CDC group submits bankruptcy petition to US bankruptcy court

Absrtact: According to the media October 6, China Internet parent company CDC Group, known as the first share of the Chinese web, has filed for bankruptcy protection pursuant to chapter 11th of the U.S. Bankruptcy law. In addition, the CDC group was also defeated by a local court ruling on a lawsuit against a fund investor

According to media reported October 6, the so-called "China Internet first share" of the Chinese network of CDC group, the U.S. Bankruptcy law under the 11th Chapter filed bankruptcy protection application. In addition, the CDC group has been sued by local courts for a lawsuit against a fund investor, who has to pay 65.4 million of billions of dollars in compensation.

The Compensation fund investment Agency, the CDC group's last convertible bond holder Evolution Capital, both sides of the "feud" can be traced back to the 2006 CDC group's once again in operation.

The CDC group issued a 168 million-dollar convertible priority Bond (Senior exchangeable Convertible Notes) in November 2006, with an annual interest rate of 3.75% and 2011, and a buyer of 12 institutional investors, Evolution Capital is one of them.

The CDC group issued a "betting agreement" with the buyer at the time of issuing convertible priority bonds, according to the CDC group's June 30, 2010 filing filing: The bond purchase agreement signed by the two parties in 2006, if CDC software or CDC games (all subsidiaries of CDC group) The IPO ("qualified IPO") cannot be completed by November 13, 2009, and bondholders will have the right to require the company to redeem the bonds, and the redemption price shall be accompanied by accrued and unpaid interest, which is payable on November 13, 2006 to redemption date, with a punitive annual interest rate of 12.5%.

In addition, the bond purchase agreement contains a number of negative provisions (negative covenants), including restrictions on the CDC group's commitment to or borrowing of new debt, the issuance of dividends to common shareholders, and, in some cases, the repurchase of the CDC group and its subsidiary stocks, And with part of the bond investors to protect the dilution of the provisions.

December 2006, CDC group will be the subsidiary of China Network (Hong Kong-listed china.com) the whole game of the entire gaming business repurchase, integrated into the group's subsidiary CDC games. In the first half of this year, CDC group through the China.com completed the domestic well-known game operators "play" (17GAME) wholly-owned holdings. However, the CDC game was not listed eventually. In August 2009, only the CDC software had reached the Nasdaq by NOVEMBER, and raised 57.6 million dollars.

According to the filing document, CDC has bought a large part of its 2006-issued bond. As of December 31, 2009, its subsidiary, CDC Delaware, held 75.2% of these bonds (124.8 million US dollars of outstanding bonds); Evolution capital (including Evolution CDCSPV Ltd., Evolution Master Fundltd., SPC, segregated Portfolio M and E1 Fund Ltd. ) holds the remaining 24.8% per cent (41.2 million USD for the outstanding amount of the bonds).

In March 2010, as the last investor in the bond, Evolution Capital decided to prosecute the CDC group, accusing it of violating multiple confidentiality agreements and unsecured corporate bond trading agreements, interfering in corporate business relations, and claiming USD 295 million, and subsequently suing the CDC and its affiliates and claims over USD 60 million.

November 12, 2010, the New York High Court announced the approval of Evolution Capital against the CDC group's preliminary injunction, according to the court decision, the CDC group should not unilaterally in the course of the lawsuit to abolish the bond purchase agreement, or the relevant provisions to make any affirmation or negative; A few days after the verdict was announced, CDC issued a statement accusing Evolution capital of "interfering with the CDC's management and operations to the detriment of its corporate interests".

The two sides entangled in a lawsuit for more than a year, and eventually ended up losing the CDC group. The CDC group filed an application for bankruptcy protection to a bankruptcy court in Atlanta, USA, on Tuesday (October 4) and said it was prepared to appeal the decision. The CDC group says it intends to keep the company running, and bankruptcy protection applications will not affect the operation of the subsidiary.