360 has given an exclusive response to the former board secretary's "unpaid salary claim" issue, and she herself is unable to explain the specific details of the dispute.

At the age of 31, she became a partner of a top global law firm, and joined 360 Group two years later, deeply participating in the whole process of the latter's U.S. stock privatization and A-share backdoor listing —— Zhang Fan, the first Secretary of the Board of Directors of 360 (SH601360, share price 8.79 yuan, market value 61.526 billion yuan), chose to stand under the spotlight 7 years after leaving the company, and publicly defended her rights through social platforms, claiming for about 26.49 million yuan of equity incentive proceeds. According to media reports, in the past, Zhang Fan had communicated with 360 on multiple occasions in different ways to try to resolve the issue, but in May this year, the lawyer representing 360 unilaterally terminated the communication; in July, she sent a message to Zhou Hongyi, the founder of 360, via WeChat, only to find that she had been blocked right after sending the message.

On July 24, Zhang Fan published a record of her rights protection on her personal official account, which immediately sparked widespread public outcry. Why did a former core executive of the company and senior legal expert still need to publicly speak out to claim the long-pending rights and interests from her former employer 7 years after leaving her post?

In response, 360 Group gave an exclusive reply to the reporter of *Daily Economic News* (hereinafter referred to as "NBD Reporter"), stating that Zhang Fan is a professional lawyer herself, who also deeply participated in, and even led the design of the transaction structure and rules at that time. If she believes that her demands have not been resolved, the most direct and effective way is to follow legal procedures, where both parties submit evidence and let the court hear and rule on the case.

360 Group's Exclusive Response to the Dispute

In September 2013, Zhang Fan joined Qihoo 360 as Chief Legal Counsel, and was granted restricted shares of the company as part of her compensation. According to Zhang Fan, the grant agreement stipulated that she could obtain one quarter of the total shares for each full year of work, and all the shares would be fully vested after four years. At that time, quite a number of employees participated in the company's equity incentive plan.

The restructuring report when 360 Group returned to the A-share market shows that Qihoo 360 had issued restricted shares and stock options to executives, employees and consultants through the 2006 Employee Stock Option Plan and the 2011 Employee Stock Option Plan. However, before the company was delisted from overseas markets, the vesting period of the shares granted to Zhang Fan had not yet ended, which became the origin of the subsequent dispute between her and 360 Group.

In the second half of 2015, Qihoo 360 launched the privatization of its U.S. listed shares, and the transaction was completed in July of the following year; in February 2018, 360 was listed on the A-share market through backdoor listing on Jiangnan Jiajie.

Zhang Fan said that during the period from privatization to "returning to the A-share market", whether it was employees whose stock option vesting period had not ended when the company was delisted overseas, or employees who were newly granted stock options after the overseas delisting, all of them were in a "blind state" regarding their own equity incentives, and could only trust that the company "kept an account for everyone". But by the time of the A-share listing, many employees could no longer hold back.

According to the aforementioned restructuring report, 360 stated that the 2006 Share Plan and the 2011 Share Plan were all suspended upon the completion of privatization, and that after the A-share listing, the company would establish and implement long-term incentive measures such as employee stock ownership plans and equity incentives in accordance with its strategic planning, and employees were entitled to participate in the above incentive measures.

Zhang Fan said that during the privatization process, the unvested options and restricted shares of nearly 2000 employees including her were "rolled over" to the domestic shareholding entity Tianjin Qirui Zhongxin Technology Partnership, and then indirectly held the corresponding share rights and interests of 360. In 2016, 360 Group and employees signed the *Confirmation Letter on Equity Incentives for Employees of Qihoo 360 Group* (hereinafter referred to as the "Roll-over Agreement") online, which stipulated the above matters.

After that, Tianjin Qirui Zhongxin Technology Partnership was successively renamed Tianjin Zhongxin Equity Investment Partnership and Shanghai Guanying Enterprise Management Partnership (hereinafter referred to as "Tianjin Zhongxin" and "Shanghai Guanying" respectively). According to Zhang Fan, in October 2018, Tianjin Zhongxin also issued a *Capital Contribution Confirmation Letter* to her, which confirmed in writing that she enjoyed the income right of 2.016 million shares of 360.

In 2021, Shanghai Guanying liquidated and reduced its holdings of 360 shares after the end of the lock-up period, with the cash-out amount exceeding 2 billion yuan. Zhang Fan said that she once believed that the company would make the payment as agreed normally, but in the 7 years since she left her post, she has negotiated with 360 Group many times through in-person negotiations, written reminders, delivery via the Secretary of the Board of Directors, lawyer communication and other methods, only to get the result that "not a single cent was paid".

In response, 360 Group exclusively replied to NBD Reporter: "Ms. Zhang Fan is a professional lawyer herself, who also deeply participated in, and even led the design of the transaction structure and rules at that time. She knows better than anyone who to claim rights from and on what basis to claim rights."

"If she believes that her demands have not been resolved, the most direct and effective way is to follow legal procedures, where both parties submit evidence and let the court hear and rule on the case. We support her to resolve the dispute in accordance with the law, which is the clearest and fairest way." 360 Group stated.

Parties Concerned Are Not Convenient to Answer Some Details of the Dispute

This is not the first time that a former executive of 360 has publicly claimed for remuneration. According to media reports, Wen Yueyu, who once served as the head of 360's data center, also filed a lawsuit over matters such as the unfulfilled U.S. stock rights and interests after roll-over, suing Shanghai Guanying and other relevant parties to the court, demanding that the other party pay the proceeds from share disposal. However, all his litigation claims were rejected by the court.

The court hearing the case held that the situation of Wen Yueyu obtaining U.S. stock options was not within the scope of this case's trial. The core issue of this case is whether Wen Yueyu can be recognized as enjoying the partnership share or income of Shanghai Guanying based on the *Capital Contribution Confirmation Letter* issued by Shanghai Guanying. Since Wen Yueyu did not make actual capital contribution, nor did he form relevant materials such as a partnership agreement, the *Capital Contribution Confirmation Letter* alone cannot prove that he is a limited partner of Shanghai Guanying.

Zhang Fan told NBD Reporter that she believes the most important significance of the *Capital Contribution Confirmation Letter* at that time was to digitally confirm the "invisible equity incentives" of employees with the number of shares of the A-share listed company. What truly ensures the continuation of employees' equity rights and interests is the "Roll-over Agreement" that the company required employees to sign online on the eve of the privatization delisting in 2016.

NBD Reporter checked the U.S. stock announcements of Qihoo 360 Group and noticed that the company once stated that on the effective date, every unexercised stock option granted under the share plan will be taken over by the parent company through Tianjin Qirui Zhongxin Technology Partnership or other arrangements and converted into equity incentives. The subsequent terms and exercise conditions shall be consistent with the previous ones, to ensure that the holders are provided with economic benefits no less than the original ones.

"But this most critical agreement was signed by everyone online on the Juhe system, and the system was taken back right after the signing, so employees no longer have the right to query it." Zhang Fan said, "This is one of the reasons why ordinary employees will have a very difficult time in litigation."

As the Chief Legal Counsel of 360 Group, Zhang Fan deeply participated in the whole process of the company's U.S. stock privatization, domestic and overseas restructuring, and A-share backdoor listing. When NBD Reporter asked about her specific responsibilities in the company's "return to A-share listing", the reason for leaving her post, and whether she noticed the risks in the company's agreement and announcement statements, Zhang Fan said that it is not convenient to answer for the time being.

After leaving 360, Zhang Fan joined Qi Anxin, but she has also left her post recently. Zhang Fan admitted that this public rights protection is an important reason that prompted her to leave Qi Anxin, and she does not want her own "remuneration claim" to implicate other employees and shareholders of 360 and Qi Anxin.

It is worth noting that both Wen Yueyu and Zhang Fan said that according to their understanding, 360 actually made payments to some employees. However, Zhang Fan said she did not know why some employees could get the money while others could not. NBD Reporter verified with 360 on this matter and asked about the payment standards and scope, but no reply was received.

What Makes the "Roll-over" Dispute of Equity Incentives So Difficult?

According to Zhang Fan, she has entrusted a lawyer to formally send a lawyer's letter to 360.

Zhang Fan claims that 360 should confirm the fact that she holds the equity incentive rights and interests of 2.016 million A-shares, and calculate at the average reduction price of Shanghai Guanying at 13.14 yuan per share, and pay her about 26.49 million yuan of share disposal proceeds and the interest for delayed payment.

As a senior international lawyer, Zhang Fan is well aware of the legal difficulties of this case. This dispute involves the issue of how to handle equity incentives in the whole process from 360's U.S. stock privatization, dismantling of the red-chip structure to returning to the A-share market. The securities background is very complex, and concepts such as "roll-over" and "privatization" have high understanding thresholds. It is necessary to piece together the full picture spanning many years, which is exactly the most difficult part.

Lawyer Wang Huaitao from Shanghai Xingu Law Firm told NBD Reporter that from the perspective of legal practice, the difficulty of this type of equity incentive roll-over dispute in the process of U.S. stock privatization and return to A-share market lies in the layered isolation of legal subjects. Judging from the similar public precedents at present, courts generally tend to recognize that the shareholding platform is an independent legal subject, and the rights dispute between employees and the shareholding platform cannot directly penetrate to the level of the listed company.

However, Wang Huaitao also said that this does not mean that the parties have no remedy at all. If it can be proved that 360 has made clear commitments in the process of equity incentive roll-over, or the shareholding platform is essentially a controlled entity of the company, there is also room to claim rights from the company. The specific situation needs to be combined with the evidence chain to design the litigation path for comprehensive judgment.

Wang Huaitao believes that claiming for relevant share disposal proceeds needs to meet several key prerequisites. The first is the legality proof of rights and interests vesting. Sufficient evidence is required to prove that the restricted shares have met the vesting conditions such as the service period, and the rights and interests have been legally continued in the privatization "roll-over" process, including the relevant clauses in the original grant agreement, the U.S. stock privatization merger agreement, the filing documents submitted to the U.S. SEC (U.S. Securities and Exchange Commission), etc. These are the core evidences to prove the source of the rights and interests.

The second is the confirmation of rights and interests at the shareholding platform level. It is necessary to prove that the parties enjoy the corresponding property share in the domestic shareholding platform. The *Capital Contribution Confirmation Letter* alone may not be sufficient to constitute a complete proof of rights, and it is necessary to combine materials such as partnership agreements, actual capital contribution certificates, and partnership meeting resolutions to form a closed evidence chain. The third is to clarify the whereabouts of the reduction proceeds, prove that the shareholding platform has indeed reduced its holdings of the corresponding shares and obtained proceeds, and that the proceeds include the part due to the parties. Finally, attention should be paid to the issue of litigation limitation, and it is necessary to prove that the parties have been actively claiming rights and there is no situation of exceeding the limitation period.

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This article is from the WeChat official account "NBD Headline", author: Yang Yu, editors: Cheng Peng, Wei Wenyi, Du Hengfeng, proofreader: Liang Luyue, published with authorization from 36Kr.