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64 Annual Report 2007 • an undertaking from Alibaba Hangzhou not to enter into any material business transaction and an undertaking from its shareholders not to approve any resolution relating to the same, without the prior written consent of our wholly-owned subsidiary in PRC, Alibaba (China) Technology Co., Ltd. (“Alibaba China”); • the right to exercise the rights of shareholders in Alibaba Hangzhou; and • a pledge in our favor over the entire equity interests in Alibaba Hangzhou. The above arrangements, which we call the “Structure Contracts”, collectively permit us to consolidate the fi nancial results of Alibaba Hangzhou in our fi nancial results as if Alibaba Hangzhou were our wholly-owned subsidiary, because these contractual arrangements effectively transfer the economic risks and benefi ts of Alibaba Hangzhou to us through: (i) our right (if and when PRC law releases the restriction on foreign investment in value-added telecommunication services) to acquire equity interests and/or assets of Alibaba Hangzhou; (ii) the business structure under which the revenue generated by the cooperation between our Company and Alibaba Hangzhou is mainly retained by us; and (iii) our right to govern the fi nancial and operating policies as well as, in substance, all of the voting rights of Alibaba Hangzhou. Our directors are of the view that the Structure Contracts are fundamental to our legal structure and business operations, in the ordinary and usual course of our business, on normal commercial terms (or better to us), and are fair and reasonable and in the interests of our Shareholders as a whole. Our directors also believe that the nature of our structure whereby the fi nancial results of Alibaba Hangzhou are fully consolidated under our accounting policies within our fi nancial results as if it were our wholly-owned subsidiary and the fi nancial and economic benefi ts of its business fl ow to us, places the Structure Contracts in a special position in relation to the connected transaction rules under the Listing Rules. We have applied for, and the Stock Exchange has granted, a perpetual waiver pursuant to rule 14A.42(3) of the Listing Rules for the Structure Contracts from strict compliance with the announcement and independent shareholders’ approval requirements under the Listing Rules, on the following conditions: • No changes to the Structure Contracts will be made without our independent non-executive directors’ approval; • The Structure Contracts continue to enable us to receive the above mentioned economic benefi ts derived by Alibaba Hangzhou; and • We will disclose certain details relating to the Structure Contracts on an ongoing basis as required by the Stock Exchange. For the year ended December 31, 2007, our independent non-executive directors have reviewed the Structure Contracts and confi rmed that (a) the transactions carried out during this fi nancial period have been entered into in accordance with the relevant provisions of the Structure Contracts, have been operated so that the revenue generated by Alibaba China and Alibaba Hangzhou has been mainly retained by Alibaba China; (b) no dividends or other distributions have been made by Alibaba Hangzhou to the holders of its equity interests; and (c) any new contracts entered into, renewed or reproduced between our Company and Alibaba Hangzhou during this fi nancial period are fair and reasonable so far as we are concerned and in the interests of our shareholders as a whole.
Directors’ Report We have also engaged our auditors to perform certain fact fi nding procedures on the transactions carried out pursuant to the Structure Contracts on a sample basis in accordance with Hong Kong Standard on Related Services 4400 “Engagements to Perform Agreed-Upon Procedures Regarding Financial Information” issued by the Hong Kong Institute of Certifi ed Public Accountants. The auditors have reported their factual fi ndings on the selected samples based on the agreed upon procedures to our board. The auditors have reported to our board that the transactions: (a) were approved by our board; (b) were entered into in accordance with the relevant Structure Contracts; and (c) that no dividends or other distributions have been made by Alibaba Hangzhou to the holders of its equity interests. (B) Non-exempt continuing connected transactions subject to reporting and announcement requirement Technology services framework agreement We have entered into a technology services framework agreement dated October 19, 2007 with Alibaba Group (the “Technology Services Framework Agreement”). We have provided, and under the terms of the Technology Services Framework Agreement will continue to provide, to Alibaba Group certain technology services, including: • technology maintenance services for search engine, system security and architecture support; • provision of a dedicated transmission network system to improve the connectivity between telecommunication providers and website users; • website monitoring services; • sub-licensing of third-party software; • sharing of servers and server racks; • development and maintenance of data warehouse; • quality assurance services and maintenance of quality assurance management systems and project management systems; and • research and development services including patent development. The Technology Services Framework Agreement will expire on December 31, 2009 and is automatically renewable for further periods of no more than three years subject to compliance with the applicable provisions of the Listing Rules, unless it is terminated earlier by either party giving three months’ prior written notice. 65
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Financial and Operational Highlight
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orld’s leading nline marketplace
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CORPORATE HEADQUARTERS 6th Floor, C
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November Launched TradeManager inst
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Awards and Recognitions Awards and
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Global E-Commerce Leader Alibaba.co
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Along with other members of Alibaba
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