The9 to purchase 19% stake in Fazhidao with cash, shares

The9 announced that it signed a legally binding term sheet with Zhejiang Fazhidao Information Technology to purchase 19% shares of Fazhidao by cash and issuance of The9’s restricted shares. The9 is also granted a purchase option to purchase up to 51% of the total shares of Fazhidao, based on a valuation calculated as seven times of Fazhidao’s audited annual profit after tax, provided that such valuation should be higher than $80M. Established in 2019, Fazhidao owns and operates 365LAWHELP.COM and mobile app FaBaoWang, an artificial intelligence, or AI, Software as a service legal service platform in China. It has more than 120,000 cumulative paid subscribers from large companies to micro companies and individuals. The gross sales were over $50M in 2023. Pursuant to the term sheet, The9 will pay cash consideration of $1M and will issue restricted Class A ordinary shares to Fazhidao with the value of $14.2M. The value of each share will be determined by the average closing price of The9 ADS 20 trading days prior to the signing of the definitive agreement. A portion of restricted shares will be released from lock-up when the market capitalization of The9 will reach $200M, $500M and $1B respectively. The rest of the restricted shares shall be released from the lock-up when either of the following conditions are met: Fazhidao completes a qualified IPO and its shares owned by The9 become freely tradable in the open market; or if and when the The9 exercises its purchase option and, as a result, holds a minimum 51% of the then total share capital of Fazhidao. Fazhidao may undergo certain restructuring to facilitate these conditions.