs, or are
registered under the provisions of the Securities Act. We can
give no assurance that we can establish an exemption from
registration under the Securities Act and we are under no
obligation to file a registration statement with respect to
these rights or underlying securities or to endeavor to have a
registration statement declared effective. In this case, The
Bank of New York Mellon may deliver the ADSs under a separate
restricted deposit agreement which will contain the same
provisions as the deposit agreement, except for changes needed
to put the restrictions in place.
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Other Distributions. The Bank of New York
Mellon will send to you anything else we distribute on deposited
securities by means it thinks are legal, fair and practical. If
it cannot make the distribution in that way, The Bank of New
York Mellon has a choice. It may decide to sell what we
distributed and distribute the net proceeds in the same way as
it does with cash or it may decide to hold what we distributed,
in which case ADSs will also represent the newly distributed
property.
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The Bank of New York Mellon is not responsible if it decides
that it is unlawful or impractical to make a distribution
available to any ADS holders. We have no obligation to register
ADSs, ordinary shares, rights or other securities under the
Securities Act. We also have no obligation to take any other
action to permit the distribution of ADSs, ordinary shares,
rights or anything else to ADS holders. This means that you may
not receive the distribution we make on our ordinary shares or
any value for them if it is illegal or impractical for us to
make them available to you.
Deposit,
Withdrawal and Cancellation
The Bank of New York Mellon will deliver ADSs if you or your
broker deposit ordinary shares or evidence of rights to receive
ordinary shares with the custodian. Upon payment of its fees and
expenses and of any taxes or charges, such as stamp taxes or
stock transfer taxes or fees, The Bank of New York Mellon will
register the appropriate number of ADSs in the names you request
and will deliver the ADSs at its corporate trust office to the
persons you request.
You may turn in your ADSs at The Bank of New York Mellons
office. Upon payment of its fees and expenses and of any taxes
or charges, such as stamp taxes or stock transfer taxes or fees,
The Bank of New York Mellon will deliver:
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the deliverable portion of the underlying ordinary shares to an
account designated by you; and
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the deliverable portion of any other deposited securities
underlying the ADSs at the office of the custodian. Or, at your
request, risk and expense, The Bank of New York Mellon will
deliver the deliverable portion of the deposited securities at
its corporate trust office.
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Voting
Rights
You may instruct The Bank of New York Mellon to vote the
ordinary shares underlying your ADSs but only if we ask The Bank
of New York Mellon to ask for your instructions. Otherwise, you
will not be able to exercise your right to vote unless you
withdraw the ordinary shares. However, you may not know about
the meeting enough in advance to withdraw the ordinary shares.
If we ask for your instructions, The Bank of New York Mellon
will notify you of the upcoming vote and arrange to deliver our
voting materials to you. The materials will:
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describe the matters to be voted on; and
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explain how you, on a specified date, may instruct The Bank of
New York Mellon to vote the ordinary shares or other deposited
securities underlying your ADSs as you direct. For instructions
to be valid, The Bank of New York Mellon must receive them on or
before the date specified. The Bank of New York Mellon will try,
in compliance with Cayman Islands law and the provisions of our
memorandum and articles of association, to vote or to have its
agents vote the ordinary shares or other deposited securities as
you instruct or as described below.
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We cannot assure you that you will receive the voting materials
in time to ensure that you can instruct The Bank of New York
Mellon to vote the ordinary shares underlying your ADSs. In
addition, The Bank of New York Mellon and its agents are not
responsible for failing to carry out voting instructions or for
the manner of carrying out voting instructions. This means that
you may not be able to exercise your right to vote and there may
be nothing you can do if the ordinary shares underlying your
ADSs are not voted as you requested.
If we timely ask The Bank of New York Mellon to solicit your
instructions and The Bank of New York Mellon does not receive
voting instructions from you by the specified date, it will
consider you to have authorized and directed it to give a
discretionary proxy to a person designated by us to vote the
number of deposited securities represented by your ADSs. The
Bank of New York Mellon will give a discretionary proxy to such
person in those circumstances to vote on all questions to be
voted upon unless we notify The Bank of New York Mellon that:
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we do not wish to receive a discretionary proxy;
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there is substantial shareholder opposition to the particular
question; or
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the particular question would have a material and adverse impact
on our shareholders.
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Notices
and Reports
Upon receipt of notice of any meeting of holders of ordinary
shares or other deposited securities, if requested in writing by
our company, The Bank of New York Mellon will, as soon as
practicable thereafter, mail to the owners of ADSs a notice
which contains (a) such information as is contained in such
notice of meeting received by The Bank of New York Mellon from
our company, (b) a statement that the owners of ADSs as of
the close of business on a specified record date will be
entitled, subject to any applicable provisions of Cayman Islands
law and of the memorandum and articles of association of our
company, to instruct The Bank of New York Mellon as to the
exercise of the voting rights, if any, pertaining to the amount
of ordinary shares or other deposited securities represented by
their respective ADSs and (c) a statement as to the manner
in which instructions may be given.
The Bank of New York Mellon will make available for inspection
by registered holders at its Corporate Trust Office any
reports and communications, including any proxy soliciting
material, received from our company, which are both
(a) received by The Bank of New York Mellon as the holder
of the deposited securities, and (b) made generally
available to the holders of such deposited securities by our
company. The Bank of New York Mellon will also, upon our written
request, send to the registered holders copies of such reports
when furnished by our company pursuant to the deposit agreement.
Any such reports and communications, including any proxy
soliciting material, furnished to The Bank of New York Mellon by
our company will be furnished in English.
Fees and
Expenses
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Persons depositing shares or ADR holders must pay:
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For:
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US$5.00 (or less) per 100 ADSs (or portion thereof)
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Issuance of ADSs, including issuances
resulting from a distribution of shares or rights or other
property
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Cancellation of ADSs for the purpose of
withdrawal, including if the deposit agreement terminates
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US$0.02 (or less) per ADS
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Any cash distribution to ADS registered
holders
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A fee equivalent to the fee that would be payable if securities
distributed to you had been shares and the shares had been
deposited for issuance of ADSs
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Distribution of securities distributed
to holders of deposited securities which are distributed by the
depositary to ADS registered holders
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US$0.02 (or less) per ADSs per calendar year
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Depositary services
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Registration or transfer fees
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Transfer and registration of shares on
our share register to or from the name of the depositary or its
agent when you deposit or withdraw shares
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Expenses of the depositary
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Converting foreign currency to U.S.
dollars
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Cable, telex, and facsimile transmission
expenses (when expressly provided in the deposit agreement)
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Taxes and other governmental charges the depositary or the
custodian have to pay on any ADS or share underlying an ADS, for
example, stock transfer taxes, stamp duty or withholding taxes
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As necessary
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Any charges incurred by the depositary or its agents for
servicing the deposited securities
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As necessary
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Payment
of Taxes
You will be responsible for any taxes or other governmental
charges payable on your ADSs or on the deposited securities
underlying your ADSs. The Bank of New York Mellon may refuse to
transfer your ADSs or allow you to withdraw the deposited
securities underlying your ADSs until such taxes or other
charges are paid. It may apply
11
payments owed to you or sell deposited securities underlying
your ADSs to pay any taxes owed and you will remain liable for
any deficiency. If it sells deposited securities, it will, if
appropriate, reduce the number of ADSs to reflect the sale and
pay to you any proceeds, or send to you any property remaining
after it has paid the taxes.
Reclassifications,
Recapitalizations and Mergers
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If we:
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Then:
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Change the nominal or par value of our shares
Reclassify, split up or consolidate any of the deposited securities
Distribute securities on the shares that are not distributed to you
Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action
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The cash, shares or other securities received by the depositary will become deposited securities. Each ADS will automatically represent its equal share of the new deposited securities.
The depositary may, and will if we ask it to, distribute some or all of the cash, shares or other securities it received. It may also deliver new ADSs or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities.
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Amendment
and Termination
We may agree with The Bank of New York Mellon to amend the
deposit agreement and the ADRs without your consent for any
reason. If the amendment will cause any of the following
results, the amendment will become effective 30 days after
The Bank of New York Mellon notifies you of the amendment:
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adds or increases fees or charges, except for:
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taxes and other governmental charges;
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registration fees;
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cable, telex or facsimile transmission costs;
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delivery costs or other such expenses; or
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prejudices any important right of ADS holders.
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At the time an amendment becomes effective, you are considered,
by continuing to hold your ADSs, to agree to the amendment and
to be bound by the ADRs and the deposit agreement as amended.
The Bank of New York Mellon will terminate the deposit agreement
if we ask it to do so. In such case, The Bank of New York Mellon
must notify you at least 90 days before termination. The
Bank of New York Mellon may also terminate the deposit agreement
if The Bank of New York Mellon has told us that it would like to
resign and we have not appointed a new depositary bank within
90 days.
After termination, The Bank of New York Mellon and its agents
will be required to do only the following under the deposit
agreement:
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collect distributions on the deposited securities;
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sell rights and other property; and
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deliver shares and other deposited securities upon cancellation
of ADSs.
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One year after termination, The Bank of New York Mellon may sell
any remaining deposited securities by public or private sale.
After that, The Bank of New York Mellon will hold the proceeds
of the sale, as well as any other cash it is holding under the
deposit agreement for the pro rata benefit of the ADS holders
that have not surrendered their ADSs. It will not invest the
money and will have no liability for interest. The Bank of New
York
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Mellons only obligations will be an indemnification
obligation and an obligation to account for the proceeds of the
sale and other cash. After termination, our only obligations
will be an indemnification obligation and our obligation to pay
specified amounts to The Bank of New York Mellon.
Limitations
On Obligations and Liability to ADS Holders
The deposit agreement expressly limits our obligations and the
obligations of The Bank of New York Mellon, and it limits our
liability and the liability of The Bank of New York Mellon. We
and The Bank of New York Mellon:
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are only obligated to take the actions specifically provided for
in the deposit agreement without negligence or bad faith;
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are not liable if either is prevented or delayed by law or
circumstances beyond their control from performing our
obligations under the deposit agreement;
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are not liable if either exercises discretion permitted under
the deposit agreement;
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have no obligation to become involved in a lawsuit or other
proceeding related to the ADRs or the deposit agreement on your
behalf or on behalf of any other party; and
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may rely upon any documents they believe in good faith to be
genuine and to have been signed or presented by the proper party.
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In the deposit agreement, we and The Bank of New York Mellon
have agreed to indemnify each other under designated
circumstances.
Requirements
for Depositary Actions
The ADSs are transferable on the books of The Bank of New York
Mellon, provided that The Bank of New York Mellon may close
the transfer books at any time or from time to time when it
deems expedient in connection with the performance of its
duties. Before The Bank of New York Mellon will deliver or
register transfer of ADS, make a distribution on ADSs, or
process a withdrawal of shares, The Bank of New York Mellon may
require:
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payment of stock transfer or other taxes or other governmental
charges and transfer or registration fees charged by third
parties for the transfer of any shares or other deposited
securities;
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production of satisfactory proof of the identity and genuineness
of any signature or other information it deems
necessary; and
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compliance with regulations it may establish, from time to time,
consistent with the deposit agreement, including presentation of
transfer documents.
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The Bank of New York Mellon may refuse to deliver, transfer or
register transfers of ADSs generally when our books or the books
of The Bank of New York Mellon are closed, or at any time if The
Bank of New York Mellon or we think it advisable to do so.
Right to
Receive the Ordinary Shares Underlying the ADSs
You have the right to surrender your ADSs and withdraw the
underlying ordinary shares at any time except:
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when temporary delays arise because: (1) The Bank of New
York Mellon or we have closed its or our transfer books;
(2) the transfer of ordinary shares is blocked to permit
voting at a shareholders meeting or (3) we are paying
a dividend on the ordinary shares;
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when you or other ADS holders seeking to withdraw ordinary
shares owe money to pay fees, taxes and similar charges; or
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when it is necessary to prohibit withdrawals in order to comply
with any laws or governmental regulations that apply to ADSs or
to the withdrawal of ordinary shares or other deposited
securities.
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The right of withdrawal may not be limited by any other
provision of the deposit agreement.
Pre-Release
of ADSs
In compliance with the provisions of the deposit agreement, The
Bank of New York Mellon may deliver ADSs before deposit of the
underlying ordinary shares. This is called a pre-release of the
ADSs. The Bank of New York Mellon may also deliver ordinary
shares upon cancellation of pre-released ADSs, even if the ADSs
are cancelled before the pre-release transaction has been closed
out. A pre-release is closed out as soon as the underlying
ordinary shares are delivered to The Bank of New York Mellon.
The Bank of New York Mellon may receive ADSs instead of ordinary
shares to close out a pre-release. The Bank of New York Mellon
may pre-release ADSs only under the following conditions:
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before or at the time of the pre-release, the person to whom the
pre-release is being made must represent to The Bank of New York
Mellon in writing that it or its customer owns the ordinary
shares or ADSs to be deposited;
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the pre-release must be fully collateralized with cash or other
collateral that The Bank of New York Mellon considers
appropriate; and
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The Bank of New York Mellon must be able to close out the
pre-release on not more than five business days notice.
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In addition, The Bank of New York Mellon will limit the number
of ADSs that may be outstanding at any time as a result of
pre-release to 30.0% of the total shares deposited, although The
Bank of New York Mellon may disregard the limit from time to
time, if it thinks it is appropriate to do so.
ENFORCEABILITY
OF CIVIL LIABILITIES
We are incorporated in the Cayman Islands because of the
following benefits found there:
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political and economic stability;
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an effective judicial system;
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a favorable tax system;
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the absence of exchange control or currency
restrictions; and
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the availability of professional and support services.
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However, certain disadvantages accompany incorporation in the
Cayman Islands. These disadvantages include:
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the Cayman Islands has a less developed body of securities laws
as compared to the United States and these securities laws
provide significantly less protection to investors; and
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Cayman Islands companies may not have standing to sue before the
federal courts of the United States.
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Our constituent documents do not contain provisions requiring
that disputes, including those arising under the securities laws
of the United States, between us, our officers, directors and
shareholders, be arbitrated.
A substantial portion of our current operations is conducted in
China, and the majority of our assets are located in China. We
also conduct part of our operations in Taiwan and Hong Kong. We
have appointed CT Corporation System, 111 Eighth Avenue, New
York, NY 10011, as our agent upon whom process may be served in
any action brought against us under the securities laws of the
United States. A majority of our directors and officers are
nationals or residents of jurisdictions other than the United
States and a substantial portion of their assets are located
outside the United States. As a result, it may be difficult for
a shareholder to effect service of process within the United
States upon these persons, or to enforce against us or them
judgments obtained in United States courts, including judgments
predicated upon the civil liability provisions of the securities
laws of the United States or any state in the United States.
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Maples and Calder, our counsel as to Cayman Islands law and
Commerce & Finance Law Offices, our counsel as to
Chinese law, have advised us, respectively, that there is
uncertainty as to whether the courts of the Cayman Islands and
China, respectively, would:
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recognize or enforce judgments of United States courts obtained
against us or our directors or officers predicated upon the
civil liability provisions of the securities laws of the United
States or any state in the United States; or
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entertain original actions brought in each respective
jurisdiction against us or our directors or officers predicated
upon the securities laws of the United States or any state in
the United States.
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Maples and Calder has further advised us that a final and
conclusive judgment in the federal or state courts of the United
States under which a sum of money is payable, other than a sum
payable in respect of taxes, fines, penalties or similar charges
which was neither obtained in a manner nor is of a kind, the
enforcement of which is contrary to natural justice or the
public policy of the Cayman Islands, may be subject to
enforcement proceedings as a debt in the courts of the Cayman
Islands under the common law doctrine of obligation without any
re-examination of the merits of the underlying disputes. The
Cayman Islands courts are unlikely to enforce a punitive
judgment of a United States court predicated upon the
liabilities provision of the federal securities law in the
United States without a retrial on the merits if such judgment
gives rise to obligations to make payments that may be regarded
as fines, penalties or similar charges.
Commerce & Finance Law Offices has advised us further
that the recognition and enforcement of foreign judgments are
provided for under Chinese Civil Procedures Law. Chinese courts
may recognize and enforce foreign judgments in accordance with
the requirements of Chinese Civil Procedures Law based either on
treaties between China and the country where the judgment is
made or on reciprocity between jurisdictions.
TAXATION
The following summary of the material Cayman Islands and
U.S. federal income tax consequences of an investment in
our ADSs or ordinary shares is based upon laws and relevant
interpretations thereof in effect as of the date of this
prospectus, all of which are subject to change. This summary
does not deal with all possible tax consequences relating to an
investment in our ADSs or ordinary shares, such as the tax
consequences under state, local and other tax laws. To the
extent that the discussion relates to matters of Cayman Islands
tax law, it represents the opinion of Maples and Calder, our
Cayman Islands counsel.
Cayman
Islands Taxation
The Cayman Islands currently levies no taxes on individuals or
corporations based upon profits, income, gains or appreciation
and there is no taxation in the nature of inheritance tax or
estate duty. There are no other taxes likely to be material to
us levied by the government of the Cayman Islands except for
stamp duties which may be applicable on instruments executed in,
or brought within the jurisdiction of the Cayman Islands. The
Cayman Islands is not party to any double tax treaties. There
are no exchange control regulations or currency restrictions in
the Cayman Islands.
PRC
Taxation
If the PRC tax authorities determine that our Cayman Islands
holding company is a resident enterprise for PRC
enterprise income tax purposes, a withholding tax of 10% for our
foreign ADS holders may be imposed on dividends they receive
from us and on gains realized on their sale or other disposition
of ADSs. See Risk Factors Risks Related to Our
Corporate Structure Our subsidiaries and affiliated
Chinese entities in China are subject to restrictions on paying
dividends or making other payments to us, which may restrict our
ability to satisfy our liquidity requirements included in
our annual report on
Form 20-F
for the fiscal year ended December 31, 2009, which is
incorporated by reference in this prospectus.
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Certain
U.S. Federal Income Tax Consequences
The following description generally summarizes certain
U.S. federal income tax consequences generally applicable
to U.S. Holders (as defined below) under present law of
ownership in and disposition of the ADSs or ordinary shares.
This description is based on the U.S. Treasury regulations
issued under the Internal Revenue Code of 1986, as amended, as
well as judicial and administrative interpretations available on
the date hereof, all of which are subject to change, possibly
with retroactive effect. You should note that no rulings have
been or are expected to be sought from the U.S. Internal
Revenue Service, or the IRS, with respect to any
U.S. federal income tax consequences described below, and
we cannot assure you that the IRS or a court will not taken
contrary positions.
The following discussion does not address all U.S. federal
income tax consequences applicable to any particular investor or
to certain investors who may be subject to special terms
(regardless of whether or not such persons constitute
U.S. Holders as defined below) such as banks, insurance
companies, broker dealers, dealers or traders in securities or
commodities, tax-exempt entities, persons liable for alternative
minimum tax, U.S. expatriates, regulated investment
companies or real estate investment trusts, partnerships
(including certain entities treated as partnerships for
U.S. federal income tax purposes) or persons holding ADSs
or ordinary shares through partnerships (including entities
treated as partnerships for U.S. federal income tax
purposes), S-corporations, estates and trusts, persons holding
an ADS or ordinary share as part of a straddle, hedging,
conversion or integrated transaction, investors whose
functional currency is not the U.S. dollars,
holders that actually or constructively own 10% or more (by
voting power or value) of all classes of our outstanding capital
stock, or persons who acquired ADSs or ordinary shares pursuant
to the exercise of any employee share option or otherwise as
compensation. Please note this description does not address
(i) alternative minimum tax consequence or (ii) the
indirect effects on persons who hold equity interests as a
holder.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL TAX
RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE
STATE AND LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR ORDINARY
SHARES.
As used in this section, U.S. Holder means a
beneficial owner of ADSs or ordinary shares that for
U.S. federal income tax purposes is,
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an individual who is a citizen or resident of the United States;
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a corporation (or other entity subject to tax as a corporation
for U.S. federal income tax purposes) organized under the
laws of the United States, any state or the District of Columbia;
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an estate, the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust that (1) is subject to the primary supervision of a
court within the United States and the control of one or more
U.S. persons for all substantial trust decisions or
(2) has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a
U.S. person.
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If you are a partner in a partnership or other entity taxable as
a partnership that holds ADSs or ordinary shares, your tax
treatment will generally depend on your status and the
activities of the partnership. Partnerships holding the ADSs or
ordinary shares, and partners in such partnerships, should
consult their tax advisors regarding the tax consequences of an
investment in the ADSs or ordinary shares.
The discussion below assumes that the representations contained
in the deposit agreement are true and that the obligations in
the deposit agreement and any related agreement have been and
will be complied with in accordance with the terms. If you hold
ADSs, you should be treated as the holder of the underlying
ordinary shares represented by those ADSs for U.S. federal
income tax purposes.
Taxation
of Dividends and Other Distributions on the ADSs or Ordinary
Shares
Subject to the description below under Passive
Foreign Investment Company, the amount of any distribution
to you with respect to the ADSs or ordinary shares, before
deduction for any taxes imposed by the PRC, will be included in
your gross income as dividend income on the date of receipt by
the depositary, in the case
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of ADSs, or by you, in the case of ordinary shares, but only to
the extent that the distribution is paid out of our current or
accumulated earnings and profits (as determined under
U.S. federal income tax principles). To the extent that the
amount of the distribution exceeds our current and accumulated
earnings and profits, such excess amount will be treated first
as a tax-free return of your tax basis in your ADSs or ordinary
shares, and then, to the extent such excess amount exceeds your
tax basis, as capital gain. We do not intend to calculate our
earnings and profits under U.S. federal income tax
principles. Therefore, a U.S. Holder should expect that a
distribution will generally be reported as a dividend even if
that distribution would otherwise be treated as a non-taxable
return of capital or as capital gain under the rules described
above. Any dividends we pay will not be eligible for the
dividends-received deduction allowed to corporations in respect
of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders (including
individual U.S. Holders), for taxable years beginning
before January 1, 2011, dividends may be taxed at the lower
capital gains rate applicable to qualified dividend
income, provided that (1) the ADSs or ordinary shares
are readily tradable on an established securities market in the
United States or we are eligible for the benefits of an income
tax treaty with the United States that the U.S. Treasury
has determined satisfactory for purposes of the rules applicable
to qualified dividends and that includes an exchange of
information program, (2) we are neither a passive foreign
investment company, or PFIC, nor treated as such with respect to
you (as discussed below) for our taxable year in which the
dividend was paid or the preceding taxable year, and
(3) certain holding period requirements are met.
U.S. Treasury guidance indicates that common or ordinary
shares, or ADSs representing such shares, are considered for the
purpose of clause (1) above to be readily tradable on an
established securities market in the United States if they are
listed on the Nasdaq Global Select Market, as are our ADSs (but
not our ordinary shares). If we are treated as a resident
enterprise for PRC tax purposes under its Enterprise
Income Tax Law, or EIT Law, we may be eligible for the benefits
of the income tax treaty between the United States and the PRC.
You should consult your tax advisors regarding the availability
of the lower capital gains rate applicable to qualified dividend
income for dividends paid with respect to our ADSs or ordinary
shares and any possible change in law relating to the
availability of such lower rate for dividends paid by us.
Dividends will constitute foreign source income for foreign tax
credit limitation purposes. If the dividends are qualified
dividend income (as discussed above), the amount of the dividend
taken into account for purposes of calculating the foreign tax
credit limitation will in general be limited to the gross amount
of the dividend, multiplied by the reduced tax rate applicable
to qualified dividend income and divided by the highest tax rate
normally applicable to dividends. The limitation on foreign
taxes eligible for credit is calculated separately with respect
to specific classes of income. For this purpose, dividends
distributed by us with respect to the ADSs or ordinary shares
will be passive category income or, in the case of
certain U.S. Holders, general category income.
If PRC withholding taxes apply to dividends paid to you with
respect to our ADSs or ordinary shares, subject to certain
conditions and limitations, such PRC withholding taxes may be
treated as foreign taxes eligible for credit against your
U.S. federal income tax liability. The rules relating to
the determination of the foreign tax credit are complex and you
should consult your tax advisors regarding the availability of a
foreign tax credit in your particular circumstances.
Taxation
of a Disposition of ADSs or Ordinary Shares
Subject to description below under Passive
Foreign Investment Company, you will recognize capital
gain or loss on any sale, exchange or other taxable disposition
of an ADS or ordinary share equal to the difference between the
amount realized for the ADS or ordinary share and your tax basis
in the ADS or ordinary share. Your tax basis in an ADS or
ordinary share will generally be equal to the cost of such ADS
or ordinary share. The gain or loss will generally be capital
gain or loss. If you are a non-corporate U.S. Holder,
including an individual U.S. Holder, who has held the ADS
or ordinary share for more than one year, you generally will be
eligible for reduced tax rates. The deductibility of capital
losses is subject to limitations. Any such gain or loss that you
recognize will generally be treated as U.S. source income
or loss for foreign tax credit limitation purposes, which will
generally limit the availability of foreign tax credits.
However, if we are treated as a resident enterprise
for PRC tax purposes, we may be eligible for the benefits of the
income tax treaty between the United States and the PRC. In such
event, if PRC tax were to be imposed on any gain from the
disposition of the ADSs or ordinary shares, a U.S. Holder
that is eligible for the benefits of the income tax treaty
between the United States and the PRC may elect to treat the
gain as
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PRC source income. You should consult your tax advisors
regarding the proper treatment of gain or loss recognized on a
sale, exchange or other taxable disposition of the ADSs or
ordinary shares in your particular circumstances.
Passive
Foreign Investment Company
Based on the market price of our ADSs, the value of our assets,
and the composition of our assets and income, we do not believe
that we were a PFIC for U.S. federal income tax purposes
for the taxable year ended December 31, 2009. A
non-U.S. corporation
will be a PFIC for any taxable year if either:
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at least 75% of its gross income is passive income; or
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at least 50% of the value of its assets (based on an average of
the quarterly values of the assets) during such year is
attributable to assets that produce passive income or are held
for the production of passive income (the asset
test).
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We will be treated as owning our proportionate share of the
assets and earning our proportionate share of the income of any
other corporation in which we own, directly or indirectly, at
least 25% (by value) of the stock. In applying this rule,
however, it is not clear whether the contractual arrangements
between us and our affiliated Chinese entities will be treated
as ownership of stock.
We must make a separate determination after the close of each
year as to whether we were a PFIC for that year. Accordingly, we
cannot assure you that we will not be a PFIC for our current
taxable year ending December 31, 2010 or any future taxable
year. Because the value of our assets for purposes of the asset
test will generally be determined by reference to the market
price of our ADSs and ordinary shares, fluctuations in the
market price of our ADSs or ordinary shares may cause us to
become a PFIC. If we are a PFIC for any year during which you
hold ADSs or ordinary shares, we will generally continue to be
treated as a PFIC with respect to you for all succeeding years
during which you hold ADSs or ordinary shares, unless we cease
to be a PFIC and you make a deemed sale election with respect to
the ADSs or ordinary shares, as applicable. If such election is
made, you will be deemed to have sold the ADSs or ordinary
shares you hold at their fair market value and any gain from
such deemed sale would be subject to the consequences described
below. After the deemed sale election, your ADSs or ordinary
shares with respect to which such election was made will not be
treated as shares in a PFIC unless we subsequently become a PFIC.
For each taxable year that we are treated as a PFIC with respect
to you, you will be subject to special tax rules with respect to
any excess distribution that you receive and any
gain you realize from a sale or other disposition (including a
pledge) of the ADSs or ordinary shares, unless you make a
mark-to-market
election as discussed below. Under these special tax rules:
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the excess distribution or gain will be allocated ratably over
your holding period for the ADSs or ordinary shares;
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the amount allocated to the current taxable year, and any
taxable years in your holding period prior to the first taxable
year in which we became a PFIC, will be treated as ordinary
income; and
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the amount allocated to each other year will be subject to the
highest tax rate in effect for individuals or corporations, as
applicable, for each such year and the interest charge generally
applicable to underpayments of tax will be imposed on the
resulting tax attributable to each such year.
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A U.S. Holder of marketable stock (as defined
below) in a PFIC may make a
mark-to-market
election for such stock to elect out of the tax treatment
discussed in the preceding paragraph. If you make a valid
mark-to-market
election for our ADSs or ordinary shares, you will include in
income for each year that we are treated as a PFIC with respect
to you an amount equal to the excess, if any, of the fair market
value of the ADSs or ordinary shares you hold as of the close of
the year over your adjusted basis in such ADSs or ordinary
shares. You will be allowed a deduction for the excess, if any,
of the adjusted basis of the ADSs or ordinary shares over their
fair market value as of the close of the year. However,
deductions will be allowable only to the extent of any net
mark-to-market
gains on the ADSs or ordinary shares included in your income for
prior taxable years. Amounts included in your income under a
mark-to-market
election, as well as any gain on the actual sale or other
disposition of the ADSs or ordinary shares, will be treated as
ordinary income. The
mark-to-market
election is available only for marketable stock,
which is
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stock that is traded in other than de minimis quantities
on at least 15 days during each calendar quarter
(regularly traded) on a qualified exchange or other
market, as defined in applicable U.S. Treasury regulations.
Our ADSs are listed on the Nasdaq Global Select Market, which is
a qualified exchange or other market for these purposes.
Consequently, if the ADSs continue to be listed on the Nasdaq
Global Select Market and are regularly traded, and you are a
holder of ADSs, we expect that the
mark-to-market
election would be available to you were we to be or become a
PFIC. You should consult your tax advisors as to the
availability and desirability of a
mark-to-market
election.
Alternatively, if a
non-U.S. corporation
is a PFIC, a U.S. holder of shares in that corporation may
avoid taxation under the rules described above by making a
qualified electing fund election to include in
income its share of the corporations income on a current
basis. However, you can make a qualified electing fund election
with respect to your ADSs or ordinary shares only if we agree to
furnish you annually with certain tax information, and we
currently do not intend to prepare or provide such information.
Therefore, U.S. Holders should assume that they will not
receive such information from us and would not be able to make a
qualified electing fund election.
You are urged to consult your tax advisor regarding the
application of the PFIC rules to your investment in ADSs or
ordinary shares.
Information
Reporting and Backup Withholding
Dividend payments with respect to ADSs or ordinary shares and
proceeds from the sale, exchange or redemption of ADSs or
ordinary shares may be subject to information reporting to the
Internal Revenue Service and possible U.S. backup
withholding at a current rate of 28%. Backup withholding will
not apply, however, to a U.S. Holder that furnishes a
correct taxpayer identification number and makes any other
required certification or that is otherwise exempt from backup
withholding. U.S. Holders that are required to establish
their exempt status generally must provide such certification on
Internal Revenue Service
Form W-9.
U.S. Holders should consult their tax advisors regarding
the application of the U.S. information reporting and
backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as
backup withholding can be credited against your
U.S. federal income tax liability, and you may obtain a
refund of any excess amounts withheld under the backup
withholding rules by timely filing the appropriate claim for
refund with the Internal Revenue Service and furnishing any
required information in a timely manner.
PLAN OF
DISTRIBUTION
We or any selling shareholder may sell our ordinary shares,
represented by ADSs, from time to time, in one or more
offerings, as follows:
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through agents;
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to dealers or underwriters for resale;
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directly to purchasers; or
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through a combination of any of these methods of sale.
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In addition, we may issue the securities as a dividend or
distribution or in a subscription rights offering to our
existing security holders. In some cases, we or dealers acting
for us or on our behalf may also repurchase securities and
reoffer them to the public by one or more of the methods
described above. This prospectus may be used in connection with
any offering of our securities through any of these methods or
other methods described in the applicable prospectus supplement.
Our securities distributed by any of these methods may be sold
to the public, in one or more transactions, either:
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at a fixed price or prices, which may be changed;
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at market prices prevailing at the time of sale;
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at prices related to prevailing market prices; or
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at negotiated prices.
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We may solicit offers to purchase the securities directly from
the public from time to time. We may also designate agents from
time to time to solicit offers to purchase securities from the
public on our or their behalf. The prospectus supplement
relating to any particular offering of securities will name any
agents designated to solicit offers, and will include
information about any commissions we may pay the agents, in that
offering. Agents may be deemed to be underwriters as
that term is defined in the Securities Act.
From time to time, we may sell securities to one or more dealers
as principals. The dealers, who may be deemed to be
underwriters as that term is defined in the
Securities Act, may then resell those securities to the public.
We may sell securities from time to time to one or more
underwriters, who would purchase the securities as principal for
resale to the public, either on a firm-commitment or
best-efforts basis. If we sell securities to underwriters, we
will execute an underwriting agreement with them at the time of
sale and will name them in the applicable prospectus supplement.
In connection with those sales, underwriters may be deemed to
have received compensation from us in the form of underwriting
discounts or commissions and may also receive commissions from
purchasers of the securities for whom they may act as agents.
Underwriters may resell the securities to or through dealers,
and those dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters
and/or
commissions from purchasers for whom they may act as agents. The
applicable prospectus supplement will include information about
any underwriting compensation we pay to underwriters, and any
discounts, concessions or commissions underwriters allow to
participating dealers, in connection with an offering of
securities.
Underwriters, dealers, agents and other persons may be entitled,
under agreements that they may enter into with us, to
indemnification by us against civil liabilities, including
liabilities under the Securities Act, or to contribution with
respect to payments which they may be required to make.
In connection with an offering, the underwriters, including any
affiliate of ours that is acting as an underwriter or
prospective underwriter, may engage in transactions that
stabilize, maintain or otherwise affect the price of the
securities offered. These transactions may include overalloting
the offering, creating a syndicate short position, and engaging
in stabilizing transactions and purchases to cover positions
created by short sales. Overallotment involves sales of the
securities in excess of the principal amount or number of the
securities to be purchased by the underwriters in the applicable
offering, which creates a short position for the underwriters.
Short sales involve the sale by the underwriters of a greater
number of securities than they are required to purchase in an
offering. Stabilizing transactions consist of certain bids or
purchases made for the purpose of preventing or retarding a
decline in the market price of the securities in connection with
an offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount it received because the underwriters
have repurchased securities sold by or for the account of that
underwriter in stabilizing or short-covering transactions.
As a result, the price of the securities may be higher than the
price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on
an exchange or automated quotation system, if the securities are
listed on that exchange or admitted for trading on that
automated quotation system, or in the
over-the-counter
market or otherwise.
The underwriters, dealers and agents, as well as their
associates, may be customers of or lenders to, and may engage in
transactions with and perform services for, Ctrip and its
subsidiaries.
In addition, we expect to offer securities to or through our
affiliates, as underwriters, dealers or agents. Our affiliates
may also offer the securities in other markets through one or
more selling agents, including one another.
If so indicated in an applicable prospectus supplement, we will
authorize dealers or other persons acting as our agent to
solicit offers by some institutions to purchase securities from
us pursuant to contracts providing for
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payment and delivery on a future date. Institutions with which
these contracts may be made include commercial and savings
banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others.
Unless otherwise indicated in an applicable prospectus
supplement or confirmation of sale, the purchase price of the
securities will be required to be paid in immediately available
funds in New York City.
LEGAL
MATTERS
We are being represented by Skadden, Arps, Slate,
Meagher & Flom LLP with respect to legal matters of
United States federal securities and New York State law. Certain
legal matters in connection with this offering will be passed
upon for the underwriters by a law firm named in the applicable
prospectus supplement. The validity of the ordinary shares
represented by the ADSs offered in this offering and legal
matters as to Cayman Islands law will be passed upon for us by
Maples and Calder. Legal matters as to PRC law will be passed
upon for us by Commerce & Finance Law Offices and for
the underwriters by a law firm named in the applicable
prospectus supplement. Skadden, Arps, Slate, Meagher &
Flom LLP may rely upon Maples and Calder with respect to matters
governed by Cayman Islands law and Commerce & Finance
Law Offices with respect to matters governed by PRC law.
EXPERTS
The consolidated financial statements and managements
assessment of the effectiveness of internal control over
financial reporting (which is included in Managements
Report on Internal Control over Financial Reporting)
incorporated in this prospectus by reference to the annual
report on
Form 20-F
for the year ended December 31, 2009 have been so
incorporated in reliance on the report of PricewaterhouseCoopers
Zhong Tian CPAs Limited Company, an independent registered
public accounting firm, given on the authority of said firm as
experts in auditing and accounting.
The offices of PricewaterhouseCoopers Zhong Tian CPAs Limited
Company are located at
11th
Floor, PricewaterhouseCoopers Centre, 202 Hu Bin Road, Shanghai
200021, Peoples Republic of China.
WHERE YOU
CAN FIND MORE INFORMATION ABOUT US
We will furnish to you, through the depositary, English language
versions of any reports, notices and other communications that
we generally transmit to holders of our ordinary shares.
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, and, in
accordance with the Exchange Act, we file annual reports and
other information with the SEC. You may read and copy any of
this information in the SECs Public Reference Room,
100 F Street, NE Washington, D.C. 20549. You may
also obtain copies of this information by mail from the Public
Reference Section of the SEC, 100 F Street, NE
Washington, D.C. 20549, at prescribed rates. You can obtain
information on the operation of the SECs Public Reference
Room in Washington, D.C. by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet website that contains
reports, proxy and information statements, and other information
about issuers, like us, that file electronically with the SEC.
The address of that website is
http://www.sec.gov.
INCORPORATION
OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with them. This means that we can disclose
important information to you by referring you to those
documents. Each document incorporated by reference is current
only as of the date of such document, and the incorporation by
reference of such documents shall not create any implication
that there has been no change in our affairs since the date
thereof or that the information contained therein is current as
of any time subsequent to its date. The information incorporated
by reference is considered to be a part of this prospectus and
should be read with the same care. When we update the
information contained in documents that have been incorporated
by reference by making future filings with the
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SEC, the information incorporated by reference in this
prospectus is considered to be automatically updated and
superseded. In other words, in the case of a conflict or
inconsistency between information contained in this prospectus
and information incorporated by reference into this prospectus,
you should rely on the information contained in the document
that was filed later.
We incorporate by reference the documents listed below:
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Our annual report on
Form 20-F
for the fiscal year ended December 31, 2009 filed on
February 3, 2010;
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The description of the securities contained in our registration
statement on
Form 8-A
filed on November 25, 2003 pursuant to Section 12 of the
Exchange Act, together with all amendments and reports filed for
the purpose of updating that description; and
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With respect to each offering of securities under this
prospectus, all reports on
Form 20-F
and any report on
Form 6-K
that so indicates it is being incorporated by reference, in each
case, that we file with the SEC on or after the date on which
the registration statement is first filed with the SEC and until
the termination or completion of that offering under this
prospectus.
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Our annual report on
Form 20-F
for the fiscal year ended December 31, 2009 filed on
February 3, 2010, contains a description of our business
and audited consolidated financial statements with a report by
an independent registered public accounting firm. These
financial statements are prepared in accordance with
U.S. GAAP.
Copies of all documents incorporated by reference in this
prospectus, other than exhibits to those documents unless such
exhibits are specially incorporated by reference in this
prospectus, will be provided at no cost to each person,
including any beneficial owner, who receives a copy of this
prospectus on the written or oral request of that person made to:
Ctrip.com International, Ltd.
99 Fu Quan Road
Shanghai 200335, Peoples Republic of China
Tel: (86
21) 3406-4880
Attention: Investor Relationship Manager
You should rely only on the information that we incorporate by
reference or provide in this prospectus. We have not authorized
anyone to provide you with different information. We are not
making any offer of these securities in any jurisdiction where
the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other
than the date on the front of those documents.
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