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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on August 16, 2018

Registration No. 333-          


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549



FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



CooTek (Cayman) Inc.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)



Cayman Islands
(State or other jurisdiction of
incorporation or organization)
  7374
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

Building 7, No. 2007 Hongmei Road, Xuhui District
Shanghai, 201103
People's Republic of China
+86 21 6485-6352

(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)

Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19711
+1 302-738-6680

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Z. Julie Gao, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
c/o 42/F, Edinburgh Tower, The Landmark
15 Queen's Road Central
Hong Kong
+852 3740-4700

 

Haiping Li, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
JingAn Kerry Centre, Tower II
46 th  Floor
1539 Nanjing West Road
Shanghai, the People's Republic of China
+86 21 6193-8200

 

Shuang Zhao, Esq.
Cleary, Gottlieb, Steen & Hamilton LLP
c/o 37th Floor,
Hysan Place
500 Hennessy Road
Causeway Bay, Hong Kong
+852 2521-4122



Approximate date of commencement of proposed sale to the public:
as soon as practicable after the effective date of this registration statement.

           If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     o

           If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

           If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

           If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

           Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company     ý

           If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.     o



CALCULATION OF REGISTRATION FEE

       
 
Title of each class of securities
to be registered

  Proposed maximum
aggregate offering
price (2)(3)

  Amount of
registration fee

 

Class A ordinary shares, par value US$0.00001 per share (1)

  US$100,000,000   US$12,450

 

(1)
American depositary shares issuable upon deposit of Class A ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-            ). Each American depositary share represents                Class A ordinary shares.

(2)
Includes Class A ordinary shares that are issuable upon the exercise of the underwriters' over-allotment option. Also includes Class A ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public. These Class A ordinary shares are not being registered for the purpose of sales outside the United States.

(3)
Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

            The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated                          , 2018.

American Depositary Shares

LOGO

CooTek (Cayman) Inc.

Representing                  Class A Ordinary Shares



         This is an initial public offering of                  American depositary shares, or ADSs, by CooTek (Cayman) Inc. Each ADS represents                   of our Class A ordinary shares, par value US$0.00001 per share. It is currently estimated that the initial public offering price per ADS will be between US$             and US$             .

         Prior to this offering, there has been no public market for the ADSs or our shares. We intend to apply to list the ADSs on the New York Stock Exchange under the symbol "CTK."

         We are an "emerging growth company" under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements.

         Upon the completion of this offering, our outstanding share capital will consist of Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to twenty-five (25) votes and is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Our co-founder, Mr. Karl Kan Zhang, will beneficially own all of our issued Class B ordinary shares. Class B ordinary shares beneficially owned by Mr. Karl Kan Zhang will constitute approximately         % of our total issued and outstanding share capital and         % of the aggregate voting power of our total issued and outstanding share capital immediately after the completion of this offering, assuming the underwriters do not exercise their over-allotment option. See "Principal Shareholders."

          Investing in our ADSs involve risks. See "Risk Factors" beginning on page 16.



PRICE US$                  PER ADS



 
  Price to
Public
  Underwriting
Discounts and
Commissions (1)
  Proceeds
to us
 

Per ADS

  US$     US$     US$    

Total

  US$     US$     US$    

(1)
See "Underwriting" for additional disclosure regarding underwriting compensation payable by us.

         We have granted the underwriters the right to purchase up to an additional                  ADSs to cover over-allotments.

          Neither the United States Securities and Exchange Commission nor any other regulatory body 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 underwriters expect to deliver the ADSs against payment in U.S. dollars in New York, New York on or about                           , 2018.

Credit Suisse   BofA Merrill Lynch   Citigroup



   

Prospectus dated                           , 2018.


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GRAPHIC


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TABLE OF CONTENTS

 
  Page  

PROSPECTUS SUMMARY

    1  

RISK FACTORS

    16  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    61  

USE OF PROCEEDS

    62  

DIVIDEND POLICY

    63  

CAPITALIZATION

    64  

DILUTION

    65  

ENFORCEABILITY OF CIVIL LIABILITIES

    67  

CORPORATE HISTORY AND STRUCTURE

    69  

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

    73  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    77  

INDUSTRY

    108  

BUSINESS

    113  

REGULATION

    131  

MANAGEMENT

    143  

PRINCIPAL SHAREHOLDERS

    152  

RELATED PARTY TRANSACTIONS

    155  

DESCRIPTION OF SHARE CAPITAL

    156  

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

    168  

SHARES ELIGIBLE FOR FUTURE SALES

    179  

TAXATION

    181  

UNDERWRITING

    187  

EXPENSES RELATED TO THIS OFFERING

    196  

LEGAL MATTERS

    197  

EXPERTS

    198  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

    199  

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

    F-1  



        No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the ADSs offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

        Neither we nor any of the underwriters has done anything that would permit this offering or possession or distribution of this prospectus or any filed free writing prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus or any filed free writing prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of this prospectus or any filed free writing prospectus outside of the United States.

         Until                        , 2018 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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PROSPECTUS SUMMARY

         The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully before deciding whether to buy our ADSs. You should carefully consider, among other things, our consolidated financial statements and the related notes and sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

Our Mission

        Our mission is to empower everyone to express themselves and enjoy relevant content seamlessly.

Our Business

        We are a fast-growing mobile internet company. Sophisticated big data analytics and proprietary AI capability are the backbone of our business.

        Our global portfolio of mobile applications serves a large global user base, comprised of an average of 132.6 million DAUs across more than 240 countries and regions in June 2018, compared to an average of 75.6 million DAUs in June 2017, representing 75.3% year-on-year growth.

        Our core product, TouchPal Smart Input, is an intelligent input method for mobile devices and generates a massive, diverse set of user interaction data. We employ proprietary AI and big data analytical technologies both to process such data and a large amount of multi-language content that we source and organize from the internet, and to develop advanced multilingual natural language processing and semantic understanding technologies. These technologies enable us to obtain in-depth user insights and identify market opportunities, which set the foundation for developing content-rich mobile applications that deliver relevant content for different verticals such as lifestyle, healthcare and entertainment. We have also built a rich library of user profiles and interests that allows us to grow our user base effectively.

        TouchPal Smart Input boasts an advanced multilingual language model that supports more than 110 languages and offers an effective and enjoyable typing experience on mobile devices. Named one of the Google Play Best Apps of 2015, TouchPal Smart Input has high popularity and superior engagement among mobile internet users around the world. In June 2018, it reached 125.4 million DAUs on average and was launched 72 times per day per active user on average. TouchPal Smart Input's distinctive feature is that it operates across virtually all other mobile applications such as social network apps, e-commerce apps and browsers.

        Building upon user insights accumulated through our TouchPal Smart Input, we have formulated a systematic approach to developing a global product portfolio, through which we deliver relevant content and grow our global user base. In addition to TouchPal Smart Input, we have launched a portfolio of 15 other mobile applications as of June 30, 2018 and most of them are content-rich applications. Those mobile applications reached 9.4 million MAUs and 2.9 million DAUs on average in December 2017 and 22.2 million MAUs and 7.3 million DAUs on average in June 2018. Most of our global portfolio applications have achieved high user ratings ranging from 4.5 to 4.7 out of 5 on Google Play Store.

        Our user-centric and data-driven approach has enabled us to release appealing products to capture mobile internet users' ever-evolving content needs and help us rapidly attract targeted users. For example, by leveraging our data analytics capabilities, we have identified an increasing number of users who are interested in fitness-related topics and content. To capture the business opportunity presented by this trend, we developed two fitness mobile applications, HiFit and ManFIT. We have also built a profile of target users based on our user insights. We believe that this approach has allowed us to effectively grow our user base. Through HiFit and ManFIT, we deliver rich content such as workout

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videos to our users based on their profiles. We believe that potential users matching such profile are more likely to be interested in these applications.

        We continue to improve our AI capabilities and, in March 2018, launched Talia, an AI-powered virtual personal assistant that understands everyday conversations and delivers relevant content to users in multiple scenarios. Talia is integrated seamlessly with our TouchPal Smart Input. Talia automatically offers services to users in a variety of usage scenarios, such as content recommendations, web searches and weather forecasts.

        We have a proven and scalable monetization capability in mobile advertising. We leverage our in-depth user insights to deliver targeted and engaging advertisements that are relevant to users across our various mobile applications. The effective price per impression and the number of our average daily impressions delivered on our global portfolio products increased by approximately 36% and 537%, respectively, from the first half of 2017 to the first half of 2018.

        We generate revenues primarily from mobile advertising. Our net revenues grew rapidly from US$11.0 million in 2016 to US$37.3 million in 2017, representing 238.5% year-on-year growth. Our net revenues grew rapidly from US$9.1 million for the six months ended June 30, 2017 to US$50.3 million for the same period of 2018, representing 451.7% year-on-year growth. Our net loss decreased from US$30.7 million in 2016 to US$23.7 million in 2017 due to our revenue growth and operating leverage. We recorded net income of US$3.5 million for the six months ended June 30, 2018, compared to net loss of US$16.2 million for the same period of 2017. We generated gross profit of US$17.2 million in 2017, compared to gross loss of US$9.1 million in 2016, implying an improvement of gross profit margin from negative 82.8% in 2016 to 46.2% in 2017. We recorded gross profit of US$42.2 million for the six months ended June 30, 2018, as compared to gross loss of US$1.1 million for the same period of 2017, implying an improvement of gross profit margin from negative 11.6% for the six months ended June 30, 2017 to 84.0% for the same period of 2018. Of our total advertising revenue generated from our global portfolio products, our TouchPal Smart Input contributed substantially all in 2016, approximately 71% in 2017 and 33% in the six months ended June 30, 2018, and our other global portfolio products contributed approximately 29% in 2017 and 67% in the six months ended June 30, 2018.

Our Industry

        The adoption of mobile internet has become increasingly widespread and mobile devices have become an integral part of our daily lives. The number of global mobile internet users is expected to grow at a compound annual growth rate, or CAGR, of 5.3% from 3.3 billion in 2017 to 5.0 billion by 2025 and the global mobile internet penetration rate is expected to grow from 43% in 2017 to 61% in 2025, according to GSMA Intelligence, a provider of mobile operator data. The global smartphone shipment volume is expected to grow from 1.5 billion units in 2017 to 1.7 billion units in 2022, according to IDC, a global provider of market intelligence and advisory services.

        Among mobile applications, mobile smart input is unique in that it is generally launched and used across multiple applications on mobile devices, which results in frequent use and generates high data value. The rapid expansion in mobile internet networks and mobile device user base over the past ten years has presented an enormous market opportunity for third-party mobile smart input providers like us.

        With internet users' rapidly shifting behaviors, mobile devices have become the primary devices for consumption of digital media and access to the internet, accounting for 69% of digital media time spent in 2017, according to comScore, a U.S. media measurement and analytics company, and mobile and tablet devices together accounted for 56.4% of global web browsing in terms of page views in June 2018, compared to 43.6% for desktop devices during the same period, according to StatCounter, a web traffic analysis tool. In addition, mobile device users tend to spend more time on mobile apps than mobile web browsers, with more than 80% of mobile minutes in all markets spent on apps, according

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to comScore. Mobile device users have shown a stronger degree of preference for apps over web browsers when it comes to consumption of content related to entertainment and social networking, according to IAB, a service provider to the online advertising industry.

        The global advertising industry continues to experience a shift in advertising spending from traditional offline channels such as television commercials to online channels. Global online advertising spending increased at a CAGR of 18.8% from US$72.4 billion in 2011 to US$203.6 billion in 2017 and is expected to reach US$273.8 billion in 2020, according to Zenith, a leading media agency offering communications planning and media buying. The growth in the broader online advertising market is primarily driven by the growth in global mobile advertising spending, which is expected to grow from US$107.1 billion in 2017 to US$179.7 billion in 2020, according to Zenith.

        AI technology and big data analytics have become crucial for businesses to utilize the rapidly growing amount of global digital data and to generate valuable user insights that enable targeted content delivery. IDC forecasts that the global data volume will grow tenfold from 16.1 zettabytes generated in 2016 to 163 zettabytes generated in 2025. In addition, the advancement of AI technology has led to the development and an increasing adoption of virtual assistants, which is expected to reach a market size of $15.8 billion by 2021 from $1.6 billion in 2015 in terms of revenue from sales of virtual assistants, according to Tractica, a market intelligence firm focused on human interactions with technology.

Our Strengths

        We believe the following strengths contribute to our success and distinguish us from our competitors:

    a fast-growing mobile internet company with a large global user base;

    superior user engagement and stickiness;

    in-depth user insights driven by big data analytics and AI technology;

    highly effective expansion of product offerings and user base;

    proven and highly scalable monetization capability; and

    experienced management team with strong track-record of innovation.

Our Strategies

        We intend to achieve our mission and further grow our business by pursuing the following strategies:

    continue to expand our user base;

    continue to invest in next-generation AI and natural language processing technologies;

    strengthen targeted content delivery based on user insights;

    further improve advertising performance; and

    pursue strategic acquisitions and investments.

Our Challenges

        Our business and successful execution of our strategies are subject to various challenges, risk and uncertainties, including those related to our ability to:

    maintain and increase our user base and level of user engagement;

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    retain and attract advertising customers;

    implement our strategies related to the expansion of global operations;

    innovate and develop new products and services;

    sustain our historical growth and maintain the effectiveness of our monetization;

    respond to and adopt evolving technologies for product development;

    successfully market and monetize our existing and new mobile applications throughout their life cycles;

    maintain and improve technology infrastructure and security measures designed to protect users' personal privacy and data security;

    compete effectively in our industry; and

    maintain good relationship with our business partners.

        Please see "Risk Factors" and other information included in this prospectus for a discussion of these and other challenges, risks and uncertainties that we face.

Corporate History and Structure

        We commenced our mobile internet business and launched our first mobile application, TouchPal Smart Input, in 2008. We initially conducted our business through Shanghai Hanxiang (CooTek) Information Technology Co., Ltd., or Shanghai Hanxiang, a PRC domestic company.

        In March 2012, we incorporated CooTek (Cayman) Inc., or CooTek Cayman, as our offshore holding company in order to facilitate foreign investment in our company. We established CooTek HongKong Limited, or CooTek HK, as our intermediate holding company, which in turn established a wholly-owned PRC subsidiary, Shanghai Chule (CooTek) Information Technology Co., Ltd., or the WFOE, in June 2012. Subsequently, we, through our WFOE, entered into a series of contractual arrangements with Shanghai Hanxiang and its shareholders whereby we were established as the primary beneficiary of Shanghai Hanxiang. We have recognized the net assets of Shanghai Hanxiang at historical cost with no change in basis in the consolidated financial statements upon the completion of this reorganization.

        In March 2012, we formed a PRC domestic company, Shanghai Chubao (CooTek) Information Technology Co., Ltd., or Shanghai Chubao, to operate part of our China business.

        In September 2014, we incorporated TouchPal HK Co., Limited to operate our international business.

        Due to restrictions imposed by PRC laws and regulations on foreign ownership of companies that engaged in mobile internet and mobile advertising businesses, our WFOE also entered into a series of contractual arrangements with Shanghai Chubao and two other domestic companies we established in 2017, and their respective shareholders. We collectively refer to these three domestic entities and Shanghai Hanxiang as our VIEs in this prospectus. Shanghai Chubao is currently our principal operating entity in China. The business of Shanghai Hanxiang was migrated into our other entities, and Shanghai Hanxiang has gradually ceased its business operations since 2012. As of the date of this prospectus, Shanghai Hanxiang and the other two domestic companies do not have any substantive business operations. For more details and risks related to our variable interest entity structure, please see "—Contractual Arrangements with Our VIEs and Their Respective Shareholders" and "Risk Factors—Risks Related to Our Corporate Structure." As a result of our direct ownership in our WFOE and the variable interest entity contractual arrangements, we are regarded as the primary beneficiary of our VIEs. We treat them as our consolidated affiliated entities under U.S. GAAP, and have

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consolidated the financial results of these entities in our consolidated financial statements in accordance with U.S. GAAP.

        Our officers, directors and principal shareholders currently hold an aggregate of 77.3% of the total voting power in our Company. Immediately after this offering, our officers, directors and principal shareholders will hold an aggregate of        % of the total voting power in our Company and will continue to exercise substantial control over our Company.

        The following diagram illustrates our corporate structure, including our significant subsidiaries and other entities that are material to our business, as of the date of this prospectus:

GRAPHIC


(1)
Karl Kan Zhang, Susan Qiaoling Li, Michael Jialiang Wang, Jim Jian Wang and Haiyan Zhu are beneficial owners of CooTek (Cayman) Inc. and hold 25.0%, 21.94%, 21.94%, 13.12% and 18.0% of the equity interests in Shanghai Chubao, respectively. Except for Haiyan Zhu, the other shareholders of Shanghai Chubao are directors and employees of CooTek (Cayman) Inc.

Implication of Being an Emerging Growth Company

        As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an "emerging growth company" pursuant to the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements compared to those that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company's internal control over financial reporting. The JOBS Act also provides that an emerging growth

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company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. Pursuant to the JOBS Act, we have elected to take advantage of the benefits of this extended transition period for complying with new or revised accounting standards as required when they are adopted for public companies. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards.

        We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenues of at least US$1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the preceding three-year period, issued more than US$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.

Corporate Information

        Our principal executive offices are located at Building 7, No. 2007 Hongmei Road, Xuhui District, Shanghai, 201103, People's Republic of China. Our telephone number at this address is +86 21 6485 6352. Our registered office in the Cayman Islands is located at offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

        Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our main website is www.touchpal.com . The information contained on our website is not a part of this prospectus. Our agent for service of process in the United States is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.

Conventions that Apply to this Prospectus

        Unless otherwise indicated or the context otherwise requires, references in this prospectus to:

    "CooTek," "we," "us," "our company" and "our" are to CooTek (Cayman) Inc., its subsidiaries and its consolidated affiliated entities;

    "China" or the "PRC" are to the People's Republic of China, excluding, for the purposes of this prospectus only, Hong Kong, Macau and Taiwan;

    "Class A ordinary shares" are to our Class A ordinary shares of par value US$0.00001 per share;

    "Class B ordinary shares" are to our Class B ordinary shares of par value US$0.00001 per share;

    "shares" or "ordinary shares" are to our ordinary shares, par value US$0.00001 per share, and upon and after the completion of this offering, are to our Class A and Class B ordinary shares, par value US$0.00001 per share;

    "ADSs" are to our American depositary shares, each of which represents                Class A ordinary shares;

    "ADRs" are to the American depositary receipts that evidence our ADSs;

    "AI" is to artificial intelligence;

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    "DAUs" is to the number of active users of our products during a given day. For each individual product, we treat each mobile device on which at least one of the following actions is taken during a given day as one active user for that day: (i) activating or launching such product, (ii) logging in with the user account for such product, or (iii) any other actions that result in a successful network access to our services through such product. The DAUs of multiple products during a given day is the sum of active users of each such product for that day;

    "MAUs" is to the number of active users of our products during a given month. For each individual product, we treat each mobile device on which at least one of the following actions is taken during a given month as one active user for that month: (i) activating or launching such product, (ii) logging in with the user account for such product, or (iii) any other actions that result in a successful network access to our services through such product. The MAUs of multiple products during a given month is the sum of active users of each such product for that month;

    "our global product portfolio" or "our global portfolio products" is to the mobile applications that we develop and provide to our users and business partners, which excludes TouchPal Phonebook. TouchPal Phonebook targets the Chinese domestic market and is different from TouchPal Smart Input and our other mobile applications that are designed for the global market;

    "our other global portfolio products" or "our other global portfolio applications" is to the mobile applications that we develop and provide to our users and business partners, which excludes TouchPal Smart Input and TouchPal Phonebook;
    "RMB" and "Renminbi" are to the legal currency of China; and

    "US$," "U.S. dollars," "$," and "dollars" are to the legal currency of the United States.

        Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option.

        Our reporting currency is U.S. dollar. This prospectus also contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations from Renminbi to U.S. dollars were made at RMB6.5063 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on December 29, 2017. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On August 10, 2018, the noon buying rate for Renminbi was RMB6.8458 to US$1.00.

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THE OFFERING

Offering price

  We currently estimate that the initial public offering price will be between US$        and US$        per ADS.

ADSs offered by us

 

                ADSs (or                ADSs if the underwriters exercise their over-allotment option in full).

ADSs outstanding immediately after this offering

 

                ADSs (or                ADSs if the underwriters exercise their over-allotment option in full)

Ordinary shares outstanding immediately after this offering

 

                ordinary shares, comprised of                Class A ordinary shares and                Class B ordinary shares (or                ordinary shares if the underwriters exercise their over-allotment option in full, comprised of                Class A ordinary shares and        Class B ordinary shares). This number assumes the re-designation, on a one-for-one basis, of all outstanding ordinary shares and preferred shares into Class A ordinary shares upon the completion of this offering, except for the outstanding ordinary shares held by Kan's Global CoolStuff Investment Inc. that will be re-designated into Class B ordinary shares on a one-for-one basis upon the completion of this offering.

The ADSs

 

Each ADS represents                ordinary shares, par value US$0.00001 per share.

 

The depositary will hold ordinary shares underlying your ADSs. You will have rights as provided in the deposit agreement among us, the depositary and holders and beneficial owners of ADSs from time to time.

 

We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our Class A ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our Class A ordinary shares after deducting its fees and expenses in accordance with the terms set forth in the deposit agreement.

 

You may turn in your ADSs to the depositary in exchange for Class A ordinary shares. The depositary will charge you fees for any exchange.

 

We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended.

 

To better understand the terms of the ADSs, you should carefully read the "Description of American Depositary Shares" section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

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Ordinary Shares

 

Immediately after the completion of this offering, our ordinary shares will comprise of Class A ordinary shares and Class B ordinary shares. In respect of all matters subject to a shareholder vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to twenty-five (25) votes, voting together as one class. Each Class B ordinary share is convertible into Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person or entity other than holders of Class B ordinary shares or their affiliates, such Class B ordinary shares shall be automatically and immediately converted into the equivalent number of Class A ordinary shares. See "Description of Share Capital" for more information.

Over-allotment option

 

We have granted to the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an aggregate of additional ADSs.

Use of proceeds

 

We expect that we will receive net proceeds of approximately US$      million from this offering, or approximately US$      million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of US$      per ADS, which is the midpoint of the estimated range of the initial public offering price, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

We intend to use the net proceeds from this offering for (i) research and development, (ii) sales and marketing, and (iii) general corporate purposes. See "Use of Proceeds" for more information.

Lock-up

 

[We, our directors and executive officers, our existing shareholders and certain holders of share-based awards have agreed with the underwriters not to sell, transfer or dispose of any ADSs, ordinary shares or similar securities for a period of 180 days after the date of this prospectus. See "Shares Eligible for Future Sale" and "Underwriting."]

Listing

 

We intend to apply to have the ADSs listed on the New York Stock Exchange under the symbol "CTK." Our ADSs and shares will not be listed on any other stock exchange or traded on any automated quotation system.

Payment and settlement

 

The underwriters expect to deliver the ADSs against payment therefor through the facilities of the Depository Trust Company on                    , 2018.

Depositary

 

Deutsche Bank Trust Company Americas.

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

Summary Consolidated Financial Data

        The following summary consolidated statements of operations data for the years ended December 31, 2016 and 2017, summary consolidated balance sheet data as of December 31, 2016 and 2017 and summary consolidated cash flow data for the years ended December 31, 2016 and 2017 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data for the six months ended June 30, 2017 and 2018, the summary consolidated balance sheet data as of June 30, 2018 and summary consolidated cash flow data for the six months ended June 30, 2017 and 2018 are derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. You should read this Summary Consolidated Financial and Operating Data section together with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

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  For the Year Ended
December 31,
  For the Six Months
Ended June 30,
 
 
  2016   2017   2017   2018  
 
  (in US$, except for per share data)
 

Summary Consolidated Statements of Operations Data:

                         

Net revenues

    11,030,079     37,334,966     9,113,266     50,277,623  

Cost of revenues (1)

    (20,158,565 )   (20,101,386 )   (10,172,085 )   (8,037,508 )

Gross profit (loss)

    (9,128,486 )   17,233,580     (1,058,819 )   42,240,115  

Operating expenses:

                         

Sales and marketing expenses (1)

    (9,396,663 )   (20,161,353 )   (5,652,254 )   (26,345,856 )

Research and development expenses (1)

    (8,691,539 )   (12,868,356 )   (5,646,825 )   (8,322,788 )

General and administrative expenses (1)                      

    (3,920,057 )   (8,366,698 )   (4,034,049 )   (4,141,460 )

Other operating income, net           

    605,890     190,338     117,438     70,212  

Total operating expenses

    (21,402,369 )   (41,206,069 )   (15,215,690 )   (38,739,892 )

(Loss) income from operations

    (30,530,855 )   (23,972,489 )   (16,274,509 )   3,500,223  

Interest income, net

    12,887     481,932     166,087     70,475  

Foreign exchange losses, net

    (188,631 )   (169,556 )   (125,399 )   (59,269 )

(Loss) income before income taxes

    (30,706,599 )   (23,660,113 )   (16,233,821 )   3,511,429  

Income tax expense

        (800 )   (800 )    

Net (loss) income

    (30,706,599 )   (23,660,913 )   (16,234,621 )   3,511,429  

Net (loss) income per ordinary share:

                         

Basic

    (0.03 )   (0.03 )   (0.02 )   0.001  

Diluted

    (0.03 )   (0.03 )   (0.02 )   0.001  

Weighted average shares used in calculating net (loss) income per ordinary share:

                         

Basic

    912,551,946     898,781,587     899,175,914     898,393,690  

Diluted

    912,551,946     898,781,587     899,175,914     1,045,398,678  

Pro forma net (loss) income per ordinary share (2) :

                         

Basic

        (0.01 )       0.001  

Diluted

        (0.01 )       0.001  

Pro forma weighted average shares used in calculating pro forma net (loss) income per ordinary share (2) :

                         

Basic

        2,976,521,512         2,978,331,701  

Diluted

        2,976,521,512         3,125,336,689  

Non-GAAP Financial Data (3) :

                         

Adjusted Net (Loss) Income

    (29,979,386 )   (21,235,969 )   (14,255,524 )   4,402,654  

Adjusted EBITDA

    (29,436,511 )   (20,818,083 )   (14,047,358 )   4,897,483  

(1)
Share-based compensation was allocated in costs of revenues and operating expenses as follows:
 
  For the Year
Ended
December 31,
  For the Six Months
Ended June 30,
 
 
  2016   2017   2017   2018  
 
  (in US$)
 

Cost of revenues

    24,514     31,510     12,127     23,892  

Sales and marketing expenses

    35,298     70,707     29,956     39,391  

Research and development expenses

    445,084     544,786     274,795     666,679  

General and administrative expenses

    222,317     1,777,941     1,662,219     161,263  

Total

    727,213     2,424,944     1,979,097     891,225  
(2)
The pro forma ordinary shares information is based on the re-designation of 2,079,938,011 issued and outstanding preferred shares into Class A ordinary shares on a one-for-one basis immediately upon the completion of this offering.

(3)
See "—Non-GAAP Financial Measure."

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Non-GAAP Financial Measures

        We consider Adjusted Net (Loss) Income and Adjusted EBITDA, each a non-GAAP financial measure, both as supplemental measures in evaluating and assessing our operating results.

        Adjusted Net (Loss) Income represents net (loss) income excluding share-based compensation related to share options and restricted share units and compensation expense related to ordinary share repurchase. Adjusted EBITDA represents net (loss) income excluding interest income and expense, income taxes, depreciation, share-based compensation and compensation expense related to ordinary share repurchase. We believe that Adjusted Net (Loss) Income and Adjusted EBITDA help identify underlying financial and business trends relating to our results of operations that could otherwise be distorted by the effect of certain expenses that we include in (loss) income from operations and net (loss) income. By making our financial results comparable period by period, we believe Adjusted Net (Loss) Income and Adjusted EBITDA provide useful information to better understand our historical business operations and future prospects and allow for greater visibility with respect to key metrics used by our management in financial and operational decision-making.

        The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. You are encouraged to review the historical non-GAAP financial measure to the most directly comparable GAAP measures, including, but not limited to, net (loss) income attributable to ordinary shares, (loss) income from operations, and net (loss) income. The non-GAAP financial measures presented by us may be calculated differently from and, therefore, may not be comparable to, similarly titled measures presented by other companies. We encourage you to review our financial information in its entirety and not rely on a single financial measure.

        The table below sets forth a reconciliation of our net (loss) income to Adjusted Net (Loss) Income and Adjusted EBITDA for the periods indicated:

 
  For the Year Ended
December 31,
  For the Six Months Ended
June 30,
 
 
  2016   2017   2017   2018  
 
  (in US$)
 

Adjusted Net (Loss) Income and Adjusted EBITDA reconciliation:

                         

Net (loss) income

    (30,706,599 )   (23,660,913 )   (16,234,621 )   3,511,429  

Add:

                         

Share-based compensation related to share options and restricted share units

    727,213     876,560     430,713     891,225  

Compensation expense related to ordinary share repurchase

        1,548,384     1,548,384      

Adjusted Net (Loss) Income (Non-GAAP) (1)

    (29,979,386 )   (21,235,969 )   (14,255,524 )   4,402,654  

Add:

                         

Interest income, net

    (12,887 )   (481,932 )   (166,087 )   (70,475 )

Income taxes

        800     800      

Depreciation

    555,762     899,018     373,453     565,304  

Adjusted EBITDA (Non-GAAP) (1)

    (29,436,511 )   (20,818,083 )   (14,047,358 )   4,897,483  

(1)
The non-GAAP adjustments do not take into consideration the impact of taxes on such adjustments.

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        The following table presents our summary consolidated balance sheet data for the periods indicated:

 
  As of December 31,   As of June 30, 2018  
 
  2016   2017   Actual   Pro forma (1)   Pro forma as adjusted (2)  
 
  (in US$)
 

Summary Consolidated Balance Sheet Data:

                               

Cash and cash equivalents

    41,056,314     26,720,158     27,688,814     27,688,814        

Total current assets

    47,870,981     43,738,752     47,809,725     47,809,725        

Total assets

    49,353,697     46,261,022     51,008,954     51,008,954        

Total liabilities

    13,454,721     14,814,770     17,133,948     17,133,948        

Convertible redeemable preferred shares

    136,455,592     156,367,810     156,367,810            

Total shareholders' (deficit) equity

    (100,556,616 )   (124,921,558 )   (122,492,804 )   33,875,006        

(1)
The summary consolidated balance sheet data as of June 30, 2018 are presented on a pro forma basis to reflect (i) the re-designation of all the 246,224,465 issued and outstanding ordinary shares held by Kan's Global CoolStuff Investments Inc. into Class B ordinary shares on a one-for-one basis upon the completion of this offering; (ii) the re-designation of the remaining 652,169,225 issued and outstanding ordinary shares and 2,079,938,011 issued and outstanding preferred shares into Class A ordinary shares on a one-for-one basis immediately upon the completion of this offering.

(2)
The summary consolidated balance sheet data as of June 30, 2018 are presented on a pro forma as adjusted basis to reflect (i) the re-designation of all the 246,224,465 issued and outstanding ordinary shares held by Kan's Global CoolStuff Investments Inc. into Class B ordinary shares on a one-for-one basis upon the completion of this offering; (ii) the re-designation of the remaining 652,169,225 issued and outstanding ordinary shares and 2,079,938,011 issued and outstanding preferred shares into Class A ordinary shares on a one-for-one basis immediately upon the completion of this offering; (iii) the sale of                Class A ordinary shares in the form of ADSs by us in this offering at an assumed initial public offering price of US$            per ADS, the mid-point of the estimated range of the initial public offering price shown on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, assuming the underwriters do not exercise the over-allotment option.

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        The following table presents our summary consolidated cash flow data for the periods indicated:

 
  For the Year Ended
December 31,
  For the Six Months Ended
June 30,
 
 
  2016   2017   2017   2018  
 
  (in US$)
 

Summary Consolidated Cash Flow Data:

                         

Net cash (used in) provided by operating activities

    (28,435,452 )   (28,049,152 )   (19,799,666 )   4,539,916  

Net cash used in investing activities

    (831,393 )   (1,758,412 )   (1,102,408 )   (948,043 )

Net cash provided by (used in) financing activities

    51,306,960     14,401,620     13,694,494     (1,101,895 )

Net increase (decrease) in cash, cash equivalents, and restricted cash

    22,040,115     (15,405,944 )   (7,207,580 )   2,489,978  

Cash, cash equivalents, and restricted cash at beginning of year

    19,845,488     41,344,623     41,344,623     27,026,240  

Effect of exchange rate changes on cash, cash equivalents and restricted cash

    (540,980 )   1,087,561     543,542     (1,827,404 )

Cash, cash equivalents, and restricted cash at end of year

    41,344,623     27,026,240     34,680,585     27,688,814  

Summary Operating Data

        The following charts show the average DAUs and MAUs of our global portfolio products for each of the months indicated.

DAUs—TouchPal Smart Input
(in millions)
(daily average over the month of)
  DAUs—Other Global Portfolio Products
(in millions)
(daily average over the month of)

GRAPHIC

 

GRAPHIC

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MAUs—TouchPal Smart Input
(in millions)

 

MAUs—Other Global Portfolio Products
(in millions)

GRAPHIC

 

GRAPHIC

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RISK FACTORS

         An investment in our ADSs involves significant risks. You should carefully consider all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our ADSs. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ADSs could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

If we fail to maintain or expand our user base, or if user engagement with our products declines, our business, financial condition and operating results may be materially and adversely affected.

        The size of our active user base and the level of users' engagement with our products are critical to our success. Our global product portfolio had an average of 132.6 million DAUs in June 2018, which grew from 75.6 million DAUs in June 2017, representing 75.3% year-on-year growth. Our financial performance has been and will continue to be significantly affected by our ability to grow and engage our active user base. As the size of our user base increases and our business enters a more mature stage of development over time, the growth rate of our user base may decline or become flat as a result of market saturation. In addition, we may fail to maintain or increase our user base or our users' engagement if, among other things:

        If we are unable to maintain or increase our user base and user engagement, our advertising services may become less attractive to our advertising customers, which may have a material and adverse impact on our business, financial condition and operating results.

We generate substantially all of our revenues from advertising. Our failure to attract or retain advertising customers, or a reduction in their spending with us, could seriously harm our business, operating results and growth prospects.

        We generated 90.4%, 93.8% and 96.4% of our revenues from mobile advertising services in 2016, 2017 and the six months ended June 30, 2018, respectively. Advertisers purchase advertising services either directly from us or through third-party advertising exchanges and advertising agencies. Our

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advertising customers, including advertisers and advertising exchanges and agencies, typically do not have long-term contractual arrangements with us. They may be dissatisfied with our advertising services or perceive our advertising services as ineffective. In addition, new advertising formats emerge from time to time and customer preferences can change. We may not be able to adapt our products and services to future advertising formats or changing customer preferences on a timely and cost-effective basis.

        We compete for advertising customers not only with other providers of digital advertising spaces, but also with other types of platforms and advertising service providers such as newspapers, magazines, billboards, television and radio. Some of our competitors have access to considerably greater financial and other resources for expanding their product offerings and present considerable challenges to gaining and maintaining additional market share.

        If we fail to deliver advertising services in an effective manner, or if our advertising customers believe that placing advertisements through our products and services does not generate a competitive return when compared to placing advertisements through our competitors' products, they may not continue to do business with us or they may only be willing to advertise with us at reduced prices. If our existing advertising customers reduce or discontinue their advertising spending with us, or if we fail to attract new advertising customers, our business, financial condition and results of operations could be materially and adversely affected.

We depend on certain third-party advertising exchanges and agencies for a large portion of our mobile advertising revenues.

        We generate a large portion of our mobile advertising revenues from a limited number of third-party advertising exchanges and advertising agencies. Our top two advertising customers, which are advertising exchanges, accounted for approximately 38.5% of our total revenues in 2017. Our dependence on a limited number of advertising exchange customers increases their bargaining power and the need for us to maintain good relationships with them. The major advertising customers we work with typically offer standard terms and conditions that govern their contractual relationships with us. These standard terms and conditions in general allow either side to terminate the contractual relationship for any reason or no reason at all and with minimal notice and they generally do not provide for payment of any termination or compensatory fees. If any of these advertising customers we work with ceases to do business with us for any reason or alters its standard terms and conditions to our disadvantage, or if we fail to collect any significant amount of account receivables from these advertising customers, our business, financial conditions and operating results may be materially and adversely affected.

        We provide sales rebates to certain PRC domestic advertising agencies in order to maintain good relationships with them and to incentivize them to maximize the volume of branding advertising business that they bring to us. In order to maintain the appropriate level of incentives for those advertising agencies, we may continue to incur expenses from providing such sales rebates, which could have an adverse effect on our financial conditions and operating results.

We rely on our business collaborations with third parties, including mobile device manufacturers and major digital distribution platforms, to maintain and expand our user base. Our failure to maintain good relationships with these business partners may materially and adversely affect our business and operating results.

        We collaborate with various business partners to promote our products and enlarge our user base. We collaborate with mobile device manufacturers for the pre-installation of TouchPal Smart Input on new mobile devices as one way to distribute our product and to acquire users. There can be no guarantee that mobile device manufacturers will continue to pre-install TouchPal Smart Input or will

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agree to pre-install any of our other mobile applications on their devices. In addition, we use third-party digital distribution platforms such as Google Play and Apple App Store to distribute our mobile applications to users. The promotion and distribution of our mobile applications are subject to such digital distribution platforms' standard terms and policies for application developers, which are subject to the interpretation of, and frequent changes by, these platforms. If we are unable to maintain good relationships with our business partners or the business of our business partners declines, the reach of our products and services may be adversely affected and our ability to maintain and expand our user base may decrease. Most of the agreements with our business partners, including mobile device manufacturers and digital distribution platforms, do not prohibit them from working with our competitors or from offering competing services. If our partner distribution platforms change their standard terms and conditions in a manner that is detrimental to our business, or if our business partners decide not to continue working with us or choose to devote more resources to supporting our competitors or their own competing products, we may not be able to find a substitute on commercially favorable terms, or at all, and our competitive advantages may be diminished.

We have significant international operations and plan to continue expanding our operations globally. We may face challenges and risks presented by our growing global operations, which may have a material and adverse impact on our business and operating results.

        We are headquartered in China and provide our products and services to a global user base. We intend to continue the international expansion of our business operations and grow our user base globally. In June 2018, the user base of our global product portfolio reached an average of 132.6 million DAUs located in more than 240 countries and regions. The headquarters of our major advertising customers are located in the U.S. and China and therefore substantially all of our advertising revenues in 2016 and 2017 were derived from the U.S. and China.

        We believe the sustainable growth of our business depends on our ability to increase the penetration of our products in both developed and emerging markets. Our continued international operations and global expansion may expose us to a number of challenges and risks, including:

        Our business, financial condition and results of operations may be materially and adversely affected by these challenges and risks associated with our global operations.

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Our product development and monetization strategies are highly dependent on our technology capabilities and infrastructure. If the amount of user data generated on our products declines, or if we fail to enhance or upgrade our technologies at a competitive pace, the effectiveness of our business model may be harmed and our operating results may be materially and severely affected.

        We depend on our technological capabilities and infrastructure to analyze our users' preferences and needs and to generate valuable user insights. Active users of our products generate a large amount of data across our applications and in a variety of use cases on a daily basis. The data generated by our users lays the foundation for us to build our user profiles. By analyzing such user data with our big data analytics, AI and other relevant technologies, we aim to understand our users' interests and needs for content in order to develop products that deliver relevant content catering to their interests and needs. Therefore, the effectiveness of our product development and monetization strategies is dependent on our ability to obtain and process data and to refine the algorithms used in processing such data. If we fail to maintain and expand the user base of our products to continually generate large amounts of user data, or if we fail to keep up with the rapid development and upgrade of big data analytics, AI and other relevant technologies on a timely and cost-effective basis, we may not be able to effectively grow and monetize our products, and our business and operating results may be materially and adversely affected.

We may not be able to sustain our historical growth and maintain the effectiveness of our monetization.

        We have grown significantly over a relatively short period. Over the past two and a half years, we have experienced rapid growth of the number of DAU and MAU of our global portfolio products. At the same time, our net revenues grew rapidly from US$11.0 million in 2016 to US$37.3 million in 2017, and from US$9.1 million for the six months ended June 30, 2017 to US$50.3 million for the same period of 2018. Our advertising revenue increased by 251.5% from US$10.0 million in 2016 to US$35.0 million in 2017, and increased by 453.1% from US$8.8 million for the six months ended June 30, 2017 to US$48.5 million for the same period of 2018. We may not be able to sustain a rate of growth in future periods similar to what we experienced in the past.

        In addition, growing our revenue in the future depends on successfully building our global portfolio products besides TouchPal Smart Input. We monetize our user base primarily through mobile advertising. Advertising revenue derived from TouchPal Smart Input is estimated to have accounted for approximately 55%, 49% and 26% of our total advertising revenue in 2016, 2017 and the six months ended June 30, 2018, respectively, and advertising revenue derived from our other global portfolio products to have accounted for nil, approximately 20% and 53% in 2016, 2017 and the six months ended June 30, 2018, respectively. We expect that the share of revenues generated from our global portfolio products besides TouchPal Smart Input to increase in the future. If we are unable to build new products which are attractive to users, our ability to effectively monetize our advertising services and grow our revenues may be materially impacted.

If we fail to correctly anticipate user preferences and develop and commercialize new products and services, we may fail to attract or retain existing users, the lifecycles of our mobile applications may end prematurely and our operating results may be materially and adversely affected.

        Our success depends on our ability to maintain, grow and monetize our user base, which in turn depends on our ability to continually develop and commercialize new mobile applications, introduce new features or functions to our existing mobile applications and provide users with high-quality content and an enjoyable user experience. This is particularly important since the mobile internet industry is characterized by fast and frequent changes, including rapid technological evolution, shifting user demands, frequent introductions of new products and services, and constantly evolving industry standards, operating systems and practices. We launched our core product and first mobile application, TouchPal Smart Input, in 2008, and have launched 15 other global portfolio products as of June 30,

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2018. In June 2018, the user base of our global product portfolio reached an average of 132.6 million DAUs, and we intend to continue developing new products and services to attract more users who match our targeted profiles in the future. Our ability to roll out new or enhanced products and services depends on a number of factors, including timely and successful research and development efforts by us as well as correctly analyzing and predicting users' interests and demands for content using our AI and big data analytical capabilities. If we fail to correctly analyze and predict users' interests and demands for content, fail to cater to the anticipated needs and preferences of users, or fail to provide a superior user experience, our existing and new mobile applications may suffer from reduced user traffic or be unsuccessful in the market and our user base may decrease which in turn may impact our ability to earn advertising revenue. There can be no assurance that our new products and services will generate revenues or profits and we may not be able to recoup the investments and expenditures involved in such development. Our interim results may also experience significant fluctuations as we continue to invest in the development of new products and services.

        In addition, as a result of rapidly evolving user preferences, our existing mobile applications may reach the end of their lifecycles prematurely. There can be no assurance that we will be able to correctly predict the lifecycles of our new mobile applications, our estimates regarding the lifecycles of our existing mobile applications may turn out to be incorrect, and our business, financial condition and results of operations may be materially and adversely affected.

We had a net loss for the years ended December 31, 2016 and 2017 and we may not be able to become profitable in the foreseeable future.

        For the years ended December 31, 2016 and 2017, we had a net loss of US$30.7 million and US$23.7 million, respectively, and negative cash flows from operations of US$28.4 million and US$28.0 million, respectively. Although we achieved net income of US$3.5 million in the six months ended June 30, 2018, we may not continue to be profitable. As of June 30, 2018, we had an accumulated deficit of US$123.4 million. Our future revenue growth and profitability will depend on a variety of factors, many of which are beyond our control. These factors include market acceptance of our products, the effectiveness of our monetization strategy, market competition, macro-economic and regulatory environment. We also expect our costs to increase in the future as we continue to expand our operations internationally and to increase our investments in research and development. As a result, we may continue to generate net losses and negative cash flows from operations for the foreseeable future.

Our advertising services may display advertisements when our products are in use, or insert promoted marketing messages into users' feeds, which may negatively affect user experience and may lead to a decline in user engagement and, in turn, a reduction in revenues generated from our advertising services.

        We primarily generate revenues by distributing advertisements to targeted audience through our products. Advertisements are displayed in various formats when users launch or exit our products, in our theme stores or in-app stores, and in customized news feeds, among others. See "Business—Monetization." It is important for us to balance the frequency, prominence, size and content of advertisements that we display against ensuring a favorable user experience of our products. If our users find the advertisements displayed irrelevant, disturbing or negatively affecting their user experience of our products, they may become less engaged or stop using our products altogether. Furthermore, if advertisements contain controversial, false or misleading content, or the marketing messages we display or the products or services we advertise result in negative emotions or associations in our users, the user experience of our products could be diminished, our financial results could suffer and our reputation could be damaged. If we are unable to deliver advertisements in a way that is acceptable or favorable to our users, our users may not maintain the current level of engagement, and our advertising customers may perceive our advertising services as ineffective in generating a

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competitive return for them. As a result, our revenues may decline and our business, financial conditions and operating results may be materially and adversely affected.

Data privacy concerns relating to our products and current practices may, particularly in light of increased regulatory scrutiny of and user expectations regarding the processing, collection, use, storage, dissemination, transfer and disposal of user data, require changes to our business practices and may result in declines in user growth or engagement, increased costs of operations and threats of lawsuits, enforcement actions and related liabilities, including financial penalties.

        Recently, companies' practices regarding collection, use, retention, transfer, disclosure and security of user data have been, and continue to be, the subject of enhanced regulations and increased public scrutiny. The regulatory frameworks regarding privacy issues in many jurisdictions are constantly evolving and can be subject to significant changes from time to time, and therefore we may not be able to comprehensively assess the scope and extent of our compliance responsibility at a global level. Moreover, certain of our users, particularly those in the United States and Europe, may have strong expectations for the level of privacy afforded to their personal data and the content of their communications. Further, the developing requirements around clear and prominent privacy notices (including in the context of obtaining informed and specific consent to the collection and processing of personal data, if applicable) can potentially deter users from consenting to certain uses of their personal information. In general, negative publicity of us or our industry regarding actual or perceived violations of our users' privacy-related rights may also impair users' trust in our privacy practices and make them reluctant to give their consent to share their data with us.

        Many jurisdictions, including China and the U.S., continue to consider the need for greater regulation or reform to the existing regulatory framework. In the U.S., all 50 states have now passed laws to regulate the actions that a business must take in the event of a data breach, such as prompt disclosure and notification to affected users and regulatory authorities. In addition to the data breach notification laws, some states have also enacted statutes and rules requiring businesses to reasonably protect certain types of personal information they hold or to otherwise comply with certain specified data security requirements for personal information. Additionally, the U.S. federal and state governments will likely continue to consider the need for greater regulation aimed at restricting certain uses of personal data for targeted advertising. In the European Union, or EU, the General Data Protection Regulation, or GDPR, which came into effect on May 25, 2018, increased our burden of regulatory compliance and requires us to change certain of our privacy and data security practices in order to achieve compliance. The GDPR implements more stringent operational requirements for processors and controllers of personal data, including, for example, requiring expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements, and higher standards for data controllers to demonstrate that they have obtained either valid consent or have another legal basis in place to justify their data processing activities. The GDPR further provides that EU member states may make their own additional laws and regulations in relation to certain data processing activities, which could further limit our ability to use and share personal data and could require localized changes to our operating model. Under the GDPR, fines of up to €20 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, may be assessed for non-compliance, which significantly increases our potential financial exposure for non-compliance. Since the GDPR only came into effect recently, the potential risks associated with non-compliance therewith are uniquely difficult to predict. Finally, in China, the PRC Cybersecurity Law, which became effective in June 2017, leaves substantial uncertainty as to the circumstances and standard under which the law would apply and violations would be found. See "Regulation—Regulations Relating to Personal Privacy and Data Protection."

        Outside of the U.S. and the EU, many jurisdictions have adopted or are adopting new data privacy and data protection laws that may impose further onerous compliance requirements, such as data

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localization, which prohibits companies from storing data relating to resident individuals in data centers outside the jurisdiction. The proliferation of such laws within jurisdictions and countries in which we operate may result in conflicting and contradictory requirements.

        In order for us to maintain or become compliant with applicable laws as they come into effect, it may require substantial expenditures on resources to continually evaluate our policies and processes and adapt to new requirements that are or become applicable to us. Complying with any additional or new regulatory requirements on a jurisdiction-by-jurisdiction basis would impose significant burdens and costs on our operations or may require us to alter our business practices. While we strive to protect our users' privacy and data security and to comply with material data protection laws and regulations applicable to us, it is possible that our practices are, and will continue to be, inconsistent with certain regulatory requirements. Our international business expansion could be adversely affected if these laws and regulations are interpreted or implemented in a manner that is inconsistent with our current business practices or that requires changes to these practices. In particular, the large amount of user data generated on and collected from our products has been, and will continue to be, critical for our business model, including to enable us to understand our users' interests and demands for content, improve their user experience with our products and services and deliver targeted advertising. Therefore, if these laws and regulations materially limit our ability to collect and use our users' data, our ability to continue our current operations without modification, develop new services or features of the products and expand our user base will be impaired. Any failure or perceived failure by us to comply with applicable data privacy laws and regulations, including in relation to the collection of necessary end-user consents and providing end-users with sufficient information with respect to our use of their personal data may result in fines and penalties imposed by regulators, governmental enforcement actions (including enforcement orders requiring us to cease collecting or processing data in a certain way), litigation and/or adverse publicity. Proceedings against us—regulatory, civil or otherwise—could force us to spend money and devote resources in the defense or settlement of, and remediation related to, such proceedings. Furthermore, any of the foregoing consequences could damage our reputation and discourage current and potential users from using our mobile applications. In addition, as users' expectations and regulatory attitudes with respect to personal privacy and data security continue to evolve, future regulations on the extent to which personal information and user-generated data can be used by us or shared with third parties may adversely affect our ability to leverage and derive economic value from the data that our users generate and share with us, which may limit our ability to carry out targeted advertising and thereby result in a decline in the mobile advertising revenues upon which our revenues are dependent.

If we fail to prevent security breaches, cyber-attacks or other unauthorized access to our systems or our users' data, we may be exposed to significant consequences, including legal and financial exposure and loss of users, and our reputation, business and operating results may be materially and adversely affected.

        We collect, store, transmit and process a large volume of personal and other sensitive data generated by our users through their interactions with our products. Although we have taken various security measures and adopted robust internal policies to protect our users' personal privacy and data security, we may nevertheless be exposed to risks of security breaches or unauthorized access to or cyber-attacks on our systems or the data we store. Given the size of our user base, and the types and volume of personal data on our systems, we believe that we may be a particularly attractive target for security breaches and cyber-attacks. Our efforts to protect our data may be unsuccessful due to software "bugs", system errors or other technical deficiencies, mistakes or malfeasance of our employees or contractors, vulnerabilities of our vendors and service providers, or other cybersecurity-related vulnerabilities. Any failure to prevent or mitigate security breaches, cyber-attacks or other unauthorized access to our systems or disclosure of our users' data, including personal information, could result in loss or misuse of such data, interruptions to the services we provide, diminished user experience, loss of user confidence and trust in our products, impairment of our network and

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technological infrastructure, and harm to our reputation and business, significant legal and financial exposure and potential lawsuits brought by private individuals or regulators. Although we have developed systems and processes that are designed to prevent and detect security breaches and protect our users' data, we cannot guarantee that such measures will be sufficient defenses against the evolving techniques used to obtain unauthorized access, disable or degrade services or sabotage systems. In addition, as our data centers and servers are dispersed around the world, we may incur significant costs in protecting them against, or remediating, security breaches and cyber-attacks.

We have been and may continue to be subject to notices or complaints alleging our infringement of copyrights and delivery of illegal or inappropriate content through our products, which could lead to suspension or removal of such products from digital distribution platforms, a decrease of our user base, and a significantly adverse impact on our financial results and our reputation.

        In the ordinary course of our business, we and digital distribution platforms, such as Google Play and Apple App Store, have received, and may from time to time in the future receive, notices or complaints from third parties alleging that certain of our products infringe copyrights, deliver illegal, fraudulent, pornographic, violent, bullying or other inappropriate content, or otherwise fail to comply with applicable rules and regulations. Upon receipt of such notices or complaints, those digital distribution platforms may suspend or remove such products from such platforms. The processes for appealing such suspensions and removals with those platforms could be time-consuming, and we cannot guarantee that our appeals will always prevail or that any such suspended or removed application will be made available again. Such suspensions and removals of our products could lead to a decrease of our user base and, if they occur frequently and/or in a large scale, could significantly adversely affect our reputation, business operation and financial performance.

Our products and internal systems rely on software that is highly technical, and if it contains undetected errors or vulnerabilities, our business could be adversely affected.

        Our products and internal systems rely on numerous proprietary and licensed software that is highly technical and complex. In addition, our products and internal systems depend on the ability of certain software to encrypt, store, retrieve, process, and manage large amounts of data. The software on which we rely now or in the future may contain undetected errors, bugs, or vulnerabilities that may not be discovered until after the relevant source code is released and examined. Errors, vulnerabilities, or other design defects within the software on which we rely may result in a negative experience for users of our products, delay product introductions or enhancements, compromise our ability to protect the data of our users and/or our intellectual property or lead to reductions in our ability to provide some or all of our services. In addition, any errors, bugs, vulnerabilities, or defects discovered in the software on which we rely, and any associated degradations or interruptions of service, could result in damage to our reputation, loss of users, loss of revenue, or liability for damages, any of which could materially and adversely affect our business and operating results.

The industry in which our business operates is highly competitive. If we fail to compete effectively, our business will suffer.

        We face intense competition in every aspect of our business, including competition for users, usage time, advertising customers, technology, and highly-skilled employees. Our TouchPal Smart Input competes primarily with default mobile device input methods, including Gboard, Samsung mobile keyboard and Apple's default mobile device input method, as well as other alternative input method products for mobile devices that offer similar language prediction capabilities and other smart features, such as Microsoft/SwiftKey. Our other global portfolio applications such as HiFit and AhaCall compete with applications of the same or a similar kind. Talia may face competition from other intelligent personal assistant products such as Apple's Siri, Amazon's Alexa, Microsoft's Cortana and Google's

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Assistant if we further develop Talia into an independent mobile application not integrated with TouchPal Smart Input. In addition, we compete with all major internet companies for user attention and advertising spend.

        We compete with other developers of mobile applications for users, usage time and advertising customers on the basis of quality, features, availability and ease of use of products and services, and the number and quality of advertising distribution channels. We also compete with other developers for talented employees with technological expertise that is crucial for the sustained development of successful products and services. Our competitors may operate with more efficient business models and cost structures. They may prove more adaptable to new technological and other market developments than we are. Many of our competitors are larger and more established companies and may have significantly more financial, technological, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sales and support of their products and services. They may allow our competitors to respond to new or emerging technologies and changes in market requirements better than we can. Our competitors may also develop products, features, or services that are similar to ours or that achieve greater market acceptance. These products, features, and services may undertake more far-reaching and successful product development efforts or marketing campaigns. As a result, our competitors may acquire and engage users at the expense of our user growth or engagement, which may seriously harm our business. If we cannot effectively compete, our user engagement may decrease, which could make us less attractive to users, advertisers and seriously harm our business and have a material and adverse impact on our business, operating results and growth potential.

Our mobile applications are mainly designed for Android operating systems. A decrease in the popularity of Android operating systems may materially and adversely affect our business and operating results.

        Our business is dependent on the compatibility of our products with popular mobile operating systems that we do not control, including Android and iOS operating systems. Most of our mobile applications are designed to operate on the Android operating system. Any significant decline in the overall popularity of the Android ecosystem or Android devices could materially and adversely affect the demand for, and revenues generated from, our mobile applications. There can be no assurance that the Android ecosystem will grow in the future and at what growth rate. Another operating system for mobile devices may replace Android and decrease its popularity, especially considering the constantly evolving nature of the mobile internet industry. To the extent that our mobile applications continue to mainly support Android devices, our mobile business could be vulnerable to any decline in popularity of the Android operating system or Android devices. In addition, any changes, bugs, or technical issues in Android operating system may degrade our products' functionality and limit our ability to deliver, target, or measure the effectiveness of ads, or to charge fees related to our delivery of ads, which may have an adverse impact on our business and operating results.

User growth and engagement depend upon effective interoperation of our products with mobile devices, operating systems and standards that we do not control.

        Our products and services are available across a variety of mobile devices and mobile operating systems. In order to deliver high quality products and services to a broad spectrum of mobile internet users, it is important for our products and services to work well with a range of mobile devices, operating systems, networks and standards that we do not control, including Android and iOS operating systems. Any changes in such devices or operating systems that degrade the functionality of our products and services would affect our users' experience with our products. If we fail to develop relationships with the key participants in the mobile internet industry and mobile advertising industry, or if we fail to maintain the effective interoperation of our products and services with these mobile

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devices, operating systems, networks and standards, our user growth and user engagement could be harmed, and our business and operating results could be adversely affected.

We may be held liable for information or content displayed on, distributed by, retrieved from or linked to the mobile applications integrated into our products, which may adversely impact our brand image and materially and adversely affect our business and operating results.

        We may display third-party content, such as videos, pictures and other works, on our mobile applications without the explicit consent from such third party, and we may further explore market opportunities in the content-related business. Our users may misuse our products to disseminate content that contains inappropriate, fraudulent or illegal information or that infringes the intellectual property rights of third parties. We have implemented control measures and procedures to detect and block inappropriate, fraudulent or illegal content or activities uploaded to or conducted through our products, particularly those that violate our user agreements or applicable laws and regulations. However, such procedures may not be sufficient to block all such content uploads or activities in real time due to the large volume of user activities and the real-time nature of certain content streams, such as our live video function. Despite the procedures and measures we have taken, if the content displayed on our products are found to be fraudulent, illegal or inappropriate, we may suffer a loss of users and damage to our reputation. In response to any allegations of fraudulent, illegal or inappropriate activities conducted through our mobile applications or any negative media coverage about us, government authorities may intervene and hold us liable for non-compliance with laws and regulations concerning the dissemination of information on the internet and subject us to administrative penalties or other sanctions, such as requiring us to restrict or discontinue certain features and services provided by our mobile applications or to temporarily or permanently disable such mobile applications. If any of such events occurs, our reputation and business may suffer and our operating results may be materially and adversely affected.

We may not be able to prevent unauthorized use of our intellectual property, which could harm our business and competitive position.

        We regard our patents, copyrights, trademarks, trade secrets, and other intellectual property as critical to our business. Unauthorized use of our intellectual property by third parties may adversely affect our business and reputation. We rely on a combination of intellectual property laws and contractual arrangements to protect our proprietary rights. It is often difficult to register, maintain, and enforce intellectual property rights in countries with less developed regulatory regimes or inconsistent and unreliable enforcement mechanisms. Sometimes laws and regulations are subject to interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. In addition, our contractual agreements may be breached by our counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China and other jurisdictions in which we operate. Detecting and preventing any unauthorized use of our intellectual property is difficult and costly and the steps we have taken may be inadequate to prevent infringement or misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors.

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We may be subject to intellectual property infringement lawsuits which could be expensive to defend and may result in our payment of substantial damages or licensing fees, disruption to our product and service offerings, and reputational harm.

        The success of our business relies on the quality of our products, which in turn depends on the underlying software and related technology, including big data analytics and AI technology. The protection of such software and related technologies primarily relies on intellectual property rights including patents and trade secrets. Meanwhile, for the purpose of our business expansion, we may from time to time display third-party content, such as videos, pictures and other works, on our mobile applications without acquiring the explicit consent from such third party. Third parties, including our competitors, may assert claims against us for alleged infringements of their patents, copyrights, trademarks, trade secrets and internet content. The lengthy application procedures of software-related patents may lead to uncertainty on our intellectual property rights to our self-developed software because it increases the likelihood that there are pending patent applications whose priority dates pre-date the development of our own software that is identical or substantially similar to the software subject of the pending patent application. We have been subject to patent disputes, and expect that we may increasingly be subject to patent infringement claims as our products and monetization model expand in market share, scope and complexity.

        Intellectual property claims against us, whether meritorious or not, are time consuming and costly to resolve, could divert management attention away from our daily business, could require changes of the way we do business or develop our products, could require us to enter into costly royalty or licensing agreements or to make substantial payments to settle claims or satisfy judgments, and could require us to cease conducting certain operations or offering certain products in certain areas or generally. We do not conduct comprehensive patent searches to determine whether the technologies used in our products infringe upon patents held by others. In addition, product development is inherently uncertain in a rapidly evolving technological environment in which there may be numerous patent applications pending, many of which are confidential when filed, with regard to similar technologies. While we believe that our products do not infringe in any material respect upon any intellectual property rights of third parties, we cannot be certain that this is the case.

        In addition, in any potential dispute involving our patents or other intellectual property, our advertising customers and business partners could also become the target of litigation. We have certain contractual obligations to indemnify our advertising customers and the mobile device manufactures that pre-install our products on their devices for liability that they may incur based on third-party claims of intellectual property infringement for the use of our products or technology. Many of our collaboration contracts with mobile device manufacturers provide for a cap on our indemnity obligations. In addition, in the event of any such claims, our advertising customers or business partners may decide not to use our products in the future, which could harm our financial condition and operating results. For example, one mobile device manufacturer that pre-installs input methods on its mobile devices, including our TouchPal Smart Input under a license agreement with us, was sued by a multinational company in the United States in 2015. The plaintiff alleged that, among others, certain feature of the input methods installed on the mobile devices produced and sold by the defendant infringed on the plaintiff's input-related patent. In late 2016, a third party requested that the Patent Trial and Appeal Board of the United States Patent and Trademark Office, or PTAB, to initiate inter partes review (IPR) proceedings against the input-related patent claim of the plaintiff and to invalidate such patent. The IPR request has been granted by the PTAB in 2016 and another third party joined the IPR proceedings as a petitioner in 2017. The patent litigation and the IPR proceedings remain at the preliminary stages. If both the PTAB and the court decide in favor of the plaintiff, the defendant may be ordered to pay damages to compensate the plaintiff for infringement on this patent, and therefore we may have to compensate the losses suffered by the defendant pursuant to our indemnity obligations under our license agreement with the defendant. In addition, if the plaintiff succeeds in its claim, we

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would need to obtain its license for using the patented technology and to pay license fees, or remove the related feature from our TouchPal Smart Input, either of which may adversely affect our business and financial conditions.

        Finally, we may also face infringement claims from the employees, consultants, agents and outside organizations we have engaged to develop our technology. While we have sought to protect ourselves against such claims through contractual means, there can be no assurance that such contractual provisions are adequate, and any of these parties might claim full or partial ownership of the intellectual property in the technology that they were engaged to develop for us.

If we fail to obtain or maintain the requisite licenses and approvals, or otherwise fail to comply with the rules and regulation s applicable to our business operations in and outside China, or if we are required to apply for new licenses and approvals which are time-consuming or costly to obtain, our business and operating results may be materially and adversely affected.

        We are incorporated in the Cayman Islands and our corporate affairs are governed by our memorandum and articles of association, the Companies Law (2018 Revision) of the Cayman Islands and the common law of the Cayman Islands. We primarily conduct our business through our subsidiaries and consolidated affiliated entities incorporated in Hong Kong and mainland China. However, because our products and services are used worldwide, one or more other jurisdictions may claim that we are required to comply with their laws based on the location of our offices and staff, commercial operations, equipment or our users.

        The internet industry, including the mobile internet industry, is highly regulated in China. Our VIEs are required to obtain and maintain applicable licenses and approvals from different regulatory authorities in order to provide their current services to our users. In addition to PRC laws and regulations, we face additional regulatory risks and costs outside of China as a substantial portion of our active users and revenues are from markets outside of China. We are subject to a variety of laws and regulations in China and foreign jurisdictions that involve matters central to our business, including but not limited to privacy and data protection, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, national security, electronic contracts and other communications, competition, consumer protection, telecommunications, taxation, and economic or other trade prohibitions or sanctions. The introduction of new products, services or expansion of our business in certain jurisdictions may subject us to additional laws and regulations. Furthermore, PRC and foreign laws and regulations are constantly evolving and can be subject to significant change from time to time. As a result, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly evolving mobile internet industry in which we operate, and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices. There can be no assurance that we will not be found in violation of any future laws and regulations or violation of any of the laws and regulations currently in effect due to changes in the relevant authorities' implementation or interpretation of such laws and regulations.

        Under the current PRC regulatory scheme, a number of regulatory agencies, including but not limited to the State Administration of Radio and Television (previously known as the State Administration of Press, Publication, Radio, Film and Television), or SART, the Ministry of Culture and Tourism (previously known as the Ministry of Culture), or MCT, the Ministry of Industry and Information Technology, or MIIT, the State Council Information Office, or SCIO, and the Cyberspace Administration of China, jointly regulate all major aspects of the internet industry, including mobile internet businesses. Operators in this industry must obtain various government approvals and licenses for relevant internet or mobile business.

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        The operation of our TouchPal Phonebook in China may require additional licenses and failure to obtain such licenses could subject us to severe penalties. Our TouchPal Phonebook provides VoIP services which enable our users to make calls to other users of this application or other mobile phone devices. We have obtained the value-added telecommunications service business operation license, or VAT License, with a service scope of information services, domestic multiparty communication services, real-time information communication and domestic call center business. According to the PRC Telecommunications Regulations and other relevant laws and regulations, we may be required to obtain a basic telecommunications business service business operating license for our services to facilitate calls between users of the application and other mobile phone devices through internet and telecommunication network. Our TouchPal Phonebook also delivers personalized content to users, including live broadcasting, news and videos. According to the Administrative Provisions for the Internet Audio-Video Program Service jointly issued by SART and MIIT in 2007 and amended in August 2015, we may be required to obtain the internet audio-video program transmission license for displaying videos in TouchPal Phonebook. According to the Administrative Regulations for Internet News Information Services promulgated by the CAC in 2017, we may be required to obtain the internet news information service license for dissemination of political and other news. In addition, according to the Provisional Regulations for the Administration of Online Culture, or the Online Culture Regulations, promulgated by the Ministry of Culture and Tourism of the PRC in 2011, Shanghai Chubao, which operates our live broadcasting business on the TouchPal Phonebook, may be required to update its online culture operating permit to include the operation of live broadcasting business. We intend to transfer our live broadcasting business in the near future from Shanghai Chubao to one of our VIEs which holds an online culture operating permit covering the operation of live broadcasting business. If we fail to obtain or maintain any of the required licenses or approvals, make any necessary filings, fail to complete the intended live broadcasting business transfer, or otherwise fail to comply with the applicable laws and regulations, we may be subject to various penalties, such as confiscation of revenues that were generated through the unlicensed internet or mobile activities, the imposition of fines and the discontinuation or restriction of our operations. Any such penalties may disrupt our business operations and materially and adversely affect our business, financial condition and operating results.

        Our international VoIP application, AhaCall, may be subject to laws, regulations and policies related to internet communications of multiple jurisdictions. These laws, regulations and policies may not specifically address the issues related to internet and its related technologies, and their interpretation and application remain largely uncertain. The laws, regulations and policies in certain countries may restrict the use of VoIP products, block access to such products or impose extensive regulatory requirements on operations of such products. We cannot be certain that we are currently in compliance with regulatory or legal requirements in the numerous countries in which AhaCall is available for download and use. Regulators may disagree with our interpretations of existing laws or regulations or the applicability of such laws or regulations to our business, or they may alter their view of the products and services we provide, due to a change in laws or regulations or a change in the interpretation of existing laws or regulations or otherwise. Our failure to comply with existing or future regulatory requirements could materially and adversely affect our business, financial condition and operating results.

Some of our mobile applications contain open source software, which may pose risks to our proprietary software.

        We use open source software in our products and services and expect to continue to use open source software in the future. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to sell or distribute our mobile applications. Additionally, we may from time to time face threats or claims from third parties

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claiming ownership of, or demanding release of, the alleged open source software or derivative works we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These threats or claims could result in litigation and could require us to make our source code freely available, purchase a costly license or cease offering the implicated mobile applications unless and until we can re-engineer them to avoid infringement. Such a re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. In addition to risks related to license requirements, our use of certain open source software may lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Additionally, because any software source code we contribute to open source projects is publicly available, our ability to protect our intellectual property rights with respect to such software source code may be limited or lost entirely, and we are unable to prevent our competitors or others from using such contributed software source code. Any of these risks could be difficult to eliminate or manage and, if not addressed, could adversely affect our business, financial condition and operating results.

Our business depends on a number of key employees, including our executive officers and other employees with key technical skills and knowledge. If we fail to hire, retain, or motivate our key employees, our business and operating results may be materially and adversely affected.

        We depend on the continued contributions of our executive officers and other key employees, including those with key technological expertise, many of whom are difficult to replace. Any loss of the services of any of our senior management or other key employees could harm our business. Competition for qualified employees in and outside China is intense. Some of the companies with which we compete for experienced employees may have greater resources than we do and may be able to offer more attractive terms of employment. Our future success is dependent on our ability to attract a significant number of qualified employees and retain our existing key employees. If our key employees cease to work for us, our business may be materially and adversely affected and we may incur additional expenses to recruit, train and retain qualified personnel to replace them.

        Although we have entered into confidentiality and non-compete agreements with our key employees, our key employees may join our competitors or form a competing business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all. We commit significant time and other resources to training our employees, which increases their value to competitors if they subsequently leave us for our competitors.

Our failure to effectively manage our growth or implement our business strategies may harm our business and operating results.

        We have experienced rapid growth in the number of active users, and we plan to continue to expand our product offerings in the global market. Managing our growth requires allocation of valuable management time and resources, and significant expenditures. As part of our strategy, we intend to continue making investments to expand our user base and increase user engagement, strengthen our research and development efforts, including AI and natural language processing technologies, and enhance our ability to deliver highly-targeted content. To execute our business plan and growth strategy, we need to continuously improve our operational and financial systems, procedures and controls, and hire, train, manage and maintain good relations with our employees. Continued growth could also strain our ability to maintain reliable service levels for our users, advertising customers and business partners. We have limited operational experience in managing the business at the current scale and we cannot assure you we will be able to maintain the current level of growth rate in the future.

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From time to time we may conduct strategic investments and acquisitions, which may require significant management attention, disrupt our business and adversely affect our financial conditions.

        We may take advantage of opportunities to invest in or acquire additional businesses, services, assets or technologies. However, we may fail to select appropriate investment or acquisition targets, or we may not be able to negotiate optimal arrangements, including arrangements to finance any acquisitions. Acquisitions and the subsequent integration of new assets and businesses into our own could require significant management attention and could result in a diversion of resources away from our existing business. Investments and acquisitions could result in the use of substantial amounts of cash, increased leverage, potentially dilutive issuances of equity securities, goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential liabilities of the acquired business. In addition, the invested or acquired assets or businesses may not generate the financial results we expect. Moreover, the costs of identifying and consummating these transactions may be significant. In addition to obtaining the necessary corporate governance approvals, we may also need to obtain approvals and licenses from relevant government authorities for the acquisitions and investments to comply with applicable laws and regulations, which could result in increased costs and delays.

We rely on our assumptions and estimates to calculate certain key operating metrics. Any real or perceived inaccuracies in our calculations may harm our reputation and negatively affect our business.

        The numbers of daily and monthly active users of our products are calculated using our internal data that has not been independently verified. While these numbers are based on what we believe to be reasonable calculations for the applicable periods of measurement, there are inherent challenges in accurately measuring usage and user engagement across our large user base. For example, we treat each mobile device or each application on a mobile device as a separate user for purposes of calculating our DAU and MAU, and we may not be able to distinguish individual users who use multiple applications from us or have multiple mobile devices. Accordingly, the calculations of our active users may not accurately reflect the actual number of people using our products.

        We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. Our measures of user growth and user engagement may differ from estimates published by third parties or from similarly titled metrics used by our competitors due to differences in methodology. If our advertising customers, business partners or investors do not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies in our user metrics, our reputation may be harmed and our advertising customers and business partners may be less willing to allocate their spending or resources to our products, which could negatively affect our business and operating results.

Our operating results are subject to seasonal fluctuations due to a number of factors, any of which could adversely affect our business and operating results.

        We are subject to seasonality and other fluctuations in our business. Revenues from our mobile advertising services, which constituted substantially all of our revenues in 2017, are affected by seasonality in advertising spending in both international and China markets. We believe that such seasonality in advertising spending affects our quarterly results, resulting in the significant growth in our mobile advertising revenues between the third and the fourth quarters but a decline from the fourth quarter to the next quarter. Thus, our operating results for one or more future quarters or years may fluctuate substantially or fall below the expectations of securities analysts and investors. In such event, the trading price of the ADSs may fluctuate significantly.

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The successful operation of our business depends upon the performance and reliability of the internet infrastructure in China and in other countries as well as the safety of our network and infrastructure.

        Our growth and expansion will depend in part on the reliability of state-owned telecommunications services providers in China and similar providers in other countries in maintaining and expanding internet and telecommunications infrastructure, standards, protocols, and complementary products and services.

        Almost all access to the internet in China is offered through China Mobile, China Unicom and China Telecom, which are under the administrative control and regulatory supervision of the MIIT. We rely on the internet infrastructure of China Mobile, China Unicom, and China Telecom to provide bandwidth and transmit data. Although the Chinese government has announced plans to develop China's national information infrastructure, this infrastructure may not be developed in time or at all, and the existing internet infrastructure in China may not be able to support the continued growth of internet usage. In addition, it is unlikely that we will have access to alternative networks and services on a timely basis, if at all, in the event of any infrastructure disruption or failure.

Users of our mobile applications may employ existing or new technologies to block advertisements placed by us, which may limit our ability to generate revenues from our advertising services.

        Existing or new technologies that can disable the display of our advertisements may impair the growth of our mobile advertising business. Most of our revenues are derived from fees paid to us by advertising exchange customers based on the effective price per impression, which is impacted by the number of our users' valid clicks, conversions, impressions delivered or other measurable results. If technologies capable of blocking advertisements on our products are adopted by a significant number of our users, we may not be able to continue delivering such advertisements to our users and our revenues may decrease. In addition, advertisers may choose not to advertise on or through our products in light of the perceived use by our users of advertisement-blocking measures, which may adversely affect our business and growth prospects.

If we fail to detect click-through fraud, we could lose the confidence of our advertisers and our revenues may decline as a result.

        Our business is exposed to the risk of click-through fraud on our mobile applications. Click-through fraud occurs when a person clicks an advertisement displayed by us for a reason other than to view the underlying content of such advertisement. If we fail to detect significant fraudulent click-throughs or otherwise are unable to prevent significant fraudulent activity, the affected advertisers may experience a reduced return on their investment in our mobile advertising services and may lose confidence in the integrity of our systems. As a result, we may have to issue refunds to our advertisers and we may be unable to retain existing advertising customers and attract new advertising customers for our advertising services, and our mobile advertising revenues may decline. In addition, affected advertisers may commence legal action against us for claims related to click-through fraud. Any such claims or similar claims, regardless of their merit, could be time-consuming and costly for us to defend against and could also adversely affect our brand and operating results.

Our business emphasizes rapid innovation and prioritizes long-term user engagement over short-term financial or operating results. That strategy may produce results that do not align with investors' expectation and our stock price may be negatively affected as a result.

        Our growth depends on our ability to actively develop and launch new and innovative products and services. We intend to quickly adapt our products to changes in market trends and user needs, but we have no control over whether these adaptions will be well received by our users, advertising customers or business partners, and may result in unintended outcomes or consequences. We prioritize long-term

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user engagement over short-term financial results. For example, we monitor how our delivery of advertisements on our products affects our users' experience with the products and we may decide to decrease the number of advertisements placed on our products to ensure our users' satisfaction with our products. This could result in a loss of advertising customers and negatively impact our mobile advertising revenue. Our decisions may not be consistent with the short-term expectations of investors and may not produce the long-term benefits that we expect, in which case the maintenance and growth of our user base and user engagement, our relationships with advertising customers, and our business and operating results could be adversely and materially harmed.

We have granted, and may continue to grant, options, restricted shares units and other types of share-based incentive awards, which may result in increased share-based compensation expenses.

        We adopted a stock incentive plan in 2012 and a share incentive plan in 2018, as amended from time to time, for the purpose of granting share-based compensation awards to our directors, officers, employees and advisors to incentivize their performance and align their interests with ours. Expenses associated with share-based compensation have affected our net income and may reduce our net income in the future, and any additional securities issued pursuant to share-based incentive awards will dilute the ownership interests of our shareholders, including holders of the ADSs. We believe the granting of share-based incentive awards is of significant importance to our ability to attract and retain key employees, and we plan to grant share-based incentive awards in the future. As a result, our share-based compensation expenses may increase, which may have an adverse effect on our results of operations.

If we fail to build, maintain and enhance our brands, or if we incur a disproportionate amount of expenses pursuing this effort, our business, operating results and prospects may be materially and adversely affected.

        We believe that maintaining and enhancing our brand is critical to expanding our user base and number of advertising customers. We also believe that maintaining and enhancing our brand will depend largely on our ability to continue to provide useful, reliable, trustworthy, and innovative products, which we may not be able to do successfully in the future. We will also continue to experience media, legislative, or regulatory scrutiny of our decisions regarding user privacy, content, advertising, and other issues, which may adversely affect our reputation and brands. We also may fail to respond expeditiously to the sharing and uploading of objectionable content on our products and services or objectionable practices by advertising customers, or may fail to otherwise address user concerns, which could erode confidence in our brands. In addition, maintaining and enhancing our brands may require us to make substantial investments and these investments may not be successful. We promote our brand and products through online advertising networks, which primarily include Facebook Ads and Google AdWords. These branding and marketing efforts may not result in increased user traffic in a cost-effective way. If we fail to successfully promote and maintain our brands or if we incur excessive expenses in this effort, our business and financial results may be adversely affected. In addition, any negative publicity in relation to our mobile applications, regardless of its veracity, could harm our brands and reputation and, in turn, our business and financial results.

Pending or future litigation could have a material and adverse impact on our financial condition and operating results.

        We have been, and may continue to be, subject to lawsuits brought by our competitors, individuals, or other entities against us. For example, we may be involved in legal proceedings between us and the mobile device manufactures who had contractual arrangements with us with respect to the pre-installation of our products on their mobile devices. In addition, we have been involved in lawsuits brought by our competitors alleging the infringement of intellectual property from time to time. See "—We may be subject to intellectual property infringement lawsuits which could be expensive to defend

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and may result in our payment of substantial damages or licensing fees, disruption to our product and service offerings and reputational harm."

        Where we can make a reasonable estimate of the liability relating to pending litigation against us and can determine that an adverse liability resulting from such litigation is probable, we record a related contingent liability. As additional information becomes available, we assess the potential liability and revise estimates as appropriate. However, due to the inherent uncertainties relating to litigation, the amount of our estimates may be inaccurate, in which case our financial condition and results of operation may be adversely affected. In addition, the outcomes of actions we institute may not be successful or favorable to us. Lawsuits against us may also generate negative publicity that significantly harms our reputation, which in turn may adversely affect our user base and adverting customer base. In addition to the related cost, managing and defending litigation and related indemnity obligations can significantly divert our management's attention from operating our daily business. We may also need to pay damages or settle lawsuits with substantial amounts of cash, which may adversely affect our cash flow and financial conditions. While we do not believe that any currently pending proceedings are likely to have a material adverse effect on our business, financial condition, results of operations, and cash flows, if there were adverse determinations in legal proceedings against us, we could be required to pay substantial monetary damages or to materially alter our business practices, which could have an adverse effect on our financial condition and results of operations, and cash flows.

If we fail to implement and maintain an effective system of internal control, we may be unable to accurately report our operating results, meet our reporting obligations or prevent fraud.

        Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Our management has not completed an assessment of the effectiveness of our internal control over financial reporting, and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. In auditing our consolidated financial statements for the fiscal years ended December 31, 2016 and 2017, we and our independent registered public accounting firm identified one material weakness and two significant deficiencies in our internal control over financial reporting as well as other control deficiencies as of December 31, 2017, in accordance with the standards established by the Public Company Accounting Oversight Board of the United States.

        The material weakness identified related to the lack of accounting personnel with requisite knowledge of U.S. GAAP and SEC financial reporting requirements, and lack of accounting policies and procedures relating to financial reporting in accordance with U.S. GAAP and SEC financial reporting requirements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Control over Financial Reporting."

        Upon completion of this offering, we will become a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2018. In addition, once we cease to be an "emerging growth company" as such term is defined under the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and

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financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

        During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Generally, if we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.

Non-compliance on the part of third parties with whom we conduct business could disrupt our business and adversely affect our financial conditions and operating results.

        We may be implicated by the non-compliant or improper activities of our users, advertising customers and business partners. For example, we may be involved in litigation related to user-generated content uploaded to our mobile applications. See also "—We may be held liable for information or content displayed on, distributed by, retrieved from or linked to the mobile applications integrated into our products, which may adversely impact our brand image and materially and adversely affect our business and operating results." Similarly, we may also be subject to disputes related to advertisements displayed on our mobile applications. Although we have adopted a comprehensive internal control and screening procedure over the content of advertisements, a third party may find advertisements displaying on our mobile applications improper or illegal, and may take actions against us over such advertisements.

        In addition, we may be impacted by lawsuits against our business partners, such as mobile devices manufacturers that have contractual arrangements with us. Although we have no control over the design, system, network or standard of the manufacturing of smartphones by these business partners, any lawsuits against them claiming infringement of intellectual property and any cessation of handset production resulting from such lawsuits may interrupt our collaborative operations and result in the reduction of our delivery of products and services to potential users.

We lease premises and may not be able to fully control the rental costs, quality, maintenance and our leasehold interest in these premises, nor can we guarantee that we will be able to successfully renew or find suitable premises to replace our existing premises upon expiration of the existing leases.

        We lease all premises used in our operations from third parties and we require the landlords' cooperation to effectively manage the condition of such premises, buildings and facilities. In the event that the condition of the office premises, buildings and facilities deteriorates, or if any or all of our landlords fail to properly maintain and renovate such premises, buildings or facilities in a timely manner or at all, the operation of our offices could be materially and adversely affected. In addition, with respect to our leased premises, at the end of each lease term, we may need to negotiate an extension of the lease when the lease expires. If we are unable to successfully extend or renew our leases upon expiration of the current term on commercially reasonable terms or at all, we may be forced to relocate our offices, or the rental costs may increase significantly.

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        Moreover, certain lessors have not provided us with valid ownership certificates or authorizations of sublease for our leased properties. Under relevant PRC laws and regulations, if the lessors are unable to obtain certificate of title because such real estates were built illegally or failed to pass the inspection, such lease contracts may be recognized as void. In addition, if our lessors are not the owners of the properties and they have not obtained consents from the owners or their lessors or permits from the relevant government authorities, our leases could be invalidated. If this occurs, we may have to renegotiate the leases with owners or parties who have the right to lease the properties, and the terms of the new leases may be less favorable to us.

        As of the date of this prospectus, we are not aware of any material claims or actions being contemplated or initiated by government authorities, property owners or any other third parties with respect to our leasehold interests in or use of such properties. However, we cannot assure you that our use of such leased properties will not be challenged. In the event that our use of properties is successfully challenged, we may be subject to fines and forced to relocate the affected operations. In addition, we may become involved in disputes with the property owners or third parties who otherwise have rights to or interests in our leased properties. We can provide no assurance that we will be able to find suitable replacement sites on terms acceptable to us on a timely basis, or at all, or that we will not be subject to liabilities resulting from third parties' challenges on our use of such properties. As a result, our business operations may be interrupted, and our financial condition and results of operations may be adversely affected.

We have limited business insurance coverage. Any interruption of our business may result in substantial costs to us and the diversion of our resources, which could have an adverse effect on our financial condition and operating results.

        Insurance products available in China currently are not as extensive as those offered in more developed economies. Consistent with customary industry practice in China, our business insurance is limited and we do not carry business liability or disruption insurance to cover our operations. We have determined that the costs of insuring for related risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to obtain or maintain such insurance. Any uninsured damage to our systems or disruption of our business operations could require us to incur substantial costs and divert our resources, which could have an adverse effect on our financial condition and results of operations.

We have not independently verified the accuracy or completeness of data, estimates, and projections in this prospectus that we obtained from third-party sources, and such information involves assumptions and liabilities.

        Certain facts, forecasts, and other statistics contained in this prospectus relating to the industry in which we operate have been derived from various public data sources and industry reports of third-party industry consultants. In deriving the market size of these industries, these industry consultants may have adopted different assumptions and estimates for certain metrics. While we generally believe such reports to be reliable, we have not independently verified the accuracy or completeness of such information. Such reports may not be prepared on a comparable basis or may not be consistent with other sources.

        Industry data and projections involve a number of assumptions and limitations. Our industry data and market share data should be interpreted in light of the industries in which we operate. Any discrepancy in the interpretation of such data could lead to different measurements and projections, and actual results could differ from the projections.

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We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our business operations.

        Our business could be adversely affected by the effects of epidemics. In recent years, there have been breakouts of epidemics in and outside China. Our business operations could be disrupted if any of our employees is suspected of having H1N1 flu, avian flu or another epidemic, since it could require our employees to be quarantined and/or our offices to be disinfected. In addition, our results of operations could be adversely affected to the extent that the outbreak harms the Chinese or global economy or our business environment in particular. We are also vulnerable to natural disasters and other calamities, which may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, and may adversely affect our ability to provide advertising services through our products.

Risks Related to Our Corporate Structure

If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulations on foreign investment in internet and other related businesses, or if these regulations or their interpretation change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

        Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in internet and other related businesses, including the provision of internet information services. Specifically, foreign ownership of an internet information services provider may not exceed 50%. We are a company incorporated in the Cayman Islands and Shanghai Chule (CooTek) Information Technology Co., Ltd., which we refer to as Shanghai Chule or the WFOE, is our wholly-owned PRC subsidiary and therefore is considered as a foreign-invested enterprise. To comply with PRC laws and regulations, we conduct our business in China through our consolidated affiliated entities, including Shanghai Chubao (CooTek) Information Technology Co., Ltd., or Shanghai Chubao, as our major PRC operating entity, and three other PRC domestic entities, based on a series of contractual arrangements by and among Shanghai Chule, our consolidated affiliated entities and their respective shareholders. As a result of these contractual arrangements, we exert control over our consolidated affiliated entities and consolidate or combine their operating results in our financial statements under U.S. GAAP. Our consolidated affiliated entities hold the licenses, approvals and certain key assets that are essential for our business operations.

        In the opinion of our PRC counsel, Junhe LLP, based on its understanding of the relevant PRC laws and regulations, the contractual arrangements among our PRC subsidiary, our consolidated affiliated entities and their respective shareholders are valid, binding and enforceable under the existing PRC laws and regulations. There are, however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. Thus, we cannot assure you that the PRC government will not ultimately take a view contrary to the opinion of our PRC counsel. If we are found in violation of any PRC laws or regulations or if the contractual arrangements among Shanghai Chule, our consolidated affiliated entities and their respective shareholders are determined as illegal or invalid by the PRC court, arbitral tribunal or regulatory authorities, the relevant governmental authorities would have broad discretion in dealing with such violation, including, without limitation:

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        The imposition of any of these penalties may result in a material and adverse effect on our ability to conduct the business. In addition, if the imposition of any of these penalties causes us to lose the rights to direct the activities of our consolidated affiliated entities or the right to receive their economic benefits, we would no longer be able to consolidate our consolidated affiliated entities. We do not believe that any penalties imposed or actions taken by the PRC government would result in the liquidation of our Company, Shanghai Chule, or our consolidated affiliated entities.

We rely on contractual arrangements with our consolidated affiliated entities and their respective shareholders for our operations in China, which may not be as effective in providing operational control as direct ownership.

        Due to the PRC restrictions or prohibitions on foreign ownership of internet and other related businesses in China, we operate our business in China through our consolidated affiliated entities, in which we have no ownership interest. We rely on a series of contractual arrangements with our consolidated affiliated entities and their respective shareholders, including the powers of attorney, to control and operate their business.

        Our ability to control the consolidated affiliated entities depends on the powers of attorney, pursuant to which Shanghai Chule can vote on all matters requiring shareholder approval in our consolidated affiliated entities. We believe these powers of attorney are legally enforceable but may not be as effective as direct equity ownership. These contractual arrangements are intended to provide us with effective control over our consolidated affiliated entities and allow us to obtain economic benefits from them. See "Corporate History and Structure—Contractual Arrangements with Our VIEs and Their Respective Shareholders" for more details about these contractual arrangements.

        Although we have been advised by our PRC counsel, Junhe LLP, that the contractual arrangements among our PRC subsidiary, our consolidated affiliated entities and their respective shareholders are valid, binding and enforceable under existing PRC laws and regulations, these contractual arrangements may not be as effective in providing control over our consolidated affiliated entities as direct ownership. If our consolidated affiliated entities or their shareholders fail to perform their respective obligations under the contractual arrangements, we may incur substantial costs and expend substantial resources to enforce our rights. All of these contractual arrangements are governed by and interpreted in accordance with PRC laws, and disputes arising from these contractual arrangements will be resolved through arbitration in China. Such disputes do not include claims arising under the United States federal securities laws and therefore these arbitration provisions do not prevent you from pursuing claims arising under the United States federal securities laws. However, the legal system in China, particularly as it relates to arbitration proceedings, is not as developed as in other jurisdictions, such as the United States. See "—Risks Related to Doing Business in China—Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us." There are very few precedents and little official guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of arbitration should legal action become necessary. These uncertainties could limit our ability to enforce these contractual arrangements. In addition, arbitration awards are final and can only be enforced in PRC courts through arbitration award recognition proceedings, which could cause additional expenses and delays. In the event we are unable to enforce these contractual arrangements or we experience significant delays or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our affiliated entities and may lose control over the assets owned by our

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consolidated affiliated entities. As a result, we may be unable to consolidate our consolidated affiliated entities in our consolidated financial statements, our ability to conduct our business may be negatively affected, and our business operations could be severely disrupted, which could materially and adversely affect our results of operations and financial condition.

We may lose the ability to use and maintain the benefit of assets held by our consolidated affiliated entities that are important to the operation of our business if our consolidated affiliated entities declare bankruptcy or become subject to a dissolution or liquidation proceeding.

        Our consolidated affiliated entities hold certain assets that are important to our business operations, including the VAT License concerning information services, domestic multiparty communication services, real-time information communication and domestic call center services and the Online Culture Operating Permit. Under our contractual arrangements, the shareholders of our consolidated affiliated entities may not voluntarily liquidate our consolidated affiliated entities or approve them to sell, transfer, mortgage or dispose of their assets or legal or beneficial interests exceeding certain threshold in the business in any manner without our prior consent. However, in the event that the shareholders breach this obligation and voluntarily liquidate our consolidated affiliated entities, or our consolidated affiliated entities declare bankruptcy, or all or part of their assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business operations, which could materially and adversely affect our business, financial condition and results of operations. Furthermore, if our consolidated affiliated entities undergo a voluntary or involuntary liquidation proceeding, their shareholders or unrelated third-party creditors may claim rights to some or all of their assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

Contractual arrangements we have entered into with our consolidated affiliated entities and their respective shareholders may be subject to scrutiny by the PRC tax authorities. A finding that we owe additional taxes could significantly reduce our consolidated net income and the value of your investment.

        Pursuant to applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We may be subject to adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among our PRC subsidiary, our consolidated affiliated entities and their shareholders are not on an arm's length basis and therefore constitute favorable transfer pricing. As a result, the PRC tax authorities could require that our consolidated affiliated entities adjust its taxable income upward for PRC tax purposes. Such an adjustment could adversely affect us by increasing our consolidated affiliated entities' tax expenses without reducing the tax expenses of our PRC subsidiary, subjecting our consolidated affiliated entities to late payment fees and other penalties for under-payment of taxes, and resulting in our PRC subsidiary's loss of its preferential tax treatment. Our consolidated results of operations may be adversely affected if our consolidated affiliated entities' tax liabilities increase or if it is subject to late payment fees or other penalties.

If the chops of our PRC subsidiary, our consolidated affiliated entities, are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.

        In China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiary, our consolidated affiliated entities are generally held securely by personnel designated or approved by us in accordance with our internal control

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procedures. To the extent those chops are not kept safe, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so.

The shareholders of our consolidated affiliated entities may have potential conflicts of interest with us, which may materially and adversely affect our business.

        The shareholders of our major consolidated affiliated entities include Karl Kan Zhang, Susan Qiaoling Li, Michael Jialiang Wang, Jim Jian Wang and Haiyan Zhu. Karl Kan Zhang, Susan Qiaoling Li, Michael Jialiang Wang and Jim Jian Wang are our co-founders, directors and executive officers. Haiyan Zhu is one of our early investors. In addition to these five individuals, Qiming Century (HK) Limited, Orange Capital Management and Qualcomm International, Inc are also the shareholders of Shanghai Hanxiang (CooTek) Information Technology Co., Ltd., one of our consolidated affiliated entities which has ceased business operations. Conflicts of interest may arise between the roles of these persons as shareholders, directors or officers of our company and as shareholders of our consolidated affiliated entities. We rely on these individuals to abide by the laws of the Cayman Islands, which provide that our directors and officers owe a fiduciary duty to our company to act in good faith and in the best interest of our company and not to use their positions for personal gain. The shareholders of our consolidated affiliated entities have executed powers of attorney to appoint Shanghai Chule, our PRC subsidiary, or a person designated by Shanghai Chule to vote on their behalf and exercise voting rights as shareholders of our consolidated affiliated entities. We cannot assure you that when conflicts arise, shareholders of our consolidated affiliated entities will act in the best interest of our Company or that conflicts will be resolved in our favor. If we cannot resolve any conflicts of interest or disputes between us and these shareholders, we would have to rely on legal proceedings, which may be expensive, time-consuming and disruptive to our operations. There is also substantial uncertainty as to the outcome of any such legal proceedings.

We may rely on dividends paid by our PRC subsidiary to fund cash and financing requirements. Any limitation on the ability of our PRC subsidiary to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares.

        We are a holding company, and we may rely on dividends to be paid by our PRC subsidiary for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to the holders of the ADSs and our ordinary shares and service any debt we may incur. If our PRC subsidiary incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us.

        Under PRC laws and regulations, our wholly-owned subsidiary in the PRC, Shanghai Chule, may pay dividends only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its after-tax profits each year, after making up previous years' accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. At the discretion of the board of director of the wholly foreign-owned enterprise, it may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. Any limitation on the ability of our wholly-owned PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

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Substantial uncertainties exist with respect to the enactment timetable and final content of a draft new PRC Foreign Investment Law and how it may impact the viability of our current corporate structure and business operations.

        In January 2015, the Ministry of Commerce of the PRC, or the MOFCOM, published a discussion draft of the Foreign Investment Law for public review and comments. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company should be treated as an FIE. It specifically provides that entities established in China (without direct foreign equity ownership) but "controlled" by foreign investors, through contract or trust for example, will be treated as FIEs. Once an entity falls within the definition of FIE, it may be subject to foreign investment "restrictions" or "prohibitions" set forth in a "negative list" to be separately issued by the State Council later. If an FIE proposes to conduct business in an industry subject to foreign investment "restrictions" in the "negative list," the FIE must go through a MOFCOM pre-approval process.

        Under the draft Foreign Investment Law, variable interest entities, or VIEs, that are controlled via contractual arrangements would be deemed as FIEs if they are ultimately "controlled" by foreign investors, and any of their operations in the industry categories included in the "negative list" without MOFCOM pre-approval may be considered illegal. Conversely, for any companies with a VIE structure engaged in a "restricted" business included in the "negative list," the VIE structure may be deemed legitimate if it is ultimately controlled by PRC nationals. The draft Foreign Investment Law is not specific on what will happen to companies with an existing VIE structure.

        The internet content service, internet audio-visual program services and online culture activities that we conduct through our consolidated affiliated entities, which are our VIEs, are subject to foreign investment restrictions set forth in the Guidance Catalogue of Industries for Foreign Investment (2017 Revision) issued by the MOFCOM and the National Development and Reform Commission, or the Catalogue. It is unclear whether the new "negative list" under the draft Foreign Investment Law will be different from the relevant categories in the Catalogue. Substantial uncertainties exist with respect to the enactment timetable and final content of the draft Foreign Investment Law. To date, there is no timetable for the enactment of the draft Foreign Investment Law. If the enacted version of the Foreign Investment Law and the final "negative list" mandate further actions to be taken by us, such as a MOFCOM pre-approval process, there is no assurance that we can obtain such pre-approval on a timely basis, or at all.

Risks Related to Doing Business in China

Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.

        The PRC legal system is based on written statutes and court decisions have limited precedential value. The PRC legal system evolves rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties.

        From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC judicial and administrative authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of a judicial or administrative proceeding than in more developed legal systems. Furthermore, the PRC legal system is based, in part, on government policies and internal rules, some of which are not published in a timely manner, or at all, but which may have retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could adversely affect our business and impede our ability to continue our operations.

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Content posted or displayed on our platform may be found objectionable by PRC regulatory authorities and may subject us to penalties and other severe consequences.

        The PRC government has adopted regulations governing internet and wireless access and the distribution of information over the internet and wireless telecommunication networks. Under these regulations, internet content providers and internet publishers are prohibited from posting or displaying over the internet or wireless networks content that, among other things, violates PRC laws and regulations, impairs the national dignity of China or the public interest, or is obscene, superstitious, fraudulent or defamatory. Furthermore, internet content providers are also prohibited from displaying content that may be deemed by relevant government authorities as "socially destabilizing" or leaking "state secrets" of the PRC. Failure to comply with these requirements may result in the revocation of licenses to provide internet content or other licenses, the closure of the concerned platforms and reputational harm. The operator may also be held liable for any censored information displayed on or linked to their platform. For a detailed discussion, see "Regulation—Regulations Relating to Cyber Security."

        We operate one mobile application, TouchPal Phonebook, in China, which provide VoIP services as well as social media functions. We have implemented procedures to monitor the content displayed on our products in order to comply with relevant laws and regulations. However, it may not be possible to determine in all cases the types of content that could result in our liability as a distributor of such content and, if any of the content posted or displayed on our products is deemed by the PRC government to violate any content restrictions, we would not be able to continue to display such content and could become subject to penalties, including confiscation of income, fines, suspension of business and revocation of required licenses, which could materially and adversely affect our business, financial condition and results of operations.

        We may also be subject to potential liability for any unlawful actions by our users on our products. It may be difficult to determine the type of content or actions that may result in liability to us and, if we are found to be liable, we may be prevented from operating our business in China. Moreover, the costs of compliance with these regulations may continue to increase as a result of more content being made available by an increasing number of users of our platform, which may adversely affect our results of operations. Although we have adopted internal procedures to monitor content and to remove offending content once we become aware of any potential or alleged violation, we may not be able to identify all the content that may violate relevant laws and regulations or third-party intellectual property rights. Even if we manage to identify and remove offensive content, we may still be held liable. As of the date of this prospectus, we have not received government sanctions in connection with content posted on our platform. However, we cannot assure you that our business and operations will be immune from government actions or sanctions in the future. To the extent that PRC regulatory authorities find any content displayed on our platform objectionable, they may require us to limit or eliminate the dissemination of such content on our platform in the form of take-down orders or otherwise. In addition, these laws and regulations are subject to interpretation by the relevant authorities, and it may not be possible to determine in all cases the types of content that could result in our liability as a platform operator.

Advertisements shown on our platform may subject us to penalties and other administrative actions.

        Under PRC advertising laws and regulations, we are obligated to monitor the advertising content shown on our platform to ensure that such content is true and accurate and in full compliance with applicable laws and regulations. In addition, where a special government review is required for specific types of advertisements prior to internet posting, such as advertisements relating to pharmaceuticals, medical instruments, agrochemicals and veterinary pharmaceuticals, we are obligated to confirm that such review has been performed and approval has been obtained. Violation of these laws and regulations may subject us to penalties, including fines, confiscation of our advertising income, orders

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to cease dissemination of the advertisements and orders to publish an announcement correcting the misleading information. In circumstances involving serious violations by us, PRC governmental authorities may force us to terminate our advertising operations or revoke our licenses.

        While we have made significant efforts to ensure that the advertisements shown on our platform are in full compliance with applicable PRC laws and regulations, we cannot assure you that all the content contained in such advertisements or offers is true and accurate as required by the advertising laws and regulations, especially given the uncertainty in the interpretation of these PRC laws and regulations. If we are found to be in violation of applicable PRC advertising laws and regulations, we may be subject to penalties and our reputation may be harmed, which may negatively affect our business, financial condition, and results of operations and prospects.

Adverse changes in economic and political policies of the PRC government could have a material and adverse effect on overall economic growth in China, which could materially and adversely affect our business.

        Our principal offices are based in China. Accordingly, our operating results, financial condition and prospects are influenced by economic, political and legal developments in China. Economic reforms begun in the late 1970s have resulted in significant economic growth. However, any economic reform policies or measures in China may from time to time be modified or revised. China's 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 30 years, growth has been uneven across different regions and among different economic sectors. The PRC government exercises significant control over China's economic growth through strategically allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Although the Chinese economy has grown significantly in the past decade, that growth may not continue, as evidenced by the slowing of the growth of the Chinese economy since 2012. Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our services and adversely affect our competitive position.

Under the PRC Enterprise Income Tax Law, we may be classified as a PRC "resident enterprise," which could result in unfavorable tax consequences to us and our shareholders and have a material adverse effect on our results of operations and the value of your investment.

        Under the PRC Enterprise Income Tax Law, or the EIT Law, which became effective in January 2008 and amended in February 2017, an enterprise established outside the PRC with "de facto management bodies" within the PRC is considered a "resident enterprise" for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. In 2009, the State Administration of Taxation, or the SAT, issued the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis of De Facto Management Bodies, or SAT Circular 82, which provides certain specific criteria for determining whether the "de facto management body" of a PRC-controlled enterprise that is incorporated offshore is located in China. Further to SAT Circular 82, in 2011, the SAT issued the Administrative Measures for Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident Enterprises (Trial), or SAT Bulletin 45, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 clarified certain issues in the areas of resident status determination, post-determination administration and competent tax authorities' procedures.

        According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered as a PRC tax resident enterprise by virtue of having its

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"de facto management body" in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following conditions are met: (a) the senior management and core management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals, and minutes and files of its board and shareholders' meetings are located or kept in the PRC; and (d) more than half of the enterprise's directors or senior management with voting rights habitually reside in the PRC. SAT Bulletin 45 specifies that when provided with a copy of Chinese tax resident determination certificate from a resident Chinese controlled offshore incorporated enterprise, the payer should not withhold 10% income tax when paying the Chinese-sourced dividends, interest, royalties, etc. to the Chinese controlled offshore incorporated enterprise.

        Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups and not those controlled by PRC individuals or foreigners, the determination criteria set forth therein may reflect the SAT's general position on how the term "de facto management body" could be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners.

        In addition, the SAT issued the Announcement of the State Administration of Taxation on Issues concerning the Determination of Resident Enterprises Based on the Standards of Actual Management Institutions in January 2014 to provide more guidance on the implementation of SAT Circular 82. This bulletin further provides that, among other things, an entity that is classified as a "resident enterprise" in accordance with the circular shall file the application for classifying its status of residential enterprise with the local tax authorities where its main domestic investors are registered. From the year in which the entity is determined to be a "resident enterprise," any dividend, profit and other equity investment gain shall be taxed in accordance with the enterprise income tax law and its implementing rules.

        Although our offshore holding entity is not controlled by PRC enterprises or a PRC enterprise group and our revenues are primarily generated from business operations conducted outside of China, we cannot rule out the possibility that the PRC tax authorities determine that we or any of our non-PRC subsidiaries is a PRC resident enterprise for PRC enterprise income tax purposes, which could subject our Company or any of our non-PRC subsidiaries to PRC tax at a rate of 25% on its world-wide income, which could materially reduce our net income. In addition, we may also be subject to PRC enterprise income tax reporting obligations.

        If the PRC tax authorities determine that our company is a PRC resident enterprise for PRC enterprise income tax purposes, gains realized on the sale or other disposition of ADSs or ordinary shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. Any such tax may reduce the returns on your investment in the ADSs.

There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.

        Under the EIT Law and its implementation rules, the profits of a foreign-invested enterprise generated through operations, which are distributed to its immediate holding company outside China, will be subject to a withholding tax rate of 10.0%. Pursuant to a special arrangement between Hong Kong and China, such rate may be reduced to 5.0% if a Hong Kong resident enterprise owns more than 25.0% of the equity interest in the PRC company. Our current PRC subsidiary is wholly owned by our Hong Kong subsidiary, CooTek HongKong Limited, or CooTek HK. Accordingly, CooTek HK may

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qualify for a 5.0% tax rate in respect of distributions from its PRC subsidiary. Under the Notice of the State Administration of Taxation on Issues regarding the Administration of the Dividend Provision in Tax Treaties promulgated on February 20, 2009, the taxpayer needs to satisfy certain conditions to enjoy the benefits under a tax treaty. These conditions include: (1) the taxpayer must be the beneficial owner of the relevant dividends, and (2) the corporate shareholder to receive dividends from the PRC subsidiary must have continuously met the direct ownership thresholds during the 12 consecutive months preceding the receipt of the dividends. Further, the SAT promulgated the Notice on How to Understand and Recognize the "Beneficial Owner" in Tax Treaties on October 27, 2009, which limits the "beneficial owner" to individuals, enterprises or other organizations normally engaged in substantive operations, and sets forth certain detailed factors in determining the "beneficial owner" status.

        Entitlement to a lower tax rate on dividends according to tax treaties or arrangements between the PRC central government and governments of other countries or regions is subject to SAT Circular 60 which provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. As a result, we cannot assure you that we will be entitled to any preferential withholding tax rate under tax treaties for dividends received from our PRC subsidiary.

We face uncertainty with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC holding companies.

        We face uncertainties regarding the reporting on and consequences of previous private equity financing transactions involving the transfer and exchange of shares in our company by non-resident investors.

        In February 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or SAT Bulletin 7, as amended in 2017. which replaced certain clauses of the Notice of the State Administration of Taxation on Strengthening the Administration of Enterprise Income Tax on Non-resident Enterprises' Equity Transfer Income issued by the SAT in December 2009. Pursuant to this bulletin, an "indirect transfer" of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. According to SAT Bulletin 7, "PRC taxable assets" include assets attributed to an establishment in China, immovable properties located in China, and equity investments in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining whether there is a "reasonable commercial purpose" of the transaction arrangement, features to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consist of direct or indirect investment in China or if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In respect of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC

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establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to the immovable properties located in China or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Where the payor fails to withhold any or sufficient tax, the transferor is required to declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. SAT Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange.

        There is uncertainty as to the application of SAT Bulletin 7. We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our company may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions under SAT Bulletin 7. In 2014, we repurchased certain number of ordinary shares in CooTek (Cayman) Inc. from an existing shareholder for the consideration of US$9.3 million. The existing shareholder undertook to make the necessary tax filings in relation to this repurchase by herself and to indemnify us against any losses arising from the failure to make such tax filings. However, we cannot assure you that, if the existing shareholder fails to make necessary tax filings, the tax authority would not require us to make such tax filings and even subject us to fines. As of the date of this prospectus, we have neither received any notice of warning nor been subject to any penalties or other disciplinary action from the relevant government authorities regarding such tax filing. For transfer of shares in our company by investors that are non-PRC resident enterprises, our PRC subsidiary may be requested to assist in the filing under SAT Bulletin 7. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars.

China's M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

        The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, and other recently adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the National People's Congress in August 2007 and effective in August 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds (i.e., during the previous fiscal year, (i) the total global turnover of all operators participating in the transaction exceeds RMB10 billion and at least two of these operators each had a turnover of more than RMB400 million within China, or (ii) the total turnover within China of all the operators participating in the concentration exceeded RMB2 billion, and at least two of these operators each had a turnover of more than RMB400 million within China) must be cleared by MOFCOM before they can be completed. In addition, in February 2011, the General Office of the State Council promulgated a Notice on

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Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the Circular 6, which officially established a security review system for mergers and acquisitions of domestic enterprises by foreign investors. Further, in August 2011, MOFCOM promulgated the Regulations on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the MOFCOM Security Review Regulations, to implement the Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having "national defense and security" concerns and mergers and acquisitions by which foreign investors may acquire the "de facto control" of domestic enterprises with "national security" concerns. Under the MOFCOM Security Review Regulations, MOFCOM will focus on the substance and actual impact of the transaction when deciding whether a specific merger or acquisition is subject to security review. If MOFCOM decides that a specific merger or acquisition is subject to security review, it will submit it to the Inter-Ministerial Panel, an authority established under the Circular 6 led by the National Development and Reform Commission, or NDRC, and MOFCOM under the leadership of the State Council, to carry out security review. The regulations prohibit foreign investors from bypassing the security review by structuring transactions through trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating that the merging or acquisition of a company engaged in the internet information services, online games, online audio-visual program services and related businesses requires security review, and there is no requirement that acquisitions completed prior to the promulgation of the Security Review Circular are subject to MOFCOM review.

        In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions. It is unclear whether our business would be deemed to be in an industry that raises "national defense and security" or "national security" concerns. However, MOFCOM or other government agencies may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited.

PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiary's ability to increase their registered capital or distribute profits to us or otherwise expose us to liability and penalties under PRC law.

        In July 2014, the SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident's Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaced the Relevant Issues Concerning Foreign Exchange Control on Domestic Residents' Corporate Financing and Roundtrip Investment through Offshore Special Purpose Vehicles, or Circular 75. Circular 37 requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. According to the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment released on February 13, 2015 by the SAFE, local banks will examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment registration, under SAFE Circular 37 from June 1, 2015.

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        If our shareholders who are PRC residents or entities do not complete their registration with the local SAFE branches, our PRC subsidiary may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiary. Moreover, failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.

        Karl Kan Zhang, Susan Qiaoling Li, Michael Jialing Wang, Jim Jian Wang and Haiyan Zhu, who directly or indirectly hold shares in CooTek (Cayman) Inc. and who are PRC residents, have completed the SAFE registration in connection with our financings and have committed to update their registration filings with SAFE under SAFE Circular 75 or Circular 37 when any changes should be registered under SAFE Circular 75 or Circular 37. However, we may not at all times be fully aware or informed of the identities of all our shareholders or beneficial owners that are required to make such registrations, and we cannot compel our beneficial owners to comply with SAFE registration requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents or entities have complied with, and will in the future make or obtain any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiary, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiary's ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

Failure to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

        Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies due to their position as director, senior management or employees of the PRC subsidiaries of the overseas companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. Our directors, executive officers and other employees who are PRC residents and who have been granted options may follow SAFE Circular 37 to apply for the foreign exchange registration before our company becomes an overseas listed company. In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, or the Stock Option Rules. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly listed company or another qualified institution selected by such PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. We and our PRC employees who have been granted stock options will be subject to these regulations upon the completion of this offering. Failure of our PRC stock option holders to complete their SAFE registrations may subject these PRC residents to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary, limit our PRC subsidiary's ability to distribute dividends to us, or otherwise materially adversely affect our business.

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PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of our initial public offering to make loans to our PRC subsidiary and consolidated affiliated entities, or to make additional capital contributions to our PRC subsidiary.

        We are an offshore holding company conducting our operations in China through our PRC subsidiary and consolidated affiliated entities. We may make loans to our PRC subsidiary and consolidated affiliated entities, or we may make additional capital contributions to our PRC subsidiary, or we may establish new PRC subsidiary and make capital contributions to these new PRC subsidiaries, or we may acquire offshore entities with business operations in China in an offshore transaction.

        Most of these ways are subject to PRC regulations and approvals. For example, loans by us to our wholly owned PRC subsidiary to finance its activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE. If we decide to finance our wholly owned PRC subsidiary by means of capital contributions, these capital contributions are subject to the requirement of making necessary filings with the MOFCOM and registration with other governmental authorities in China. Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such loans to our consolidated affiliated entities, which are PRC domestic company. Further, we are not likely to finance the activities of our consolidated affiliated entities by means of capital contributions due to regulatory restrictions relating to foreign investment in PRC domestic enterprises engaged in internet information services, online games, online audio-visual program services and related businesses.

        The SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or SAFE Circular 19, effective in June 2015. According to SAFE Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although SAFE Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in the PRC in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or SAFE Circular 16, effective in June 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from this offering, to our PRC subsidiary, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.

        In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiary or with respect to future capital contributions by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we received from our initial public offering and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

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Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment.

        The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in political and economic conditions in China and by China's foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. Since October 1, 2016, the RMB has joined the International Monetary Fund (IMF)'s basket of currencies that make up the Special Drawing Right (SDR), along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the RMB has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress towards interest rate liberalization and RMB internationalization, the PRC government may in the future announce further changes to the exchange rate system and we cannot assure you that the RMB will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.

        A majority of our costs and a certain percentage of our revenues are denominated in RMB. Any significant depreciation of the RMB may materially adversely affect the value of, and any dividends payable on, our ADSs in U.S. Dollars. To the extent that we need to convert U.S. Dollars we receive from this offering into RMB for our operations, appreciation of the RMB against the U.S. Dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. Dollars for the purpose of paying dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. Dollar against the RMB would have an adverse effect on the U.S. Dollar amount available to us.

The audit report included in this prospectus is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.

        The independent registered public accounting firm that issued the audit report included in this prospectus, as auditors of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are located in the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB.

        Inspections of other firms that the PCAOB has conducted outside the PRC have identified deficiencies in those firms' audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in the PRC prevents the PCAOB from regularly evaluating our auditor's audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

        The inability of the PCAOB to conduct inspections of auditors in the PRC makes it more difficult to evaluate the effectiveness of our auditor's audit procedures or quality control procedures as compared to auditors outside of the PRC that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

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If additional remedial measures are imposed on major PRC-based accounting firms, including our independent registered public accounting firm, our financial statements could be determined not to be in compliance with the SEC requirements.

        Beginning in 2011, the Chinese affiliates of the "big four" accounting firms (including our independent registered public accounting firm) were affected by a conflict between the U.S. and Chinese law. Specifically, for certain U.S. listed companies operating and audited in the PRC, the SEC and the PCAOB sought to obtain access to the audit work papers and related documents of the Chinese affiliates of the "big four" accounting firms. The accounting firms were, however, advised and directed that, under Chinese law, they could not respond directly to the requests of the SEC and the PCAOB and that such requests, and similar requests by foreign regulators for access to such papers in the PRC, had to be channeled through the China Securities Regulatory Commission, or the CSRC.

        In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the "big four" accounting firms (including our independent registered public accounting firm). A first instance trial of these proceedings in July 2013 in the SEC's internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposed penalties on the firms, including a temporary suspension of their right to practice before the SEC. Implementation of the latter penalty was postponed pending review by the SEC Commissioners. On February 6, 2015, before a review by the SEC Commissioners had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the CSRC. The firms will receive matching Section 106 requests, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If the firms fail to follow these procedures and meet certain other specified criteria, the SEC retains the authority to impose a variety of additional remedial measures, including, as appropriate, an automatic six-month bar on a firm's ability to perform certain audit work, commencement of new proceedings against a firm or, in extreme cases, the resumption of the current administrative proceeding against all four firms.

        In the event that the SEC restarts administrative proceedings, depending upon the final outcome, listed companies in the U.S. with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in their financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against the firms may cause investor uncertainty regarding PRC-based, U.S.-listed companies and the market price of their shares may be adversely affected.

        If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our shares from the New York Stock Exchange or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our shares in the U.S.

Risks Related to Our ADSs and This Offering

The trading price of our ADSs is likely to be volatile, which could result in substantial losses to investors.

        The trading price of our ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other mobile internet companies based in China that have listed their securities in the United States. In addition to market and industry factors, the

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price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:

        Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.

        In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management's attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our operating results. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.

        Upon the completion of this offering, we will create a dual-class share structure such that our ordinary shares shall consist of Class A ordinary shares and Class B ordinary shares. In respect of matters requiring the votes of shareholders, holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary shares will be entitled to twenty-five (25) votes per share based on our dual-class share structure. We will sell ADSs representing Class A ordinary shares in this offering. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person or entity other than holders of Class B ordinary shares or their affiliates, such Class B ordinary shares shall be automatically and immediately converted into the equivalent number of Class A ordinary shares

        Upon the completion of this offering, our chairman of the board of directors and chief architect, Karl Kan Zhang will beneficially own all of our issued Class B ordinary shares. These Class B ordinary shares will constitute approximately        % of our total issued and outstanding share capital and        % of the aggregate voting power of our total issued and outstanding share capital immediately after the completion of this offering due to the disparate voting powers associated with our dual-class share

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structure, assuming the underwriters do not exercise their over-allotment option. See "Principal Shareholders." As a result of the dual-class share structure and the concentration of ownership, holders of Class B ordinary shares will have considerable influence over matters such as decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. Such holders may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.

The dual-class structure of our ordinary shares may adversely affect the trading market for our ADSs.

        S&P Dow Jones and FTSE Russell have recently announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our ordinary shares may prevent the inclusion of our ADSs representing Class A ordinary shares in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our ADSs. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our ADSs.

An active trading market for our ordinary shares or our ADSs may not develop and the trading price for our ADSs may fluctuate significantly.

        We have applied to list our ADSs on the New York Stock Exchange. Prior to the completion of this offering, there has been no public market for our ADSs or our ordinary shares, and we cannot assure you that a liquid public market for our ADSs will develop. If an active public market for our ADSs does not develop following the completion of this offering, the market price and liquidity of our ADSs may be materially and adversely affected. The initial public offering price for our ADSs was determined by negotiation between us and the underwriters based upon several factors, and we can provide no assurance that the trading price of our ADSs after this offering will not decline below the initial public offering price. As a result, investors in our securities may experience a significant decrease in the value of their ADSs.

If securities or industry analysts do not publish research about our business, or if they adversely change their recommendations regarding our ADSs, the market price for our ADSs and trading volume could decline.

        The trading market for our ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade our ADSs, the market price for our ADSs would likely decline. If one or more of these analysts cease to cover us, or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our ADSs to decline.

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Future sale or the perception of a potential sale of substantial amounts of our ADSs could adversely affect our ADRs' market price.

        Sales of substantial amounts of our ADSs in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially impair our ability to raise capital through equity offerings in the future. The ADSs sold in this offering will be freely tradable without restriction or further registration under the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. There will be                ADSs (equivalent to                Class A ordinary shares) outstanding immediately after this offering. [In connection with this offering, we and our officers, directors, existing shareholders, certain holders of our share-based awards have agreed not to sell any ordinary shares or ADSs for 180 days after the date of this prospectus without the prior written consent of the underwriters, subject to certain exceptions.] However, the underwriters may release these securities from these restrictions at any time, subject to applicable regulations of the Financial Industry Regulatory Authority, Inc. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs. See "Underwriting" and "Shares Eligible for Future Sale" for a more detailed description of the restrictions on selling our securities after this offering.

Because we do not expect to pay dividends in the foreseeable future after this offering, you must rely on price appreciation of our ADSs for return on your investment.

        We currently intend to retain most, if not all, of our available funds and any future earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for any future dividend income.

        Pursuant to our post-offering amended and restated memorandum and articles of association, our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend either out of profits or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value after this offering or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.

We have not determined a specific use for a portion of the net proceeds from this offering, and we may use these proceeds in ways with which you may not agree.

        We have not determined a specific use for a portion of the net proceeds of this offering, and our management will have considerable discretion in deciding how to apply these proceeds. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. We cannot assure you that the net proceeds will be used in a

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manner that would improve our results of operations or increase our ADS price, nor that these net proceeds will be placed only in investments that generate income or appreciate in value.

You may be subject to PRC income tax on dividends from us or on any gain realized on the transfer of our ADSs.

        Under the EIT Law and its implementation rules, subject to any applicable tax treaty or similar arrangement between the PRC and your jurisdiction of residence that provides for a different income tax arrangement, PRC withholding tax at the rate of 10% is normally applicable to dividends from PRC sources payable to investors that are non-PRC resident enterprises, which do not have an establishment or place of business in the PRC, or which have such establishment or place of business if the relevant income is not effectively connected with the establishment or place of business. Any gain realized on the transfer of ADSs or ordinary shares by such non-PRC resident enterprise investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC, unless a tax treaty or similar arrangement provides otherwise. Under the PRC Individual Income Tax Law and its implementation rules, dividends from sources within the PRC paid to foreign individual investors who are not PRC residents are generally subject to a PRC withholding tax at a rate of 20% and gains from PRC sources realized by such investors on the transfer of ADSs or ordinary shares are generally subject to 20% PRC income tax, in each case, subject to any reduction or exemption set forth in applicable tax treaties and similar arrangements and PRC laws. Although substantially all of our business operations are in China, it is unclear whether dividends we pay with respect to our ADSs, or the gain realized from the transfer of our ADSs, would be treated as income derived from sources within the PRC and as a result be subject to PRC income tax if we were considered a PRC resident enterprise, as described above. If PRC income tax were imposed on gains realized through the transfer of our ADSs or on dividends paid to our non-PRC resident investors, the value of your investment in our ADSs may be materially and adversely affected. Furthermore, our ADS holders whose jurisdictions of residence have tax treaties or similar arrangements with China may not qualify for benefits under such tax treaties or arrangements.

There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs or ordinary shares.

        A non-U.S. corporation will be a passive foreign investment company, or PFIC, for any taxable year if either (i) at least 75% of its gross income for such year consists of certain types of "passive" income; or (ii) 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"). Based on our current and expected income and assets (taking into account the expected cash proceeds and our anticipated market capitalization following this offering), we do not presently expect to be a PFIC for the current taxable year or the foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become a PFIC is a fact-intensive inquiry made on an annual basis that depends, in part, upon the composition of our income and assets. Fluctuations in the market price of our ADSs may cause us to become a PFIC for the current or subsequent taxable years because the value of our assets for the purpose of the asset test may be determined by reference to the market price of our ADSs. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering.

        If we were to be or become a PFIC for any taxable year during which a U.S. Holder (as defined in "Taxation—United States Federal Income Tax Considerations") holds our ADSs or ordinary shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See "Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Rules."

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The approval of the China Securities Regulatory Commission may be required in connection with this offering under PRC law.

        The M&A Rules, which were adopted in 2006 by six PRC regulatory agencies, including the China Securities Regulatory Commission, or CSRC, and amended in 2009, purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. In September 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The interpretation and application of the regulations remain unclear, and this offering may ultimately require approval from the CSRC. If CSRC approval is required, it is uncertain how long it will take us to obtain the approval. Any failure to obtain or delay in obtaining CSRC approval for this offering would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies, which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect our business, results of operations and financial condition.

        Our PRC counsel, Junhe LLP, has advised us that, based on its understanding of the current PRC laws and regulations, we are not required to submit an application to the CSRC for the approval of the listing and trading of our ADSs on the New York Stock Exchange because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to this regulation, and (ii) our wholly owned PRC subsidiary was established for accepting foreign direct investment, rather than through a merger or acquisition of a domestic company as defined under the M&A Rules, and no provision in the M&A Rules clearly classifies the contractual arrangements among Shanghai Chule, our consolidated affiliated entities and their respective shareholders as a type of transaction subject to the M&A Rules. However, we cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC counsel, and hence we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of the ADSs. The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the ADSs offered hereby. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such approval requirement could have a material adverse effect on the trading price of the ADSs.

Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our Class A ordinary shares and ADSs.

        We will adopt amended and restated memorandum and articles of association that will become effective immediately prior to the completion of this offering. Our new memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar

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transaction. Our proposed dual-class voting structure gives disproportionate voting power to holders of the Class B ordinary shares. In addition, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our Class A ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our Class A ordinary shares and ADSs may be materially and adversely affected.

You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

        We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law (2018 Revision) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders, and the fiduciary duties owed to us by our directors under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties owed to us by our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

        Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our memorandum and articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for our shareholders to obtain the information needed to establish any facts necessary for them to motion or to solicit proxies from other shareholders in connection with a proxy contest.

        As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. For a discussion of significant differences between the provisions of the Companies Law of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders, see "Description of Share Capital—Differences in Corporate Law."

ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

        The deposit agreement governing the ADSs representing our ordinary shares provides that, subject to the depositary's right to require a claim to be submitted to arbitration, the federal or state courts in the City of New York have exclusive jurisdiction to hear and determine claims arising under the deposit agreement and in that regard, to the fullest extent permitted by law, ADS holders waive the right to a

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jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

        If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable U.S. state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the U.S. federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.

        If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under U.S. federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.

        Nevertheless, if this jury trial waiver provision is not enforced, to the extent a court action proceeds, it would proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

Certain judgments obtained against us by our shareholders may not be enforceable.

        We are a Cayman Islands company and almost all of our assets are located outside of the United States. Substantially all of our daily operations are conducted in China. In addition, substantially all of our current directors and officers are nationals and residents of countries other than the United States, and substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of 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."

We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

        We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 for so long as we remain an emerging growth company until the fifth anniversary from the date of our initial listing. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important. In addition, pursuant to the JOBS Act, we have elected to take advantage of the

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extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards. If we cease to be an emerging growth company, we will no longer be able to take advantage of these exemptions or the extended transition period for complying with new or revised accounting standards.

        We cannot predict if investors will find our ADSs less attractive or our company less comparable to certain other public companies because we will rely on these exemptions and election. If some investors find our ADSs less attractive as a result, there may be a less active trading market for our ADSs and our ADS price may be more volatile.

We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an "emerging growth company."

        Upon completion of this offering, we will become a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the New York Stock Exchange, impose various requirements on the corporate governance practices of public companies. As a company with less than US$1.07 billion in revenues for our last fiscal year, we qualify as an "emerging growth company" pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company's internal control over financial reporting. The JOBS Act also permits an emerging growth company to delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to take advantage of such extended transition period for complying with new or revised accounting standards as required when they are adopted for public companies.

        We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an "emerging growth company," we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NYSE corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the NYSE corporate governance listing standards.

        As a Cayman Islands company listed on the New York Stock Exchange, we are subject to the NYSE corporate governance listing standards. However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance

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practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE corporate governance listing standards. Currently, we do not plan to rely on home country practice with respect to our corporate governance after we complete this offering. However, if we choose to follow home country practice in the future, our shareholders may be afforded less protection than they would otherwise enjoy under the NYSE governance listing standards applicable to U.S. domestic issuers.

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.

        Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

        We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the New York Stock Exchange. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote your Class A ordinary shares.

        Holders of ADSs do not have the same rights as our registered shareholders. As a holder of our ADSs, you will not have any direct right to attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights which are carried by the underlying Class A ordinary shares represented by your ADSs in directly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the Class A ordinary shares underlying your ADSs in accordance with your instructions. If we ask for your instructions, then upon receipt of your voting instructions, the depositary will try to vote the underlying Class A ordinary shares in accordance with these instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still vote in accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise your right to vote with respect to the underlying Class A ordinary shares unless you withdraw the shares, and become the registered holder of such shares prior to the record date for the general meeting. When a general meeting is convened, you may not receive sufficient advance notice of the meeting to withdraw the shares underlying your ADSs and become the registered holder of such shares to allow you to attend the general meeting and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In

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addition, under our post-offering amended and restated articles of association that will become effective prior to completion of this offering, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the Class A ordinary shares underlying your ADSs and becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. If we ask for your instructions, the depositary will notify you of the upcoming vote and will 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 the underlying Class A ordinary shares represented by your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how the shares underlying your ADSs are voted and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.

You may experience dilution of your holdings due to inability to participate in rights offerings.

        We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary 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. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to 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. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

You may be subject to limitations on transfer of your ADSs.

        Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is 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.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Known and unknown risks, uncertainties and other factors, including those listed under "Risk Factors," may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

        You can identify some of these forward-looking statements by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "is/are likely to," "potential," "continue" or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:

        These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in "Prospectus Summary—Our Challenges," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," "Regulation" and other sections in this prospectus. You should read thoroughly this prospectus and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

        This prospectus contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. The mobile internet industry and mobile advertising industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of our ADSs. In addition, the rapidly evolving nature of the mobile internet industry and mobile advertising industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

        The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

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USE OF PROCEEDS

        We estimate that we will receive net proceeds from this offering of approximately US$            , or approximately US$            if the underwriters exercise their over-allotment option in full, after deducting underwriting discounts and the estimated offering expenses payable by us. These estimates are based upon an assumed initial public offering price of US$            per ADS, the mid-point of the price range shown on the front cover page of this prospectus. A $1.00 increase (decrease) in the assumed initial public offering price of US$            per ADS would increase (decrease) the net proceeds to us from this offering by US$            , assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

        The primary purposes of this offering are to create a public market for our shares for the benefit of all shareholders, retain talented employees by providing them with equity incentives, and obtain additional capital. We plan to use the net proceeds of this offering as follows:

        The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. See "Risk Factors—Risks Related to Our ADSs and This Offering—We have not determined a specific use for a portion of the net proceeds from this offering, and we may use these proceeds in ways with which you may not agree."

        Pending any use described above, we plan to invest the net proceeds in short-term, interest-bearing, debt instruments or demand deposits.

        In using the proceeds of this offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our PRC subsidiary only through loans or capital contributions and to our VIEs only through loans, subject to satisfaction of applicable government registration and approval requirements. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. See "Risk Factors—Risks Related to Our Corporate Structure—PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of our initial public offering to make loans to our PRC subsidiaries and consolidated affiliated entities and its subsidiaries, or to make additional capital contributions to our PRC subsidiaries."

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DIVIDEND POLICY

        Our board of directors has complete discretion on whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend either out of profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

        We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future after this offering. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

        We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See "Regulation—Regulations Related to Foreign Currency Exchange and Dividend Distribution."

        If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the Class A ordinary shares underlying our ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary then will pay such amounts to our ADS holders in proportion to Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American Depositary Shares." Cash dividends on our Class A ordinary shares, if any, will be paid in U.S. dollars.

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CAPITALIZATION

        The following table sets forth our capitalization as of June 30, 2018:

        You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of June 30, 2018  
 
  Actual   Pro Forma   Pro Forma As
Adjusted (1)
 
 
  US$
  US$
  US$
 

Convertible redeemable preferred shares:

                   

Convertible redeemable preferred shares (US$0.00001 par value; 2,079,938,011 shares authorized, issued and outstanding on an actual basis; none issued and outstanding on a pro forma or a pro forma as adjusted basis)

    156,367,810                       

Shareholders' equity (deficit):

                   

Ordinary shares (US$0.00001 par value; 2,920,061,989 shares authorized; 898,393,690 shares issued and outstanding on an actual basis; 2,978,331,701 shares issued and outstanding on a pro forma basis;            shares issued and outstanding on a pro forma as adjusted basis)

    8,984     29,783                   

Additional paid-in capital (2)

    1,767,785     158,114,796                   

Accumulated deficit

    (123,388,321 )   (123,388,321 )                 

Accumulated other comprehensive income

    (881,252 )   (881,252 )                 

Total shareholders' (deficit) equity (2)

    (122,492,804 )   33,875,006                   

Total capitalization (2)

    33,875,006     33,875,006                   

(1)
The pro forma as adjusted information discussed above is illustrative only. Our additional paid-in capital, total shareholders' equity and total capitalization following the completion of this offering are subject to adjustment based on the actual initial public offering price and other terms of this offering determined at pricing.

(2)
A US$1.00 increase (decrease) in the assumed initial public offering price of US$            per share, the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) each of additional paid-in capital, total shareholders' equity, total equity and total capitalization by US$            .

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DILUTION

        If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

        Our net tangible book value as of June 30, 2018 was approximately US$            , or US$            per ordinary share as of that date and US$            per ADS. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting net tangible book value per ordinary share, after giving effect to the additional proceeds we will receive from this offering, from the assumed initial public offering price of US$            per ordinary share, which is the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus adjusted to reflect the ADS-to-ordinary share ratio, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Because the Class A ordinary shares and Class B ordinary shares have the same dividend and other rights, except for voting and conversion rights, the dilution is presented based on all issued and outstanding ordinary shares, including Class A ordinary shares and Class B ordinary shares.

        Without taking into account any other changes in net tangible book value after June 30, 2018, other than to give effect to (i) the re-designation of all the 246,224,465 issued and outstanding ordinary shares held by Kan's Global CoolStuff Investments Inc. into Class B ordinary shares on a one-for-one basis upon the completion of this offering; (ii) the re-designation of all of our remaining issued and outstanding ordinary shares and all of our issued and outstanding preferred shares into Class A ordinary shares on a one-for-one basis upon the completion of this offering; and (iii) our sale of the ADSs offered in this offering at the assumed initial public offering price of US$            per ADS, the midpoint of the estimated range of the initial public offering price, after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2018 would have been US$            , or US$            per ordinary share and US$            per ADS. This represents an immediate increase in net tangible book value of US$            per ordinary share and US$            per ADS to the existing shareholders and an immediate dilution in net tangible book value of US$            per ordinary share and US$            per ADS to investors purchasing ADSs in this offering. The following table illustrates such dilution:

 
  Per Ordinary
Share
  Per ADS  

Assumed initial public offering price

  US$                US$               

Net tangible book value as of June 30, 2018

  US$                US$               

Pro forma net tangible book value after giving effect to (i) the re-designation of all the issued and outstanding ordinary shares held by Kan's Global CoolStuff Investments Inc. into Class B ordinary shares; (ii) the re-designation of all of our remaining issued and outstanding ordinary shares and all of our issued and outstanding preferred shares into Class A ordinary shares

  US$                US$               

Pro forma as adjusted net tangible book value after giving effect to (i) the re-designation of all the issued and outstanding ordinary shares held by Kan's Global CoolStuff Investments Inc. into Class B ordinary shares; (ii) the re-designation of all of our remaining issued and outstanding ordinary shares and all of our issued and outstanding preferred shares into Class A ordinary shares; and (iii) this offering

  US$                US$               

Amount of dilution in net tangible book value to new investors in this offering

  US$                US$               

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        A US$1.00 increase (decrease) in the assumed public offering price of US$            per ADS would increase (decrease) our pro forma as adjusted net tangible book value after giving effect to this offering by US$            , the pro forma as adjusted net tangible book value per ordinary share and per ADS after giving effect to this offering by US$            per ordinary share and US$            per ADS and the dilution in pro forma as adjusted net tangible book value per ordinary share and per ADS to new investors in this offering by US$            per ordinary share and US$            per ADS, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and other offering expenses.

        The following table summarizes, on a pro forma as adjusted basis as of June 30, 2018, the differences between existing shareholders and the new investors with respect to the number of ordinary shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per ordinary share and per ADS paid before deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The total number of ordinary shares does not include ordinary shares underlying the ADSs issuable upon the exercise of the over-allotment option granted to the underwriters.

 
  Ordinary Shares
Purchased
   
   
   
   
 
 
  Total Consideration    
   
 
 
  Average
Price Per
Ordinary Share
  Average
Price Per
ADS
 
 
  Number   Percent   Amount   Percent  

Existing shareholders

                                US$                         % US$              US$             

New investors

                                US$                         % US$              US$             

Total

                                US$                100.0 %                              

        The pro forma as adjusted information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.

        The discussion and tables above assume no exercise of any outstanding share options outstanding as of the date of this prospectus. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.

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ENFORCEABILITY OF CIVIL LIABILITIES

        We are incorporated under the laws of the Cayman Islands as an exempted company with limited liability. We are incorporated in the Cayman Islands because of certain benefits associated with being a Cayman Islands exempted company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands has a less developed body of securities laws than the United States and provides less protection for investors. In addition, Cayman Islands companies do not have standing to sue before the federal courts of the United States.

        Substantially all of our assets are located outside the United States. In addition, most of our directors and officers are nationals or residents of jurisdictions other than the United States and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or these persons, or to enforce judgments obtained in U.S. courts against us or them, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. It may also be difficult for you to enforce judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors.

        We have appointed Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711, as our agent to receive service of process with respect to any action brought against us in the U.S. District Court for the Southern District of New York in connection with this offering under the federal securities laws of the United States or the securities laws of any State in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York in connection with this offering under the securities laws of the State of New York.

        Maples and Calder (Hong Kong) LLP, our legal counsel as to Cayman Islands law, has advised us that there is uncertainty as to whether the courts of the Cayman Islands would (1) recognize or enforce judgments of U.S. courts obtained against us or our directors or officers that are predicated upon the civil liability provisions of the federal securities laws of the United States or the securities laws of any state in the United States, or (2) entertain original actions brought in the Cayman Islands against us or our directors or officers that are predicated upon the federal securities laws of the United States or the securities laws of any state in the United States.

        Maples and Calder (Hong Kong) LLP has informed us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), a judgment in personam obtained in such jurisdiction will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (a) is given by a competent foreign court with jurisdiction to give the judgment, (b) imposes a specific positive obligation on the judgment debtor (such as an obligation to pay a liquidated sum or perform a specified obligation), (c) is final and conclusive, (d) is not in respect of taxes, a fine or a penalty; and (e) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. Because such a determination has not yet been made by a court of the Cayman Islands, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands. A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

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        Junhe LLP, our counsel as to PRC law, has advised us that there is uncertainty as to whether the courts of China would (1) 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 (2) 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.

        Junhe LLP has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against a company in the PRC for disputes relating to contracts or other property interests, the PRC court may accept a course of action based on the laws or the parties' express mutual agreement in contracts choosing PRC courts for dispute resolution if (a) the contract is signed and/or performed within the PRC, (b) the subject of the action is located within the PRC, (c) the company (as defendant) has seizable properties within the PRC, (d) the company has a representative organization within the PRC, or (e) other circumstances prescribed under the PRC law. The action may be initiated by a shareholder through filing a complaint with the PRC court. The PRC court will determine whether to accept the complaint in accordance with the PRC Civil Procedures Law. The shareholder may participate in the action by itself or entrust any other person or PRC legal counsel to participate on behalf of such shareholder. Foreign citizens and companies will have the same rights as PRC citizens and companies in an action unless the home jurisdiction of such foreign citizens or companies restricts the rights of PRC citizens and companies.

        In addition, it will be difficult for U.S. shareholders to originate actions against us in the PRC in accordance with PRC laws because we are incorporated under the laws of the Cayman Islands and it will be difficult for U.S. shareholders, by virtue only of holding our ADSs or ordinary shares, to establish a connection to the PRC for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.

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CORPORATE HISTORY AND STRUCTURE

        We commenced our mobile internet business and launched our first mobile application, TouchPal Smart Input, in 2008. We initially conducted our business through Shanghai Hanxiang (CooTek) Information Technology Co., Ltd., or Shanghai Hanxiang, a PRC domestic company.

        In March 2012, we incorporated CooTek (Cayman) Inc., or CooTek Cayman, as our offshore holding company in order to facilitate foreign investment in our company. We established CooTek Hong Kong Limited, or CooTek HK, as our intermediate holding company, which in turn established a wholly-owned PRC subsidiary, Shanghai Chule (CooTek) Information Technology Co., Ltd., or Shanghai Chule or WFOE, in June 2012. Subsequently, we, through our WFOE, entered into a series of contractual arrangements with Shanghai Hanxiang and its shareholders whereby we were established as the primary beneficiary of Shanghai Hanxiang. We have recognized the net assets of Shanghai Hanxiang at historical cost with no change in basis in the consolidated financial statements upon the completion of this reorganization.

        In March 2012, we formed a PRC domestic company, Shanghai Chubao (CooTek) Information Technology Co., Ltd., or Shanghai Chubao, to operate part of our Chinese business.

        In September 2014, we incorporated TouchPal HK Co., Limited to operate our overseas business.

        In July 2015, we incorporated TouchPal Inc., a U.S. company, to operate a research and development center in Silicon Valley and acquire talents from the U.S.

        Due to restrictions imposed by PRC laws and regulations on foreign ownership of companies that engaged in mobile internet and mobile advertising businesses, our WFOE also entered into a series of contractual arrangements with Shanghai Chubao and two other domestic companies we established in 2017, and their respective shareholders. We collectively refer to these three domestic entities and Shanghai Hanxiang as our VIEs in this prospectus. Shanghai Chubao is currently our principal operating entity in China. The business of Shanghai Hanxiang was migrated into other entities in our group, and Shanghai Hanxiang has gradually ceased its business operations since 2012. As of the date of this prospectus, Shanghai Hanxiang and the other two domestic companies do not have any substantive business operations. For more details and risks related to our variable interest entity structure, please see "—Contractual Arrangements with Our VIEs and Their Respective Shareholders" and "Risk Factors—Risks Related to Our Corporate Structure." As a result of our direct ownership in our WFOE and the variable interest entity contractual arrangements, we are regarded as the primary beneficiary of our VIEs. We treat them as our consolidated affiliated entities under U.S. GAAP, and have consolidated the financial results of these entities in our consolidated financial statements in accordance with U.S. GAAP.

        Our officers, directors and principal shareholders currently hold an aggregate of 77.3% of the total voting power in our Company. Immediately after this offering, our officers, directors and principal shareholders will hold an aggregate of            % of the total voting power in our Company and will continue to exercise substantial control over our Company.

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        The following diagram illustrates our corporate structure, including our significant subsidiaries and other entities that are material to our business, as of the date of this prospectus:

GRAPHIC


(1)
Karl Kan Zhang, Susan Qiaoling Li, Michael Jialiang Wang, Jim Jian Wang and Haiyan Zhu are beneficial owners of CooTek (Cayman) Inc. and hold 25.0%, 21.94%, 21.94%, 13.12% and 18.0% of the equity interests in Shanghai Chubao, respectively. Except for Haiyan Zhu, the other shareholders of Shanghai Chubao are directors and employees of CooTek (Cayman) Inc.

         Contractual Arrangements with Our VIEs and Their Respective Shareholders

        The following is a summary of our contractual arrangements with respect to Shanghai Chubao and other VIEs.

        Loan Agreement.     On August 6, 2012, the WFOE and each shareholder of Shanghai Chubao entered into loan agreement. Pursuant to such agreements, the WFOE will provide loan to the shareholders of Shanghai Chubao solely for the purpose of capital contribution. The shareholders of Shanghai Chubao should pledge their equity interests in Shanghai Chubao and enter into an equity pledge agreement to secure such loan and other obligations. The shareholders can only repay the loans by the sale of all their equity interest in Shanghai Chubao to WFOE or its designated person. Each loan agreement will remain effective for 10 years, and will be automatically renewed by 3 years upon the option of the WFOE.

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        Equity Pledge Agreement.     On August 6, 2012, the WFOE and Shanghai Chubao and each of its shareholders entered into an equity pledge agreement, which was subsequently amended and restated on October 30, 2012. Pursuant to the amended and restated equity pledge agreement, each shareholder of Shanghai Chubao shall pledges 100% equity interests in Shanghai Chubao to the WFOE to guarantee their and Shanghai Chubao's performance of their obligations under the contractual arrangements including the exclusive business cooperation agreement, exclusive purchase option agreement and the power of attorney. In the event of a breach by Shanghai Chubao or its shareholders of their contractual obligations under these agreements, the WFOE, as pledgee, will have the right to dispose of the pledged equity interests in Shanghai Chubao. The shareholders of Shanghai Chubao also undertakes that, during the term of the equity pledge agreements, they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests. During the term of the equity pledge agreements, our WFOE has the right to receive all of the dividends and profits distributed on the pledged equity interests. As of the date of this prospectus, we have completed the registration of the equity pledges with the relevant office of the administration for industry and commerce in accordance with the PRC Property Rights Law.

        Power of Attorney.     On October 30, 2012, each shareholder of Shanghai Chubao granted irrevocable and exclusive power of attorney to the WFOE as his/her attorney-in-fact to exercise all shareholder rights, including, but not limited to, attend shareholders meeting of Shanghai Chubao, voting on their behalf on all matters of Shanghai Chubao, disposing of all or part of the shareholder's equity interest in Shanghai Chubao, and electing, appointing or removing legal representative, directors, supervisors and executive officers of Shanghai Chubao. Each power of attorney will remain in force for so long as the shareholder remains a shareholder of Shanghai Chubao. Each shareholder has waived all the rights which have been authorized to our WFOE under each power of attorney.

        Spouse Consent Letters.     Pursuant to the spouse consent letters dated October 30, 2012, each spouse of the shareholders of Shanghai Chubao, if any, confirmed that his/her spouse can perform the obligations under the contractual arrangements and has sole discretion to amend and terminate the contractual arrangements. Each spouse agreed that the equity interest in Shanghai Chubao held by and registered in the name of his/her spouse will be disposed of pursuant to the amended and restated equity pledge agreement, the amended and restated exclusive option agreement and the power of attorney. In addition, in the event that each spouse obtains any equity interest in Shanghai Chubao held by his/her spouse for any reason, he/she agreed to be bound by the contractual arrangements.

        Exclusive Business Cooperation Agreement.     On August 6, 2012, our WFOE and Shanghai Chubao entered into an exclusive business cooperation agreement. Under such agreement, our WFOE has the exclusive right to provide Shanghai Chubao with operational support and technology and consulting services. The WFOE owns the exclusive intellectual property rights created as a result of the performance of this agreement. Shanghai Chubao agrees to pay our WFOE a monthly service fee, at an amount equal to 100% of Shanghai Chubao's monthly revenue or an amount otherwise agreed by the WFOE. This agreement will remain effective unless terminated unilaterally by the WFOE or otherwise as required by applicable PRC laws and regulations.

        Exclusive Purchase Option Agreement.     On August 6, 2012, the WFOE and each shareholder of Shanghai Chubao entered into an exclusive purchase option agreement, which was subsequently amended and restated on October 30, 2012. Pursuant to the amended and restated exclusive purchase option agreement, each shareholder of Shanghai Chubao irrevocably grants our WFOE an exclusive option to purchase, or have its designated person to purchase, at its discretion, to the extent permitted under PRC law, all or part of the shareholder's equity interests in Shanghai Chubao. In addition, the

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purchase price should be the amount of registered capital, which may be subject to fair value adjustments if required by the PRC laws. Without the prior written consent of the WFOE, the shareholders of Shanghai Chubao may not amend its articles of association, increase or decrease the registered capital, dispose of its assets or business, create any encumbrance on its assets or business, incur any debts or guarantee liabilities, enter into any material contracts, merger with or acquire any other persons or make any investments, provide any loans for any third parties or distribute dividends to the shareholders. Each shareholder of Shanghai Chubao agrees that, without the prior written consent of the WFOE, he/she will not dispose of his/her equity interests in Shanghai Chubao or create or allow any encumbrance on the equity interests. Each exclusive purchase option agreement will remain effective unless the agreement is required to be terminated by applicable PRC laws and regulations.

        The WFOE, the other three VIEs and their respective shareholders have entered into contractual arrangements which contain agreements and terms substantially similar to our contractual arrangements with Shanghai Chubao and its shareholders described above, except that the WFOE did not extended any loans to the shareholders of Shanghai Hanxiang and the option to purchase the equity interest of Shanghai Hanxiang can be exercised at a nominal price pursuant to its exclusive purchase option agreement. As of the date of this prospectus, the registration of the equity pledges over the equity interests of the other three VIEs have been completed with the relevant office of the administration for industry and commerce in accordance with the PRC Property Rights Law.

        In the opinion of Junhe LLP, our PRC legal counsel:

        However, we have been further advised by our PRC legal counsel that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules, and there can be no assurance that the PRC regulatory authorities will ultimately take a view that is consistent with the opinion stated above. Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to or otherwise different from the above opinion of our PRC legal counsel. If the PRC government finds that the agreements that establish the structure for operating our mobile internet business do not comply with PRC government restrictions on foreign investment in our businesses, we could be subject to severe penalties including being prohibited from continuing operations. See "Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulations on foreign investment in internet and other related businesses, or if these regulations or their interpretation change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations, and "Risk Factors—Risks Related to Doing Business in China—Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us."

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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

Selected Consolidated Financial Data

        The following selected consolidated statements of operations data for the years ended December 31, 2016 and 2017, selected consolidated balance sheet data as of December 31, 2016 and 2017 and selected consolidated cash flow data have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data for the six months ended June 30, 2017 and 2018, the selected consolidated balance sheet data as of June 30, 2018 and selected consolidated cash flow data for the six months ended June 30, 2017 and 2018 are derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. You should read this Selected Consolidated Financial and Operating Data section together with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

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  For the Year Ended
December 31,
  For the Six Months Ended
June 30,
 
 
  2016   2017   2017   2018  
 
  (in US$, except for share)
 

Selected Consolidated Statements of Operations Data:

                         

Net revenues

    11,030,079     37,334,966     9,113,266     50,277,623  

Cost of revenues (1)

    (20,158,565 )   (20,101,386 )   (10,172,085 )   (8,037,508 )

Gross (loss) profit

    (9,128,486 )   17,233,580     (1,058,819 )   42,240,115  

Operating expenses:

                         

Sales and marketing expenses (1)

    (9,396,663 )   (20,161,353 )   (5,652,254 )   (26,345,856 )

Research and development expenses (1)

    (8,691,539 )   (12,868,356 )   (5,646,825 )   (8,322,788 )

General and administrative expenses (1)

    (3,920,057 )   (8,366,698 )   (4,034,049 )   (4,141,460 )

Other operating income, net

    605,890     190,338     117,438     70,212  

Total operating expenses

    (21,402,369 )   (41,206,069 )   (15,215,690 )   (38,739,892 )

(Loss) income from operations

    (30,530,855 )   (23,972,489 )   (16,274,509 )   3,500,223  

Interest income, net

    12,887     481,932     166,087     70,475  

Foreign exchange losses, net

    (188,631 )   (169,556 )   (125,399 )   (59,269 )

(Loss) income before income taxes

    (30,706,599 )   (23,660,113 )   (16,233,821 )   3,511,429  

Income tax expense

        (800 )   (800 )    

Net (loss) income

    (30,706,599 )   (23,660,913 )   (16,234,621 )   3,511,429  

Net (loss) income per ordinary share:

                         

Basic

    (0.03 )   (0.03 )   (0.02 )   0.001  

Diluted

    (0.03 )   (0.03 )   (0.02 )   0.001  

Weighted average shares used in calculating net (loss) income per ordinary share:

                         

Basic

    912,551,946     898,781,587     899,175,914     898,393,690  

Diluted

    912,551,946     898,781,587     899,175,914     1,045,398,678  

Pro forma net (loss) income per ordinary share (2) :

                         

Basic

        (0.01 )       0.001  

Diluted

        (0.01 )       0.001  

Pro forma weighted average shares used in calculating pro forma net (loss) income per ordinary share (2) :

                         

Basic

        2,976,521,512         2,978,331,701  

Diluted

        2,976,521,512         3,125,336,689  

Non-GAAP Financial Data (3) :

                         

Adjusted Net (Loss) Income

    (29,979,386 )   (21,235,969 )   (14,255,524 )   4,402,654  

Adjusted EBITDA

    (29,436,511 )   (20,818,083 )   (14,047,358 )   4,897,483  

(1)
Share-based compensation was allocated in costs of revenues and operating expenses as follows:
 
  For the Year
Ended
December 31,
  For the
Six Months Ended
June 30,
 
 
  2016   2017   2017   2018  
 
  (in US$)
 

Cost of revenues

    24,514     31,510     12,127     23,892  

Sales and marketing expenses

    35,298     70,707     29,956     39,391  

Research and development expenses

    445,084     544,786     274,795     666,679  

General and administrative expenses

    222,317     1,777,941     1,662,219     161,263  

Total

    727,213     2,424,944     1,979,097     891,225  
(2)
The pro forma ordinary shares information is based on the automatic conversion of 2,079,938,011 issued and outstanding preferred shares into ordinary shares on a one-for-one basis immediately upon the completion of this offering.

(3)
See "Prospectus Summary—Summary Consolidated Financial Data—Non-GAAP Financial Measure."

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        The following table presents our selected consolidated balance sheet data for the periods indicated:

 
  As of December 31,   As of
June 30,
 
 
  2016   2017   2018  
 
  (in US$)
 

Selected Consolidated Balance Sheet Data:

                   

Cash and cash equivalents

    41,056,314     26,720,158     27,688,814  

Total current assets

    47,870,981     43,738,752     47,809,725  

Total assets

    49,353,697     46,261,022     51,008,954  

Total liabilities

    13,454,721     14,814,770     17,133,948  

Convertible redeemable preferred shares

    136,455,592     156,367,810     156,367,810  

Total shareholders' deficit

    (100,556,616 )   (124,921,558 )   (122,492,804 )

        The following table presents our selected consolidated cash flow data for the periods indicated:

 
  For the Year ended
December 31,
  For the Six Months
Ended June 30,
 
 
  2016   2017   2017   2018  
 
  (in US$)
 

Selected Consolidated Cash Flow Data:

                         

Net cash (used in) provided by operating activities

    (28,435,452 )   (28,049,152 )   (19,799,666 )   4,539,916  

Net cash used in investing activities

    (831,393 )   (1,758,412 )   (1,102,408 )   (948,043 )

Net cash provided by (used in) financing activities

    51,306,960     14,401,620     13,694,494     (1,101,895 )

Net increase (decrease) in cash, cash equivalents, and restricted cash

    22,040,115     (15,405,944 )   (7,207,580 )   2,489,978  

Cash, cash equivalents, and restricted cash at beginning of year

    19,845,488     41,344,623     41,344,623     27,026,240  

Effect of exchange rate changes on cash, cash equivalents and restricted cash

    (540,980 )   1,087,561     543,542     (1,827,404 )

Cash, cash equivalents, and restricted cash at end of year

    41,344,623     27,026,240     34,680,585     27,688,814  

Selected Operating Data

DAUs—TouchPal Smart Input
(in millions)
(daily average over the month of)
  DAUs—Other Global Portfolio Products
(in millions)
(daily average over the month of)

GRAPHIC

 

GRAPHIC

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MAUs—TouchPal Smart Input
(in millions)

 

MAUs—Other Global Portfolio Products
(in millions)

GRAPHIC

 

GRAPHIC

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under "Risk Factors" and elsewhere in this prospectus. See "Special Note Regarding Forward-Looking Statements."

Overview

        We are a fast-growing mobile internet company. Sophisticated big data analytics and proprietary AI capability are the backbone of our business.

        Our global portfolio of mobile applications serves a large global user base, comprised of an average of 132.6 million DAUs across more than 240 countries and regions in June 2018, compared to an average of 75.6 million DAUs in June 2017, representing 75.3% year-on-year growth.

        Our core product, TouchPal Smart Input, is an intelligent input method for mobile devices that supports more than 110 languages. In June 2018, it reached 125.4 million DAUs on average and was launched 72 times per day per active user on average. TouchPal Smart Input generates a massive, diverse set of user interaction data on a daily basis. We employ proprietary AI and big data analytical technologies both to process such data and a large amount of multi-language content that we source and organize from the internet and to develop advanced multilingual natural language processing and semantic understanding technologies. These technologies enable us to obtain in-depth user insights and identify market opportunities, which set the foundation for developing mobile applications that deliver relevant content for different verticals such as lifestyle, healthcare and entertainment. We have also built a rich library of user profiles and interests that allows us to grow our user base effectively.

        Building upon user insights accumulated through our TouchPal Smart Input, we have formulated a systematic approach to developing a global product portfolio, through which we deliver relevant content and grow our user base. In addition to TouchPal Smart Input, we have launched a portfolio of 15 other mobile applications as of June 30, 2018 and most of them are content-rich applications. Those mobile applications reached 9.4 million MAUs and 2.9 million DAUs on average in December 2017 and 22.2 million MAUs and 7.3 million DAUs on average in June 2018. Our user-centric and data-driven approach has enabled us to release appealing products to capture mobile internet users' ever-evolving content needs and help us rapidly attract targeted users.

        We have a proven and scalable monetization capability in mobile advertising. We leverage our in-depth user insights to deliver targeted and engaging advertisements that are relevant to users across our various mobile applications. The effective price per impression and the number of our average daily impressions delivered on our global portfolio products increased by approximately 36% and 537%, respectively, from the first half of 2017 to the first half of 2018.

        We generate revenues primarily from mobile advertising. Our net revenues grew rapidly from US$11.0 million in 2016 to US$37.3 million in 2017, representing 238.5% year-on-year growth. Our net revenues grew rapidly from US$9.1 million for the six months ended June 30, 2017 to US$50.3 million for the same period of 2018, representing 451.7% year-on-year growth. Our net loss decreased from US$30.7 million in 2016 to US$23.7 million in 2017 due to our revenue growth and operating leverage. We recorded net income of US$3.5 million for the six months ended June 30, 2018, compared to net loss of US$16.2 million for the same period of 2017. We generated gross profit of US$17.2 million in 2017, compared to gross loss of US$9.1 million in 2016, implying an improvement of gross profit margin from negative 82.8% in 2016 to 46.2% in 2017. We recorded gross profit of US$42.2 million for the six months ended June 30, 2018, as compared to gross loss of US$1.1 million for the same period

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of 2017, implying an improvement of gross profit margin from negative 11.6% for the six months ended June 30, 2017 to 84.0% for the same period of 2018. Of our total advertising revenue generated from our global portfolio products, our TouchPal Smart Input contributed substantially all in 2016, approximately 71% in 2017 and 33% in the six months ended June 30, 2018, and our other global portfolio products contributed approximately 29% in 2017 and 67% in the six months ended June 30, 2018.

Key Factors Affecting Our Results of Operations

        We believe our business and results of operations are affected by the following major factors.

Our ability to increase our user base and user engagement

        Our business depends on our ability to grow our global user base and increase users' engagement with our products. As our revenues are primarily derived from our advertising services, the number of users and the frequency with which they use our products and services directly affect the number of advertisements we are able to show and the value of those advertisements. Since our inception, we have experienced rapid growth of the user base of our global product portfolio and we have amassed a diverse user base located in more than 240 countries and regions. In June 2018, the DAUs of our global product portfolio reached 132.6 million on average, compared to 75.6 million in June 2017, representing 75.3% year-on-year growth. Moreover, our global portfolio products also enjoy a high level of user engagement. In June 2018, the DAU/MAU ratio of our core product, TouchPal Smart Input, was 73.0% and it was launched 72 times per day per active user on average. The average number of launch times of TouchPal Smart Input per day per active user in each of the four consecutive quarters ended June 30, 2018 was generally consistent.

        The following table sets forth the average DAUs, MAUs, and DAU/MAU ratios of our global portfolio products for each of the months indicated:

 
  For the Month Ended  
 
  March 31,
2017
  June 30,
2017
  September 30,
2017
  December 31,
2017
  March 31,
2018
  June 30,
2018
 
 
  (in millions, except for the percentages)
 

TouchPal Smart Input

                                     

DAUs

    61.7     75.3     88.7     101.9     115.7     125.4  

MAUs

    96.6     113.8     131.6     148.2     161.6     171.7  

DAU/MAU ratio (1)

    63.8%     66.2%     67.4%     68.7%     71.6%     73.0%  

Other global portfolio products

   
 
   
 
   
 
   
 
   
 
   
 
 

DAUs

    0.1     0.3     0.7     2.9     4.6     7.3  

MAUs

    0.5     0.8     2.3     9.4     14.4     22.2  

DAU/MAU ratio (1)

    22.7%     43.7%     30.0%     31.3%     31.7%     32.7%  

(1)
DAU/MAU ratio refers to, for any period, the ratio calculated by dividing (i) the average DAUs of certain product(s) in the given month, by (ii) the MAU of such product(s) in the given month.

        We also break out the MAUs of our global portfolio products by users' geographic locations. We estimate the geographic locations of our users based on a number of factors, such as a user's IP address and self-disclosed location. Leveraging our established systematic approach to business expansion, we believe that both developed markets and emerging markets present great opportunities

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for us to grow our users and business. The following table sets forth the geographic breakdown of the MAUs of our global portfolio products for the month indicated:

 
  For the month ended
June 30, 2018
 
 
  MAUs of
TouchPal Smart
Input
  MAUs of Other
Global Portfolio
Products
 

North America, Europe & Oceania

    11.2 %   36.3 %

East Asia (1)

    2.7 %   3.6 %

South Asia (2)

    32.6 %   15.7 %

Southeast Asia (3)

    34.0 %   7.6 %

Africa

    15.3 %   11.9 %

Rest of the world

    4.2 %   24.9 %

Total

    100.0 %   100.0 %

(1)
East Asia consists of the following countries and regions: China (including Hong Kong, Macao and Taiwan), Japan, North Korea, Mongolia and South Korea.

(2)
South Asia consists of the following countries and regions: Bhutan, India, Bangladesh, Nepal, Pakistan, Sri Lanka and Maldives.

(3)
Southeast Asia consists of the following countries and regions: Timor-Leste, Indonesia, Brunei, Singapore, Cambodia, Thailand, Myanmar, Laos, Philippines, Vietnam and Malaysia.

        The growth of our user base and the increase of our users' engagement benefited from a range of factors, including our continuous innovation of and improvements in user experience with our products and services, improved relevance of the content we deliver with our technology, and effective user acquisition through pre-installation arrangements with mobile device manufacturers and through online distribution platforms, all of which are guided and driven by our in-depth user insights. We expect our user base to further grow and engagement level to further improve. However, our actual results may be materially different from our expectations due to certain factors inherent in our business and industry. See "Risk Factors—Risks Related to Our Business and Industry—If we fail to maintain or expand our user base, or if user engagement with our products declines, our business, financial condition and operating results may be materially and adversely affected." and "Risk Factors—Risks Related to Our Business and Industry—We have significant international operations and plan to continue expanding our operations globally. We may face challenges and business risks presented by our global operations, which may have a material and adverse impact on our business and operating results."

        Different from TouchPal Smart Input and our other global portfolio products, our TouchPal Phonebook app targets the Chinese domestic market, allowing users in China to make phone calls through internet for free, search contacts on the dial pad, and block spam calls. The average number of DAUs of TouchPal Phonebook was 77.5 million, 75.8 million, 72.2 million, 66.2 million, 60.0 million and 52.8 million, including users acquired through both pre-installations and downloads, in the last month for each of the six consecutive quarters ended June 30, 2018, respectively. In the same periods, the number of MAUs of TouchPal Phonebook was 109.3 million, 106.7 million, 106.9 million, 100.7 million, 88.4 million and 80.7 million, including users acquired through both pre-installations and downloads, respectively. As we strategically focus on developing a global mobile product portfolio for the overseas markets, we expect that TouchPal Phonebook will contribute a decreasing percentage of our total user base and total advertising revenues.

        As a long-term strategy, we plan to continuously offer innovative and diversified products and services to meet the interests and demands of our targeted mobile internet users and to further improve our users' experience with our products to achieve a sustained high level of user satisfaction, which we believe is the most cost-effective way to attract, engage and retain our users.

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Effectiveness of monetization

        We monetize our user base primarily through mobile advertising. Our advertising revenue increased by 251.5% from US$10.0 million in 2016 to US$35.0 million in 2017, and increased by 453.1% from US$8.8 million for the six months ended June 30, 2017 to US$48.5 million for the same period of 2018. It is estimated that, of the total advertising revenue, TouchPal Smart Input contributed approximately 55% in 2016, 49% in 2017 and 26% in the six months ended June 30, 2018, and our other global portfolio products contributed nil in 2016, approximately 20% in 2017 and 53% in the six months ended June 30, 2018. In addition, TouchPal Phonebook contributed approximately 45%, 31% and 21% of our total advertising revenue in 2016, 2017 and the six months ended June 30, 2018, respectively. We estimate the percentage of our advertising revenue derived from each product based on our determination of the percentage of advertisements delivered on each individual product to the total advertisements we delivered.

        The effectiveness of our monetization and our results of operations are affected by a number of factors, including the number of our available advertising spaces, our ability to attract and retain advertising customers, and our ability to deliver targeted advertisements to our users.

    Our available advertising spaces

        Our available advertising spaces represent the number, size and prominence of advertisements we can display, which in turn affect our revenues and results of operations. As we have continued to improve user engagement with our existing products (especially our content-rich products), launch new content-rich products, and grow our user base, the number of our available advertising spaces increased rapidly in recent years. We plan to continue to invest in the development of innovative products catering to users' interests in and demands for relevant content in order to create more advertising spaces.

    Our ability to attract and retain advertising customers

        We source our advertisers primarily through our network of advertising exchanges and agencies, and to a lesser extent, direct contractual arrangements with individual advertisers. Our revenues and results of operations depend largely on our ability to engage, directly or indirectly, more advertisers with our advertising services. We generate advertising revenue primarily from performance-based advertisements and we also offer brand advertising arrangements. In 2017, our top two advertising customers, which are advertising exchanges, contributed 20.0% and 18.5% of our total revenues, respectively. Our business may be materially and adversely affected if our cooperation with these two advertising customers is impaired or terminated. See "Risk Factors—Risks Related to Our Business and Industry—We depend on certain number of third-party advertising exchanges and agencies for a large portion of our mobile advertising revenues." We plan to further strengthen our network of advertising exchanges and agencies to serve a larger number of advertisers. We also plan to further expand and diversify our advertiser base and to maximize the value of our services to the advertisers by improving our targeting capability and increasing our user base.

    Our ability to deliver targeted advertisements

        Leveraging our in-depth user insights, we help advertisers reach their desired audiences and our advertising exchange customers charge them advertising fees based primarily on valid clicks, conversions or other measurable actions of the audience, each of which can have an impact on the effective price per impression paid to us by our advertising exchange customers. Our ability to deliver advertisements that are relevant to our users across our various mobile applications is critical to maintaining high click-through rates or conversion rates, which in turn directly impacts the value of our advertising services. We strive to deepen our understanding of our users' content interests and demands in order to improve

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our targeted delivery of advertising services, which will ultimately increase the effective price per impression paid by an advertiser regardless of the desired objective such as impression, click-through, conversion or other measurable result. The effective price per impression is an implied metric calculated by dividing (i) the total advertising revenue of a certain period by (ii) the total number of impressions we delivered during the same period. From the first half of 2017 to the first half of 2018, such effective price per impression increased by approximately 36%. During the same period, the number of average daily impressions delivered on our global portfolio products increased by approximately 537%. The following table sets forth the quarter-over-quarter percentage changes in these two metrics for each quarter since the first quarter of 2017:

 
  For the Three Months Ended  
 
  Mar 31,
2017
  Jun 30,
2017
  Sep 30,
2017
  Dec 31,
2017
  Mar 31,
2018
  Jun 30,
2018
 

Quarter-over-quarter percentage change (%) in:

                                     

Effective price per impression

    (36.3 )%   49.3 %   (28.5 )%   36.3 %   17.1 %   10.9 %

Number of average daily impressions delivered on global portfolio products

    11.5 %   86.3 %   147.3 %   70.1 %   8.9 %   14.1 %

        Our effective price per impression and number of average daily impressions delivered on global portfolio products generally increased since 2017, while fluctuating from quarter to quarter as shown by the percentage increases and decreases above. The quarter-over-quarter changes of these two metrics are affected by our business development, such as the growth of user base, increase of user engagement, launch of new products and improvement of targeting capability, as well as the seasonal trends of the mobile advertising industry. Increasing user base of and user engagement with our global product portfolio largely contributed to the rapid growth of the number of average daily impressions delivered on our global portfolio in 2017 and first half of 2018. Meanwhile, the effective price per impression also showed an upward trend as we continued to improve our targeting capability by leveraging our user insight. However, our effective price per impression declined in the third quarter of 2017 as a result of our exploration of new monetization opportunities after we started to monetize other global portfolio products in this quarter. Since our business scale was relatively modest in 2017, the overall quarterly fluctuations of these two metrics were more significant in this period as compared to that in 2018. As we further expanded our user base, successfully developed more content-rich mobile applications, and enhanced our targeting capability, both metrics increased steadily in the first half of 2018. In addition, due to the seasonality of the mobile advertising industry, the growth of both metrics tends to be slower in the first quarter of each fiscal year than the other quarters. As these two metrics reflect the status of our global product portfolio that comprises of various products at different development stages on a blended basis and are affected by seasonality, we expect them to continue to fluctuate around a rising trend in the foreseeable future.

Effective investment in technology and talent

        Our cutting edge technological capabilities allow us to analyze large amounts of data and generate in-depth insight into our users' interests and demands for content. In recent years, technologies critical to our business, especially big data analytics and AI technology, have advanced rapidly and significantly. To maintain our advanced technological capabilities and in order to be able to keep up with any future technological developments, we have continued to make significant investments in enhancing our technology infrastructure and in acquiring and retaining talent with technological expertise. Our investment in technology and talent has effectively met our needs for technology upgrades and increases in product development capacity along with the rapid growth of our business. As of December 31, 2017, we had 383 full-time employees, of which 229 were software engineers and product designers. Our research and development expenses increased by 48.1% from US$8.7 million in 2016 to US$12.9 million in 2017, and increased by 47.4% from US$5.6 million for the six months ended

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June 30, 2017 to US$8.3 million for the same period of 2018. In the foreseeable future, we expect to continuously increase our investment in our research and development team and our AI technology and big data analytics capabilities.

Ability to manage costs and expenses

        Our results of operations depend on our ability to manage our costs and expenses. We spend primarily on server and bandwidth costs, telecommunication service charges and expenses related to voice over internet protocol, or VoIP, services, and staff costs. We expect the absolute amount of our bandwidth and server costs and our staff costs to steadily increase as we continue to grow our business. In order to expand our user base, we also incur sales and marketing expenses to acquire new users through pre-installation arrangements with mobile device manufactures and through online marketing and promotion activities. We expect to continue spending on user acquisition channels to further enlarge our user base in the foreseeable future. At the same time, we expect to stabilize and improve our economic efficiency of user acquisition cost as a result of the economies of scale and our accumulated knowledge and experience related to user growth. In addition, we expect our costs and operating expenses to decrease as a percentage of our total net revenues, as our business further increases in scale and our operating efficiency improves.

Key Components of Results of Operations

Net Revenues

        The following table sets forth the components of our net revenues, both in absolute amount and as a percentage of our total net revenues, for the periods presented:

 
  For the Year Ended December 31,   For the Six Months Ended June 30,  
 
  2016   2017   2017   2018  
 
  US$   %   US$   %   US$   %   US$   %  

Net Revenues:

                                                 

Advertising revenue

    9,967,282     90.4     35,032,557     93.8     8,762,535     96.2     48,468,287     96.4  

Other revenue

    1,062,797     9.6     2,302,409     6.2     350,731     3.8     1,809,336     3.6  

Total net revenues

    11,030,079     100.0     37,334,966     100.0     9,113,266     100.0     50,277,623     100.0  

    Advertising Revenue

        We generate advertising revenue primarily from delivering advertisements through our products. Based on our in-depth user insights, we target users who are likely to have interests and demands for the advertised products and services. We generally enter into arrangements with advertising exchanges and agencies that purchase advertising services and spaces from us on behalf of the end advertisers, and we also enter into advertising arrangements with individual advertisers directly. Our advertising revenue is primarily generated from performance-based advertisements, and we also offer brand advertising arrangements. For performance-based advertisements, we are paid by our advertising exchange customers based on the effective price per impression, which is impacted by the number of valid clicks, conversions or other measurable actions of our users in relation to the advertisements. For brand advertisements, we charge our advertising customers based on the number of impressions on our advertising spaces.

        Revenue from our advertising services accounted for 90.4%, 93.8% and 96.4% of our total net revenues in 2016, 2017 and the six months ended June 30, 2018, respectively. We estimate that, of our total advertising revenue, TouchPal Smart Input contributed approximately 55% in 2016, 49% in 2017 and 26% in the six months ended June 30, 2018, and our other global portfolio products contributed nil

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in 2016, approximately 20% in 2017 and 53% in the six months ended June 30, 2018. In addition, TouchPal Phonebook contributed approximately 45%, 31% and 21% of our total advertising revenue in 2016, 2017 and the six months ended June 30, 2018, respectively. We estimate the percentage of our advertising revenue derived from each product based on our determination of the percentage of advertisements delivered on each individual product to the total advertisements we delivered. From time to time, we provide sales rebates in cash to certain advertising agencies to incentivize their referral of more brand advertising arrangements to us. Our advertising revenue is presented net of sales rebates to these advertising agencies.

        We expect our advertising revenue to increase in the foreseeable future as we continue to expand our global user base, increase user engagement with our products, improve the effectiveness of our targeted advertising services, and attract more advertising customers.

    Other Revenue

        We generate other revenue from sales of virtual items in a live social video community on our TouchPal Phonebook launched in 2017, which primarily targets users in China. We also generate revenue from licensing of our TouchPal Smart Input to certain mobile device manufacturers for pre-installation.

Cost of revenues

        The following table sets forth our cost of revenues and gross profit (loss), both in absolute amount and as a percentage of our total net revenues, for the periods presented.

 
  For the Year Ended December 31,   For the Six Months Ended June 30,  
 
  2016   2017   2017   2018  
 
  US$   %   US$   %   US$   %   US$   %  

Cost of revenues

    20,158,565     182.8     20,101,386     53.8     10,172,085     111.6     8,037,508     16.0  

Gross (loss) profit

    (9,128,486 )   (82.8 )   17,233,580     46.2     (1,058,819 )   (11.6 )   42,240,115     84.0  

        Our cost of revenues consists primarily of bandwidth costs, VoIP related expenses and staff costs. Bandwidth costs are the fees we pay to telecommunications carriers and other service providers for telecommunications and other content delivery-related services. VoIP related expenses are the fees we pay to telecommunications carriers and other service providers for the VoIP services we offer through our VoIP products such as TouchPal Phonebook and AhaCall. Staff costs consist of salaries and benefits for our employees involved in the operation and maintenance of our network and mobile applications. Our other costs of revenues include revenue-sharing fees related to live broadcasting services, hardware, server and internet equipment depreciation expenses and internet data center service fees. In the foreseeable future, we expect our total cost of revenues to increase in absolute amount as we continue to expand our user base and business operations globally and we expect our cost of revenue as a percentage of net revenue to decrease due to economies of scale.

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Operating Expenses

        The following table sets forth the components of our operating expenses, both in absolute amount and as a percentage of our total net revenues, for the periods presented.

 
  For the Year Ended December 31,   For the Six Months Ended June 30,  
 
  2016   2017   2017   2018  
 
  US$   %   US$   %   US$   %   US$   %  

Operating expenses:

                                                 

Sales and marketing expenses

    9,396,663     85.2     20,161,353     54.0     5,652,254     62.0     26,345,856     52.4  

Research and development expenses

    8,691,539     78.8     12,868,356     34.5     5,646,825     62.0     8,322,788     16.6  

General and administrative expenses

    3,920,057     35.5     8,366,698     22.4     4,034,049     44.3     4,141,460     8.2  

Other operating income, net

    (605,890 )   (5.5 )   (190,338 )   (0.5 )   (117,438 )   1.3     (70,212 )   0.1  

Total operating expenses

    21,402,369     194.0     41,206,069     110.4     15,215,690     167.0     38,739,892     77.1  

    Sales and Marketing Expenses

        Our sales and marketing expenses consist primarily of user acquisition costs, general brand promotion costs, and salaries and benefits, including share-based compensation, for our sales and marketing personnel. Our user acquisition costs represent expenses for acquiring new users of our products, including expenses on targeted campaigns to acquire users and fees paid to mobile device manufacturers under pre-installation arrangements with respect to TouchPal Smart Input and TouchPal Phonebook. We expect our sales and marketing expenses to increase in the foreseeable future as we continue to acquire new users and enlarge our user base. In the meantime, we expect to improve our unit economics and the efficiency of our sales and marketing expenses by leveraging our in-depth user insights and our growing product offerings.

    Research and Development Expenses

        Research and development expenses consist primarily of salaries and benefits, including share-based compensation, for our technology and product development personnel, and depreciation and other expenses associated with the use of facilities for research and development purposes. We expect our research and development expenses to increase in the foreseeable future as we expand our team of technology and product development professionals and continue to invest in our technology infrastructure to enhance our big data analytics and AI capabilities.

    General and Administrative Expenses

        Our general and administrative expenses consist primarily of salaries and benefits, including share-based compensation, for our employees involved in general corporate operations, facility rental, as well as professional service fees related to various corporate activities. We expect our general and administrative expenses to increase in absolute amount in the foreseeable future as we continue to grow our business and incur increased costs in accounting, compliance, reporting and other costs associated with operating as a public company.

    Other Operating Income, net

        Other operating income consists of government subsidies we received from time to time.

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Taxation

Cayman Islands

        We are incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there are currently no estate duty, inheritance tax or gift tax. 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 after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

        Payments of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our ADSs or ordinary shares, nor will gains derived from the disposal of our ADSs or ordinary shares be subject to Cayman Islands income or corporation tax.

Hong Kong

        Our subsidiaries incorporated in Hong Kong are subject to Hong Kong profit tax at a rate of 16.5%. No Hong Kong profit tax has been levied as we did not have assessable profit that was earned in or derived from our Hong Kong subsidiary during the periods presented. Hong Kong does not impose a withholding tax on dividends.

PRC

    Enterprise Income Tax

        Generally, our PRC subsidiary, variable interest entities and their subsidiaries, which are considered PRC resident enterprises under PRC tax law, are subject to enterprise income tax on their worldwide taxable income as determined under PRC tax laws and accounting standards at a rate of 25%. A "high and new technology enterprise", or an HNTE, is entitled to a favorable statutory tax rate of 15% and this qualification is reassessed by relevant government authorities every three years. Our PRC subsidiary, Shanghai Chule, qualified as an HNTE and can enjoy a preferential tax rate of 15% for the three years from 2017 to 2019. If our holding company in the Cayman Islands or any of our subsidiaries outside the PRC is considered as a PRC resident enterprise for tax purposes, then our global income will be subject to PRC enterprise income tax at the rate of 25%. See "Risk Factors—Risks Related to Doing Business in China—Under the PRC Enterprise Income Tax Law, we may be classified as a PRC "resident enterprise," which could result in unfavorable tax consequences to us and our shareholders and have a material adverse effect on our results of operations and the value of your investment."

    Value-Added Tax

        We are subject to VAT at a rate of 6% on the services we provide to advertising customers in the PRC, less any deductible VAT we have already paid or borne. We are also subject to surcharges on VAT payments in accordance with PRC law.

    Withholding Tax on Dividends

        Dividends paid by our wholly foreign-owned subsidiary in China to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the relevant tax

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authority. If our Hong Kong subsidiary satisfies the requirements under the tax arrangement and receives approval from the relevant tax authority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at a reduced tax rate of 5%. See "Risk Factors—Risks Related to Doing Business in China—There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits."

Results of Operations

        The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute amount and as a percentage of our total net revenues for the periods presented. This information should be read together with our consolidated financial statements and

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related notes included elsewhere in this prospectus. The results of operations in any period are not necessarily indicative of our future trends.

 
  For The Year Ended December 31,   For the Six Months Ended June 30,  
 
  2016   2017   2017   2018  
 
  US$   %   US$   %   US$   %   US$   %  

Net revenues:

                                                 

Advertising revenue

    9,967,282     90.4     35,032,557     93.8     8,762,535     96.2     48,468,287     96.4  

Other revenue

    1,062,797     9.6     2,302,409     6.2     350,731     3.8     1,809,336     3.6  

Total net revenues

    11,030,079     100.0     37,334,966     100.0     9,113,266     100.0     50,277,623     100.0  

Cost of revenues (1)

    (20,158,565 )   (182.8 )   (20,101,386 )   (53.8 )   (10,172,085 )   (111.6 )   (8,037,508 )   (16.0 )

Gross (loss) profit

    (9,128,486 ))   (82.8 )   17,233,580     46.2     (1,058,819 )   (11.6 )   42,240,115     84.0  

Operating expenses :

                                                 

Sales and marketing expenses (1)

    (9,396,663 )   (85.2 )   (20,161,353 )   (54.0 )   (5,652,254 )   (62.0 )   (26,345,856 )   (52.4 )

Research and development expenses (1)

    (8,691,539 )   (78.8 )   (12,868,356 )   (34.5 )   (5,646,825 )   (62.0 )   (8,322,788 )   (16.6 )

General and administrative expenses (1)

    (3,920,057 )   (35.5 )   (8,366,698 )   (22.4 )   (4,034,049 )   (44.3 )   (4,141,460 )   (8.2 )

Other operating income, net

    605,890     5.5     190,338     0.5     117,438     1.3     70,212     0.1  

Total operating expenses

    (21,402,369 )   (194.0 )   (41,206,069 )   (110.4 )   (15,215,690 )   (167.0 )   (38,739,892 )   (77.1 )

(Loss) income from operations

    (30,530,855 )   (276.8 )   (23,972,489 )   (64.2 )   (16,274,509 )   (178.6 )   3,500,223     7.0  

Interest income, net

    12,887     0.1     481,932     1.3     166,087     1.8     70,475     0.1  

Foreign exchange losses, net

    (188,631 )   (1.7 )   (169,556 )   (0.5 )   (125,399 )   (1.4 )   (59,269 )   (0.1 )

(Loss) income before income taxes

    (30,706,599 )   (278.4 )   (23,660,113 )   (63.4 )   (16,233,821 )   (178.1 )   3,511,429     7.0  

Income tax expense

            (800 )   0.0     (800 )   0.0          

Net (loss) income

    (30,706,599 )   (278.4 )   (23,660,913 )   (63.4 )   (16,234,621 )   (178.1 )   3,511,429     7.0  


(1)
Share-based compensation was allocated in costs of revenues and operating expenses as follows:
   
  For the Year
Ended
December 31,
  For the Six
Months Ended
June 30,
 
   
  2016   2017   2017   2018  
   
  US$   US$   US$   US$  
 

Cost of revenues

    24,514     31,510     12,127     23,892  
 

Sales and marketing expenses

    35,298     70,707     29,956     39,391  
 

Research and development expenses

    445,084     544,786     274,795     666,679  
 

General and administrative expenses

    222,317     1,777,941     1,662,219     161,263  
 

Total

    727,213     2,424,944     1,979,097     891,225  

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Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Net Revenues

        Our net revenues increased by 451.7% from US$9.1 million for the six months ended June 30, 2017 to US$50.3 million for the same period of 2018, primarily due to a substantial increase in our advertising revenue.

        Advertising revenue.     Our advertising revenue increased by 453.1% from US$8.8 million for the six months ended June 30, 2017 to US$48.5 million for the same period of 2018. The increase of advertising revenue was driven primarily by the increase in the number of impressions we sold on our advertising spaces from the first half of 2017 to the first half of 2018. The increase in the number of impressions we sold on our advertising spaces was primarily driven by (i) the increase in the average DAUs of our global portfolio products from 75.6 million in June 2017 to 132.6 million in June 2018, representing 75.3% year-on-year growth, which was primarily driven by the organic growth of our user base and our continued investment in user acquisition, and (ii) the increase in our available advertising spaces on our global portfolio products, which was driven by the increased user engagement with our global portfolio applications.

        Other Revenue.     Other revenue increased from US$0.4 million for the six months ended June 30, 2017 to US$1.8 million for the same period of 2018, driven partially by the increase in the sales of virtual items in the live social video community on our TouchPal Phonebook.

Cost of revenues

        Our cost of revenues decreased by 21.0% from US$10.2 million for the six months ended June 30, 2017 to US$8.0 million for the same period of 2018. This decrease was primarily due to the decrease in our VoIP related expenses of US$3.6 million as a result of our improved efficiency in telecommunication services utilization, which was partially offset by the increase in revenue-sharing fees of US$0.8 million paid in relation to live broadcasting services.

Gross (loss) profit

        As a result of the foregoing, we recorded gross profit of US$42.2 million for the six months ended June 30, 2018, as compared to gross loss of US$1.1 million for the same period of 2017. Our gross margin increased from negative 11.6% for the six months ended June 30, 2017 to 84.0% for the same period of 2018, primarily due to the rapid growth of our revenues compared to the relatively stable cost of revenues and also due to our improved operational efficiency driven by the improvements in our ability to deliver targeted advertisements.

Operating expenses

        Our total operating expenses increased by 154.6% from US$15.2 million for the six months ended June 30, 2017 to US$38.7 million for the same period of 2018, primarily due to the increase of sales and marketing expenses, research and development expenses and general and administrative expenses along with the expansion of our global user base and business operations.

        Sales and marketing expenses.     Our sales and marketing expenses increased by 366.1% from US$5.7 million for the six months ended June 30, 2017 to US$26.3 million for the same period of 2018. The increase was primarily due to the increase in our user acquisition costs in connection with our continuous efforts to grow the user base.

        Research and development expenses.     Our research and development expenses increased by 47.4% from US$5.6 million for the six months ended June 30, 2017 to US$8.3 million for the same period of 2018. The increase was primarily due to an increase in salaries and benefits for our technology and

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product development personnel of US$2.3 million mainly as a result of an increase in the number of our technology and product development personnel from 199 as of June 30, 2017 to 237 as of June 30, 2018. The increase in research and development expenses reflected our increased efforts in improving our big data analytics and AI technology capabilities and expanding our product offerings.

        General and administrative expenses.     Our general and administrative expenses slightly increased by 2.7% from US$4.0 million for the six months ended June 30, 2017 to US$4.1 million for the same period of 2018. In the six months ended June 30, 2017, we incurred share-based compensation of US$1.5 million in connection with the repurchases of ordinary shares from certain employees who were founding shareholders at a purchase price in excess of the fair value. As compared to the six months ended June 30, 2017, the salaries and benefits paid to general and administrative personnel increased by US$0.8 million and professional service fees of US$0.5 million were incurred for the same period of 2018.

        Other operating income, net.     We recorded other operating income of US$117,438 for the six months ended June 30, 2018, compared to other operating income of US$70,212 for the same period of 2017, in both cases primarily from government subsidies.

(Loss) income from operations

        As a result of the foregoing, we recorded income from operations of US$3.5 million for the six months ended June 30, 2018, compared to loss from operations of US$16.3 million for the same period of 2017.

Interest income, net

        We had interest income of US$166,087 and US$70,475 in the six months ended June 30, 2017 and the same period of 2018, respectively. Interest income represents interest earned on our cash, cash equivalents and restricted cash, net of the interest expenses primarily related to our bank borrowings.

Foreign exchange losses, net

        We incurred foreign exchange losses of US$0.1 million and US$59,269 in the six months ended June 30, 2017 and June 30, 2018, respectively, primarily due to the costs incurred on foreign exchange conversion.

Income tax expense

        We recorded income tax expenses of US$800 in the six months ended June 30, 2017, while we did not record any income tax expenses for the six months ended June 30, 2018.

Net (loss) income

        As a result of the foregoing, we recorded a net income of US$3.5 million for the six months ended June 30, 2018, compared to a net loss of US$16.2 million for the same period of 2017.

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

Net Revenues

        Our net revenues increased by 238.5% from US$11.0 million in 2016 to US$37.3 million in 2017, primarily due to a substantial increase in our advertising revenue.

        Advertising revenue.     Our advertising revenue increased by 251.5% from US$10.0 million in 2016 to US$35.0 million in 2017. The increase of advertising revenue was driven primarily by the increase in

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the number of impressions we sold on our advertising spaces from 2016 to 2017. The increase in the number of impressions we sold on our advertising spaces was primarily driven by (i) the increase in the average DAUs of our global portfolio products from 48.7 million in December 2016 to 104.8 million in December 2017, representing 115.2% year-on-year growth, which was primarily driven by the organic growth of our user base and our continued investment in user acquisition, and (ii) the increase in our available advertising spaces on our global portfolio products, which was driven by the release of new global portfolio applications in 2017.

        Other Revenue.     Other revenue increased from US$1.1 million in 2016 to US$2.3 million in 2017, driven primarily by the sales of virtual items in the live social video community we launched for our TouchPal Phonebook in 2017.

Cost of revenues

        Our cost of revenues decreased by 0.3% from US$20.2 million in 2016 to US$20.1 million in 2017. This decrease was primarily due to the decrease of our VoIP related expenses of US$3.7 million as a result of our improved efficiency in telecommunication services utilization, which was partially offset by the increase in revenue-sharing fees of US$1.5 million paid in relation to live broadcasting services, the increase in service fees of US$0.9 million paid for internet data center usage and cloud services, and the increase in salaries and benefits of US$0.5 million paid to operations personnel.

Gross (loss) profit

        As a result of the foregoing, we had gross profit of US$17.2 million in 2017, compared to gross loss of US$9.1 million in 2016. Our gross margin increased from negative 82.8% in 2016 to 46.2% in 2017, primarily due to the rapid growth of our revenues compared to the relatively stable cost of revenues and also due to our improved operational efficiency driven by the improvements in our ability to deliver targeted advertisements.

Operating expenses

        Our total operating expenses increased by 92.5% from US$21.4 million in 2016 to US$41.2 million in 2017, primarily due to the increase of sales and marketing expenses, research and development expenses and general and administrative expenses along with the expansion of our global user base and business operations.

        Sales and marketing expenses.     Our sales and marketing expenses increased by 114.6% from US$9.4 million in 2016 to US$20.2 million in 2017. The increase was primarily due to (i) an increase in our user acquisition costs of US$6.6 million incurred mainly in connection with the release of new global portfolio applications and (ii) an increase in salaries and benefits of US$1.3 million paid to our sales and marketing personnel.

        Research and development expenses.     Our research and development expenses increased by 48.1% from US$8.7 million in 2016 to US$12.9 million in 2017. The increase was primarily due to an increase in salaries and benefits for our technology and product development personnel of US$3.8 million mainly as a result of an increase in the number of our technology and product development personnel from 176 as of December 31, 2016 to 229 as of December 31, 2017. The increase in research and development expenses reflected our increased efforts in improving our big data analytics and AI technology capabilities and expanding our product offerings.

        General and administrative expenses.     Our general and administrative expenses increased by 113.4% from US$3.9 million in 2016 to US$8.4 million in 2017, primarily due to (i) the provision for allowance of doubtful accounts of US$1.3 million based on our assessment of the current status of a portion of accounts receivables due from certain advertising customers, (ii) the increase in salaries and benefits of

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US$0.7 million paid to our general and administrative personnel, and (iii) share-based compensation of US$1.5 million paid through the repurchases of ordinary shares from certain employees who were founding shareholders at a purchase price in excess of the fair value.

        Other operating income, net.     We recorded other operating income of US$0.2 million in 2017, compared to other operating income of US$0.6 million in 2016, in both cases primarily from government subsidies.

Loss from operations

        As a result of the foregoing, we incurred loss from operations of US$24.0 million in 2017, compared to loss from operations of US$30.5 million in 2016.

Interest income, net

        We had interest income of US$12,887 and US$0.5 million in 2016 and 2017, respectively. Interest income represents interest earned on our cash, cash equivalents and restricted cash, net of the interest expenses primarily related to our bank borrowings.

Foreign exchange losses, net

        We incurred foreign exchange losses of US$0.2 million and US$0.2 million in 2016 and 2017, respectively, primarily due to the costs incurred on foreign exchange conversion.

Income tax expense

        We recorded income tax expenses of US$800 in 2017, while we did not record any income tax expenses in 2016.

Net loss

        As a result of the foregoing, we recorded a net loss of US$23.7 million in 2017, compared to a net loss of US$30.7 million in 2016.

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Selected Quarterly Results of Operations

 
  For the Three Months Ended  
 
  September 30,
2016
  December 31,
2016
  March 31,
2017
  June 30,
2017
  September 30,
2017
  December 31,
2017
  March 31,
2018
  June 30,
2018
 
 
  US$
 

Net revenues

    2,521,445     3,759,176     3,307,305     5,805,961     9,187,013     19,034,687     21,918,636     28,358,987  

Cost of revenues (1)

    (4,478,754 )   (5,775,891 )   (5,739,666 )   (4,432,419 )   (4,850,232 )   (5,079,069 )   (4,209,489 )   (3,828,019 )

Gross (loss) profit

    (1,957,309 )   (2,016,715 )   (2,432,361 )   1,373,542     4,336,781     13,955,618     17,709,147     24,530,968  

Operating Expense:

                                                 

Sales and marketing expenses (1)

    (1,884,165 )   (5,082,939 )   (2,815,291 )   (2,836,963 )   (4,672,247 )   (9,836,852 )   (10,691,211 )   (15,654,645 )

Research and development expenses (1)

    (2,335,473 )   (2,480,787 )   (2,695,652 )   (2,951,173 )   (3,627,066 )   (3,594,465 )   (3,828,446 )   (4,494,342 )

General and administrative expenses (1)

    (1,124,443 )   (1,242,439 )   (2,827,822 )   (1,206,227 )   (1,350,237 )   (2,982,412 )   (1,862,164 )   (2,279,296 )

Other operating income, net

    303,261     38,999     48,212     69,226     29,583     43,317     21,831     48,381  

Total operating expenses

    (5,040,820 )   (8,767,166 )   (8,290,553 )   (6,925,137 )   (9,619,967 )   (16,370,412 )   (16,359,990 )   (22,379,902 )

(Loss) income from operations

   
(6,998,129

)
 
(10,783,881

)
 
(10,722,914

)
 
(5,551,595

)
 
(5,283,186

)
 
(2,414,794

)
 
1,349,157
   
2,151,066
 

Interest (expense) income

    (15,882 )   (48,911 )   17,131     148,956     165,970     149,875     61,418     9,057  

Foreign exchange (loss) gain

    (16,549 )   (62,590 )   (64,961 )   (60,438 )   (56,199 )   12,042     (37,728 )   (21,541 )

(Loss) income before income taxes

    (7,030,560 )   (10,895,382 )   (10,770,744 )   (5,463,077 )   (5,173,415 )   (2,252,877 )   1,372,847     2,138,582  

Income tax expense

                (800 )                

Net (loss) income

    (7,030,560 )   (10,895,382 )   (10,770,744 )   (5,463,877 )   (5,173,415 )   (2,252,877 )   1,372,847     2,138,582  

Non-GAAP Financial Data (2)

                                                 

Adjusted Net (Loss) Income

    (6,843,292 )   (10,701,047 )   (9,002,964 )   (5,252,560 )   (4,940,611 )   (2,039,834 )   1,650,914     2,751,740  

Adjusted EBITDA

    (6,687,769 )   (10,512,250 )   (8,848,916 )   (5,198,442 )   (4,855,634 )   (1,915,091 )   1,868,569     3,028,914  


(1)
Share-based compensation was allocated in costs of revenues and operating expenses as follows:
   
  For the Three Months Ended  
   
  September 30,
2016
  December 31,
2016
  March 31,
2017
  June 30,
2017
  September 30,
2017
  December 31,
2017
  March 31,
2018
  June 30,
2018
 
   
  US$
 
 

Cost of revenues

    6,201     6,200     6,031     6,096     12,066     7,317     8,578     15,314  
 

Sales and marketing expenses

    8,710     12,066     14,889     15,067     22,364     18,387     6,815     32,576  
 

Research and development expenses

    114,496     118,208     141,873     132,922     140,513     129,478     196,696     469,983  
 

General and administrative expenses

    57,861     57,861     1,604,987     57,232     57,861     57,861     65,978     95,285  
 

Total

    187,268     194,335     1,767,780     211,317     232,804     213,043     278,067     613,158  
(2)
The table below sets forth a reconciliation of our net (loss) income to Adjusted EBITDA for the periods indicated. For a detailed discussion of our non-GAAP financial measure, see "Prospectus Summary—Summary Consolidated Financial Data—Non-GAAP Financial Measure."

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  For the Three Months Ended  
 
  September 30,
2016
  December 31,
2016
  March 31,
2017
  June 30,
2017
  September 30,
2017
  December 31,
2017
  March 31,
2018
  June 30,
2018
 
 
  US$
 

Adjusted EBITDA reconciliation:

                                                 

Net (loss) income

    (7,030,560 )   (10,895,382 )   (10,770,744 )   (5,463,877 )   (5,173,415 )   (2,252,877 )   1,372,847     2,138,582  

Add:

                                                 

Share-based compensation related to share options and restricted share units

    187,268     194,335     219,396     211,317     232,804     213,043     278,067     613,158  

Compensation expense related to ordinary share repurchase

            1,548,384                      

Adjusted Net (Loss) Income (Non-GAAP)*

    (6,843,292 )   (10,701,047 )   (9,002,964 )   (5,252,560 )   (4,940,611 )   (2,039,834 )   1,650,914     2,751,740  

Add:

                                                 

Interest expense (income)

    15,882     48,911     (17,131 )   (148,956 )   (165,970 )   (149,875 )   (61,418 )   (9,057 )

Income taxes

                800                  

Depreciation

    139,641     139,886     171,179     202,274     250,947     274,618     279,073     286,231  

Adjusted EBITDA (Non-GAAP)*

    (6,687,769 )   (10,512,250 )   (8,848,916 )   (5,198,442 )   (4,855,634 )   (1,915,091 )   1,868,569     3,028,914  


*
The non-GAAP adjustments do not take into consideration the impact of taxes on such adjustments.

        We experienced general growth in net revenues for the eight quarters from July 1, 2016 to June 30, 2018, primarily due to the increase in our revenue from mobile advertising services. The mobile advertising industry typically has seasonal trends. The advertisers tend to increase their advertising spending in the fourth quarter of each calendar year and reduce their advertising spending in the first quarter of each calendar year. As a result of the seasonality of the mobile advertising business, we had lower advertising revenue in the first quarter of 2017 compared to the fourth quarter of 2016. The seasonal trends that we have experienced in the past may not apply to, or be indicative of, our future operating results. We experienced significant revenue growth in the period of three consecutive quarters ended June 30, 2018, mainly driven by the fast growth of the user base of our other global portfolio products during that period.

        Our cost of revenues was relatively stable in absolute amount and generally decreased as a percentage of our net revenues during the eight quarters from July 1, 2016 to June 30, 2018, except for the increase as a percentage of net revenues between the fourth quarter of 2016 and the first quarter of 2017 due to seasonality. The cost of revenues was relatively stable because the increase in our bandwidth and internet data usage costs due to our user-base expansion was offset by the decrease in our VoIP related cost due to improved efficiency in telecommunication services utilization. Our operating expenses generally increased in absolute amount for the same period, primarily due to increased expenditure on targeted marketing campaigns to acquire new users and headcount increase.

        We recorded a gross profit for the five consecutive quarters from April 1, 2017 to June 30, 2018 as our net revenues rapidly increased while our cost of revenues increased at a lower pace due to the economy of scale and our improved operating efficiency. In the last three quarters of 2017, our loss from operations as a percentage of net revenues continued to decrease. In the first two quarters of 2018, we started to achieve profitability due to (i) the increase in the average DAUs and user engagement with our global portfolio products, and (ii) the improved monetization efficiency during that period.

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Liquidity and Capital Resources

Cash Flows and Working Capital

        The following table sets forth a summary of our cash flows for the periods presented:

 
  For the Year Ended
December 31,
  For the Six Months Ended
June 30,
 
 
  2016   2017   2017   2018  
 
  US$   US$   US$   US$  

Summary Consolidated Cash Flow Data:

                         

Net cash (used in) provided by operating activities

    (28,435,452 )   (28,049,152 )   (19,799,666 )   4,539,916  

Net cash used in investing activities

    (831,393 )   (1,758,412 )   (1,102,408 )   (948,043 )

Net cash provided by (used in) financing activities

    51,306,960     14,401,620     13,694,494     (1,101,895 )

Net increase (decrease) in cash, cash equivalents, and restricted cash

    22,040,115     (15,405,944 )   (7,207,580 )   2,489,978  

Cash, cash equivalents, and restricted cash at beginning of year

    19,845,488     41,344,623     41,344,623     27,026,240  

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

    (540,980 )   1,087,561     543,542     (1,827,404 )

Cash, cash equivalents, and restricted cash at end of year

    41,344,623     27,026,240     34,680,585     27,688,814  

        Historically, we have financed our operations primarily through funding from private issuances of preferred shares and loans from commercial banks. As of December 31, 2017 and June 30, 2018, we had US$27.0 million and US$27.7 million in cash, cash equivalents, and restricted cash, respectively. Our cash and cash equivalents primarily consist of cash on hand, short-term bank demand deposits and short-term principal-secured investments. Our restricted cash consists of bank deposits used to guarantee payment processing services provided by banks.

        We incurred a net loss of US$30.7 million and US$23.7 million and operating cash outflow of US$28.4 million and US$28.0 million for the years ended December 31, 2016 and 2017, respectively. We had net income of US$3.5 million and operating cash inflow of US$4.5 million for the six months ended June 30, 2018. We accumulated a deficit of US$123.4 million as of June 30, 2018. We had positive working capital, which equals the result of current assets minus current liabilities, of US$37.6 million, US$28.9 million and US$31.0 million as of December 31, 2016, December 31, 2017 and June 30, 2018, respectively. In the second half of 2018, we seek to further increase our revenues by increasing sales of our advertising services while maintaining control of our operating costs and expenses. We expect that these measures will improve our liquidity position during the current financial year. We believe that our current cash, cash equivalents, and restricted cash, the available credit under our existing credit facilities, and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary course of business for the 12 months following this offering. We may, however, need additional capital in the future.

        If we determine that our cash requirements exceed the amount of cash, cash equivalents, and restricted cash we have on hand, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that might restrict our operations. We cannot assure you that financing will be available in

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amounts or on terms acceptable to us, if at all. Our anticipated cash flows for 2018 and planned actions to increase revenues and generate cash flows are based on our current expectations, beliefs and estimates and are not guarantees of our future operating results, liquidity and ability to continue operations.

        As of June 30, 2018, 44.6% of our cash and cash equivalents, and restricted cash were held in China, and 15.1% were held by our VIEs and denominated in Renminbi. Most of the remaining cash and cash equivalents and restricted cash we held as of June 30, 2018 were held in Hong Kong and mainly denominated in Hong Kong dollars and U.S. dollars. Although we consolidate the results of our VIEs, we only have access to the assets or earnings of our VIEs through our contractual arrangements with our VIEs and their shareholders. See "Corporate History and Structure—Contractual Arrangements with Our VIEs and Their Respective Shareholders." For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see "—Holding Company Structure."

        To utilize the proceeds we expect to receive from this offering, we may make additional capital contributions to our PRC subsidiary, establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, or make loans to the PRC subsidiaries. However, most of these uses are subject to PRC regulations. Foreign direct investment and loans must be approved by and/or registered with SAFE and its local branches. The total amount of loans we can make to our PRC subsidiary cannot exceed statutory limits and must be registered with the local counterpart of SAFE. The statutory limit for the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment as approved by the Ministry of Commerce or its local counterpart and the amount of registered capital of such foreign-invested company. See "Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of our initial public offering to make loans to our PRC subsidiary and consolidated affiliated entities, or to make additional capital contributions to our PRC subsidiary." and "Use of Proceeds."

        A portion of our future revenues are likely to continue to be in the form of Renminbi. Under existing PRC foreign exchange regulations, Renminbi may be converted into foreign exchange for current account items, including profit distributions, interest payments and trade-and service-related foreign exchange transactions without prior SAFE approval by following certain routine procedural requirements. However, current PRC regulations permit our PRC subsidiary to pay dividends to us only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Our PRC subsidiary is required to set aside at least 10% of its after-tax profits after making up previous years' accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. These reserves are not distributable as cash dividends. See "Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends paid by our PRC subsidiary to fund cash and financing requirements. Any limitation on the ability of our PRC subsidiary to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares."

Operating Activities

        Net cash provided by operating activities in the six months ended June 30, 2018 was US$4.5 million, as compared to net income of US$3.5 million in the same period. The difference was primarily due to (i) an increase of US$4.8 million in accounts receivable, (ii) a decrease of US$1.2 million in accrued expenses and other current liabilities, and (iii) a decrease of US$0.8 million in accrued salary and benefits, partially offset by (i) an increase of US$5.0 million in accounts payable driven primarily by the increase of our user acquisition costs, and (ii) an increase of US$0.3 million in deferred government subsidies. The principal non-cash items affecting the difference between our net

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income and our net cash used in operating activities in six months ended June 30, 2018 primarily consisted of (i) US$0.6 million in depreciation expenses, and (ii) US$0.9 million in share-based compensation expenses. The increase in our accounts receivable was primarily due to the significant increase in our advertising revenue in the six months ended June 30, 2018. Contractually our advertising customers are typically required to make payments in the month following the month in which the advertisements were delivered. In practice, we typically allow a payment term of 30 to 90 days.

        Net cash used in operating activities in 2017 was US$28.0 million, as compared to net loss of US$23.7 million in the same period. The difference was primarily due to (i) an increase of US$9.6 million in accounts receivable and (ii) an increase of US$1.1 million in prepaid expenses and other current assets, partially offset by (i) an increase of US$1.6 million in accounts payable driven primarily by the increase of our user acquisition costs, (ii) an increase of US$1.1 million in accrued salary and benefits due to our business expansion, and (iii) an increase of US$0.9 million in accrued expenses and other current liabilities. The principal non-cash items affecting the difference between our net loss and our net cash used in operating activities in 2017 consisted of (i) US$1.3 million in provision for allowance of doubtful accounts, (ii) US$0.9 million in depreciation expenses, and (iii) US$0.9 million in share-based compensation expenses. The increase in our accounts receivable was primarily due to the significant increase in our advertising revenue in the three months ended December 31, 2017. Contractually our advertising customers are typically required to make payments in the month following the month in which the advertisements were delivered. In practice, we typically allow a payment term of 30 to 90 days.

        Net cash used in operating activities in 2016 was US$28.4 million, as compared to net loss of US$30.7 million in the same period. The difference was primarily due to (i) an increase of US$1.8 million in accounts receivable driven primarily by the increase of our advertising revenue and (ii) an increase of US$1.0 million in prepaid expenses and other current assets, partially offset by (i) an increase of US$1.8 million in accounts payable driven primarily by the increase of our user acquisition costs, (ii) an increase of US$1.1 million in accrued expenses and other current liabilities, and (iii) an increase of US$0.7 million in accrued salary and benefits due to our business expansion. The principal non-cash items affecting the difference between our net loss and our net cash used in operating activities in 2016 consisted of (i) US$0.7 million in share-based compensation expenses, and (ii) US$0.6 million in depreciation expenses.

Investing Activities

        Net cash used in investing activities in the six months ended June 30, 2018 was US$0.9 million, primarily due to (i) purchase of property, plant and equipment of US$0.8 million and (ii) acquisition of minority equity interest in an investee company of US$0.5 million, partially offset by the repayment of loans from related parties of US$0.4 million.

        Net cash used in investing activities in 2017 was US$1.8 million, primarily due to (i) purchase of property, plant and equipment of US$1.5 million and (ii) loans to related parties of US$0.3 million.

        Net cash used in investing activities in 2016 was US$0.8 million, primarily due to purchase of property, plant and equipment of US$0.8 million.

Financing Activities

        Net cash used in financing activities in the six months ended June 30, 2018 was US$1.1 million due to our repayment of bank borrowings.

        Net cash provided by financing activities in 2017 was US$14.4 million, primarily due to (i) the proceeds received from the issuance of our Series D-1 preferred shares of US$20.0 million and

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(ii) proceeds from bank borrowings of US$1.9 million, partially offset by (i) our repurchase of ordinary shares from certain founding shareholders of US$1.5 million, (ii) our repurchase of Series A preferred shares of US$2.0 million from certain preferred shareholders, and (iii) our repayment of bank borrowings of US$4.0 million.

        Net cash provided by financing activities in 2016 was US$51.3 million, primarily due to (i) the proceeds received from the issuance of our Series D preferred shares of US$46.0 million and (ii) proceeds from bank borrowings of US$6.0 million, partially offset by our repayment of bank borrowings of US$0.7 million.

Capital Expenditures

        We made capital expenditures of US$0.8 million, US$1.5 million and US$0.8 million in 2016, 2017 and the six months ended June 30, 2018, respectively. In these periods, our capital expenditures were mainly used for purchases of property and equipment, including servers and other IT equipment. We plan to continue to make capital expenditures to meet the needs that result from the expected growth of our business.

Contractual Obligations

        The following table sets forth our contractual obligations as of December 31, 2017:

 
  Payment Due by Period  
 
  Total   Less than
1 year
  1 - 3
years
 
 
  (in US$)
 

Lease obligations

    963,388     693,756     269,632  

Borrowing (1)

    1,293,503     1,293,503        

Total

    2,256,891     1,987,259     269,632  


(1)
The borrowing includes interest estimated at 6.18% per annum. As the variable rate equals the prevailing base lending rate for one year as announced by the People's Bank of China plus 1.43%, the weighted average interest rate of borrowing was 6.18% in the years ended December 31, 2016 and 2017.

        Other than those shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2017.

Off-Balance Sheet Commitments and Arrangements

        We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.

Holding Company Structure

        CooTek (Cayman) Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our PRC subsidiary, our Hong Kong subsidiaries and our VIEs in China. As a result, CooTek (Cayman) Inc.'s ability to pay dividends depend on dividends paid by our PRC and Hong Kong subsidiaries. If our existing subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay

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dividends to us. In addition, our wholly foreign-owned subsidiary in China is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiary and our VIEs in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, our wholly foreign-owned subsidiary in China may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at its discretion, and our VIEs may allocate a portion of their after-tax profits based on PRC accounting standards to a discretionary surplus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Our PRC subsidiary has not paid dividends and will not be able to pay dividends until it generates accumulated profits and meets the requirements for statutory reserve funds.

Quantitative and Qualitative Disclosures about Market Risk

Foreign Exchange Risk

        A majority of our expenses and a certain percentage of our revenues are denominated in RMB. We have not used any derivative financial instruments to hedge exposure to such risk.

        The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People's Bank of China. In July 2005, the PRC government changed its decades-old policy of pegging the value of Renminbi to the U.S. dollar, and Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.

        To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of Renminbi against the U.S. dollar would have an adverse effect on Renminbi amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against Renminbi would have a negative effect on the U.S. dollar amounts available to us.

        For the years ended December 31, 2016 and 2017, we had a net loss of US$30.7 million and US$23.7 million, respectively. For the six months ended June 30, 2018, we had net income of US$3.5 million. The following table demonstrates the impact of a hypothetical increase or decrease in the exchange rate of U.S. dollar against RMB on our financial results holding all other variables constant:

 
  Effects on net income (loss) (US$)  
 
  For the
Year Ended
December 31, 2016
  For the
Year Ended
December 31, 2017
  For the
Six Months
Ended
June 30, 2018
 

5% appreciation of USD against RMB

    1,511,157     1,486,139     571,491  

5% depreciation of USD against RMB

    (1,670,226 )   (1,642,575 )   (631,648 )

        As of June 30, 2018, we had RMB-denominated cash, cash equivalents and restricted cash of RMB62.5 million, HKD-denominated cash, cash equivalents and restricted cash of HKD68.7 million,

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and U.S. dollar-denominated cash, cash equivalents and restricted cash of US$ 9.5 million. Assuming we had converted the U.S. dollar-denominated cash, cash equivalents and restricted cash of US$9.5 million into RMB at the exchange rate of $1.00 for RMB6.6166 as of June 30, 2018, a 5% appreciation or depreciation of RMB against the U.S. dollar as of June 30, 2018 would result in a decrease or an increase of RMB3.1 million in our cash and cash equivalents, respectively. Assuming we had converted the HKD-denominated cash, cash equivalents and restricted cash of HKD68.7 million into RMB at the exchange rate of HKD1.00 for RMB0.8431 as of June 30, 2018, a 5% appreciation or depreciation of RMB against HKD as of June 30, 2018 would result in a decrease or an increase of RMB2.9 million in our cash and cash equivalents, respectively.

        In recent years, the exchange rate between RMB and U.S. dollar has experienced volatility. It is difficult to predict how market forces and government policies may impact the exchange rate between RMB and the U.S. dollar in the future. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk, but we may, in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. The effectiveness of these hedges may be limited and we may not be able to successfully reduce our exposure.

Interest Rate Risk

        Our exposure to interest rate risk primarily relates to the interest expenses incurred on bank borrowings and income generated by excess cash, which is mostly held in interest-bearing bank deposits. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to material risks due to changes in interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure. However, our future interest income may fall short of expectations due to changes in market interest rates.

Inflation

        To date, inflation in the PRC has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for December 2016 and 2017 were increases of 2.1% and 1.8%, respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher rates of inflation in the PRC. For example, certain operating costs and expenses, such as employee compensation and office operating expenses may increase as a result of higher inflation. Additionally, because a substantial portion of our assets consists of cash and cash equivalents and short-term investments, high inflation could significantly reduce the value and purchasing power of these assets. We are not able to hedge our exposure to higher inflation in China.

Internal Control Over Financial Reporting

        Prior to this offering, we were a private company with limited accounting personnel and other resources to address our internal controls and procedures. Our independent registered public accounting firm, or our independent accountant, has not conducted an audit of our internal control over financial reporting. However, in connection with the audit of our consolidated financial statements as of and for year ended December 31, 2017, we and our independent accountant identified one material weakness and two significant deficiencies in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States, and other control deficiencies. A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

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        The material weakness identified related to the lack of accounting personnel with requisite knowledge of U.S. GAAP and SEC financial reporting requirements, and lack of accounting policies and procedures relating to financial reporting in accordance with U.S. GAAP and SEC financial reporting requirements. As we are a privately owned company prior to this initial public offering, neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control over financial reporting under the Sarbanes-Oxley Act for purposes of identifying and reporting any material weakness or significant deficiency in our internal control over financial reporting. Had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional control deficiencies may have been identified.

        We do not believe that this material weakness had a significant impact on our financial reporting. We are in the process of implementing a number of measures to address the material weakness that has been identified:

    We have hired qualified accounting and reporting staff with appropriate knowledge and experience of U.S. GAAP and SEC financial reporting requirements and plan to add more qualified staff to this team within one year following this offering;

    We will further develop our compliance process and establish a comprehensive policy and procedure manual, to allow early detection, prevention and resolution of potential compliance issues by the end of 2019;

    We organize regular training for our accounting and reporting staff, especially training related to U.S. GAAP and SEC financial reporting requirements, and plan to sponsor the external professional training of our accounting and reporting staff starting from 2018 onwards; and

    We plan to complete the upgrade of our financial system to enhance its effectiveness and financial and system control by the end of 2018.

        However, we cannot assure you that we will remediate our material weakness in a timely manner. See "Risk Factors—Risks Related to Our Business—If we fail to implement and maintain an effective system of internal control, we may be unable to accurately report our operating results, meet our reporting obligations or prevent fraud."

        As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an "emerging growth company" pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, in the assessment of the emerging growth company's internal control over financial reporting for 5 years.

Critical Accounting Policies, Judgments and Estimates

        An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.

        We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from

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our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.

        The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and other disclosures included in this prospectus. When reviewing our consolidated financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgments and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.

Principles of Consolidation

        Our consolidated financial statements include the financial information of our holding company, our subsidiaries and our VIEs. All intercompany balances and transactions between us, our subsidiaries and our VIEs are eliminated upon consolidation.

        PRC laws and regulations currently restrict foreign-invested companies to engage in mobile internet and mobile advertising businesses. Our offshore holding companies are deemed as foreign entities under PRC laws and accordingly our wholly-owned PRC subsidiary is not eligible to engage in provisions of internet content or other online services. To comply with PRC law and regulations, we conduct all of our mobile internet and mobile advertising businesses in China through our VIEs. Through a series of contractual agreements with VIEs and their respective shareholders, we have effective control over the VIEs. We consolidate our subsidiaries and VIEs of which we are the primary beneficiary.

Revenue Recognition

        In accordance with the criteria set forth in ASC605, Revenue Recognition , we recognize revenues when the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.

        We provide advertising services to advertising customers which promote their brands, products and services through our mobile applications. We offer two main types of advertising arrangements: brand advertising services and performance-based advertising services. For brand advertising, we recognize revenue ratably based on the number of impressions over the period that the advertising service is provided, which is generally one to two months. For performance-based advertising services, we charge fees to advertising customers based on the effectiveness of advertising links, which is measured by clicks, conversions or some other measurable actions by users of our mobile applications. Revenue from performance-based advertising services is recognized when a user takes the action requested by the advertising customer.

        We provide cash incentives in the form of sales rebates to certain advertising agencies, and our advertising revenue is presented net of such sales rebates. We have estimated and recorded the sales rebates based on historical transactions and the agreed sales rebate rates with certain advertising agencies. For the years ended December 31, 2016 and 2017, the rebates recorded by us were US$0.6 million and US$1.8 million, respectively. For the six months ended June 30, 2017 and 2018, the rebates recorded by us were US$0.9 million and US$0.2 million, respectively.

        We engage in certain advertising barter transactions for which the fair value of the advertising provided was not determinable and therefore no revenues or expenses derived from these barter transactions were recognized.

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Share-based Compensation

        Our share-based payment transactions with our employees are measured based on the grant date fair value of the equity instrument we issued and recognized as compensation expense over the requisite service period based on the straight-line method, with a corresponding impact reflected in additional paid-in capital.

        The following table sets forth information regarding the share options granted to eligible employees:

Year
  Number of
Ordinary
option granted
  Exercise
Price
  Fair Value Range
of
options at the
Grant Date
  Fair Value
of the
underlying
Ordinary
Shares at
the Grant
Date
 
 
   
  US$
  US$
  US$
 

2016

    44,618,497     0.10-0.18     0.0247-0.0504     0.08-0.10  

2017

    10,755,650     0.18     0.0379-0.0748     0.10-0.16  

        Our share-based compensation expenses are measured at the fair value of the awards as calculated under the binomial option-pricing model. Changes in the assumptions used in the binomial model could significantly affect the fair value of stock options and hence the amount of compensation expenses we recognize in our consolidated financial statements.

        Assumptions used in the binomial model are presented below:

 
  For the years ended December 31,
 
  2016   2017

Average risk-free rate of interest (1)

  1.49%-2.45%   2.27%-2.45%

Expected volatility (2)

  40.92%-41.88%   40.47%-41.32%

Dividend yield (3)

  0%   0%

Contractual term

  10 years   10 years

(1)
We estimate the average risk-free rate of interest based on the yield to maturity of U.S. treasury bonds denominated in US$ with a maturity similar to the expected expiry of the term.

(2)
We estimate expected volatility based on the historical volatility of comparable companies in the period equal to average time to expiration to the valuation date.

(3)
We have never declared or paid any dividends on our capital stock, and we do not anticipate any dividend payments on our ordinary shares in the foreseeable future.

        We estimate the fair value of our restricted share units based on the fair value of our ordinary shares on the date of grant.

        The assumptions used in share-based compensation expenses recognition represent our best estimates, but these estimates involve inherent uncertainties and the application of our judgment. If factors change or different assumptions are used, our share-based compensation expenses could be materially different for any period.

        Moreover, the estimates of fair value are not intended to predict actual future events or the value that ultimately will be realized by grantees who receive share-based awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us for accounting purposes.

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Fair Value of Our Ordinary Shares

        We are a private company with no quoted market prices for our ordinary shares. We therefore need to make estimates of the fair value of our ordinary shares. The following table sets forth the fair value of our ordinary shares estimated at different times with the assistance from an independent valuation firm:

Valuation Date
  Per Share
Fair Value of
the Underlying
Ordinary Shares
  Purpose of Valuation
 
  US$
   

January 31, 2016

    0.0804   Share option grants

July 14, 2016

    0.1020   To determine potential beneficial conversion feature in connection with the issuance of Series D convertible redeemable preferred shares, and share option grants

January 10, 2017

    0.1017   To determine potential beneficial conversion feature in connection with the issuance of Series D-1 convertible redeemable preferred shares, and share option grants

July 31, 2017

    0.1601   Share option grants

March 15, 2018

    0.4469   Restricted share unit grants

        In determining the fair value of our ordinary shares, we applied the income approach/discounted cash flow, or DCF, analysis based on our projected cash flow using management's best estimate as of the valuation date. The determination of the fair value of our ordinary shares requires complex and subjective judgments to be made regarding our projected financial and operating results, our unique business risks, the liquidity of our shares and our operating history and prospects at the time of valuation.

        The major assumptions used in calculating the fair value of ordinary shares include:

        Discount Rates.     The discount rates used were based on the weighted average cost of capital, which was determined based on a consideration of the factors including risk-free rate, comparative industry risk, equity risk premium, company size and non-systemic risk factors.

        Comparable Companies.     In deriving the weighted average cost of capital used as the discount rates under the income approach, seven publicly traded companies were selected for reference as our guideline companies. The guideline companies were selected based on the following criteria: (i) they operate in the internet and big data industry and (ii) their shares are publicly traded on stock exchanges in the United States.

        Discount for Lack of Marketability, or DLOM.     DLOM was quantified by the Finnerty option pricing model. Under this option-pricing method, the cost of the put option, which can hedge the price change before the privately held shares can be sold, was considered as a basis to determine the DLOM. This option pricing method is one of the methods commonly used in estimating DLOM as it can take into consideration factors like timing of a liquidity event, such as an initial public offering, and estimated volatility of our shares. The farther the valuation date is from an expected liquidity event, the higher the put option value and thus the higher the implied DLOM. The lower DLOM is used for the valuation, the higher is the determined fair value of the ordinary shares.

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        The income approach involves applying appropriate discount rates to estimated cash flows that are based on earnings forecasts. Our revenues and earnings growth rates, as well as major milestones that we have achieved, contributed to the increase in the fair value of our ordinary shares in 2016, 2017 and six months ended June 30, 2018.

        However, these fair values are inherently uncertain and highly subjective. The assumptions used in deriving the fair values are consistent with our business plan. These assumptions include: (i) no material changes in the existing political, legal and economic conditions; (ii) our ability to retain competent management, key personnel and staff to support our ongoing operations; and (iii) no material deviation in market conditions from economic forecasts. These assumptions are inherently uncertain.

        The hybrid method was used to allocate enterprise value to preferred and ordinary shares, taking into account the guidance prescribed by the AICPA Audit and Accounting Practice Aid, " Valuation of Privately-Held Company Equity Securities Issued as Compensation ." The hybrid method is a hybrid between the probability-weighted expected return method, or PWERM, and the option pricing method. Under a PWERM, the value of the various equity securities are estimated based upon an analysis of future values for the enterprise, assuming various future outcomes. The option pricing method treats preferred shares as call options on the enterprise's value, with exercise prices based on the liquidation preference of the preferred shares.

        The option-pricing method involves making estimates of the anticipated timing of a potential liquidity event, such as a sale of our company or an initial public offering, and estimates of the volatility of our equity securities. The anticipated timing is based on the plans of our board of directors and management. Estimating the volatility of the share price of a privately held company is complex because there is no readily available market for the shares. We estimated the volatility of our shares to range from 40.47% to 41.88% based on the historical volatilities of comparable publicly traded companies engaged in similar lines of business. Had we used different estimates of volatility, the allocations between preferred and ordinary shares would have been different.

Accounts Receivable, net

        Accounts receivable, net represents those receivables derived from the ordinary course of business and are recorded net of allowance for doubtful accounts. We maintain an allowance for doubtful accounts that reflect our best estimate of probable losses inherent in the accounts receivable. In determining collectability of the accounts receivable, we consider many factors, such as creditworthiness of the customers, aging of the receivables, payment history of the customers, financial conditions of the customers and market trend, and other specific facts and circumstances. In circumstance where we are aware of a specific advertising customer's inability to settle our receivables, we record a specific provision to reduce the amount that we believe we will collect. For the years ended December 31, 2016 and 2017, provision for allowance for doubtful account was nil and US$1.3 million, respectively.

Income Tax

        Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. We follow the asset and liability method of accounting for income taxes.

        In accordance with the provisions of ASC 740, we recognize in the financial statements the benefit of a tax position if the tax position is "more likely than not" to prevail based on the facts and technical merits of the position. Tax positions that meet the "more likely than not" recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. We estimates liability for unrecognized tax benefits which are periodically

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assessed and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The ultimate outcome for a particular tax position may not be determined with certainty prior to the conclusion of a tax audit and, in some cases, appeal or litigation process.

        Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statements carrying amounts and tax bases of assets and liabilities by applying enacted statutory tax rates that will be in effect in the period in which the temporary differences are expected to reverse. We consider positive and negative evidence when determining whether some portion or all of the deferred tax assets will not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, historical results of operations, and tax planning strategies. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

        We have provided a full valuation allowance for the deferred tax assets as of December 31, 2016 and 2017, as we are not able to conclude that future realization of those net operating-loss carry-forwards and other deferred tax assets is more likely than not.

Recent Accounting Pronouncements

        In May 2014, the Financial Accounting Standards Board (the "FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer. The new disclosure requirements will provide information about the nature, amount, timing and uncertainty of revenue and cash flows from revenue contracts with customers. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017.

        The new revenue standards may be applied retrospectively to each prior period presented (full retrospective method) or retrospectively with the cumulative effect recognized as of the date of initial application (the modified retrospective method). Pursuant to the JOBS Act, we, as an emerging growth company, have elected to take advantage of the benefits of the extended transition period for complying with new or revised accounting standards as required when they are adopted for public companies, and will adopt and implement the new revenue standard as of the effective date applicable to private companies, i.e., January 1, 2019, using the modified retrospective method. We are in the process of evaluating the impact of the adoption of this standard on our consolidated financial statements and currently do not expect the adoption will have significant effects on our revenue recognition practices, financial positions, results of operations or cash flows. The new standard will require us to provide more robust disclosures than required by previous guidance, including disclosures related to disaggregation of revenue into appropriate categories, performance obligations, and the judgments made in revenue recognition determinations.

        In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern, which requires management of public and private companies to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. Management's evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The new standard is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. We have adopted ASU 2014-15, assessed our ability to

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continue as a going concern and concluded that substantial doubt about our ability to continue as a going concern does not exist.

        In February 2016, the FASB issued ASU2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing a right-of-use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either operating or financing. The definition of a lease has been revised in regards to when an arrangement conveys the right to control the use of the identified asset under the arrangement which may result in changes to the classification of an arrangement as a lease. The ASU expands the disclosure requirements of lease arrangements. This ASU will become effective for us on January 1, 2019, and requires adoption using a modified retrospective approach. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. We are in the process of evaluating the impact on our consolidated financial statements, as well as the impact of adoption on policies, practices, systems and financial statement disclosures. As of December 31, 2017, we have US$1.0 million of future minimum operating lease commitments that are not currently recognized on its consolidated balance sheets.

        In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The update includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. The update was aimed at reducing the cost and complexity of the accounting for share-based payments. ASU 2016-09 became effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We retrospectively adopted this update as of January 1, 2017. The adoption of ASU 2016-09 did not have a material impact on our consolidated financial statements.

        In June 2016, the FASB issued ASU 2016-13, Credit Losses, Measurement of Credit Losses on Financial Instruments. This ASU provides more useful information about expected credit losses to financial statement users and changes how entities will measure credit losses on financial instruments and timing of when such losses should be recognized. This ASU is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The updates should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). We are in the process of evaluating the impact on its consolidated financial statements upon adoption.

        In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU requires that (i) debt extinguishment costs be classified as cash outflows for financing activities and provides additional classification guidance for the statement of cash flows, (ii) the classification of cash receipts and payments that have aspects of more than one class of cash flows to be applied under generally accepted accounting principles, and (iii) each separately identifiable source or use within the cash receipts and payments be classified based on their nature in financing, investing or operating activities. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 and is applied retrospectively. Early adoption is permitted including adoption in an interim period. We will adopt this ASU on its effective date of January 1, 2018 and are in the process of evaluating the impact on our consolidated financial statements upon adoption.

        In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, Restricted Cash, The ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The update is effective for public companies for fiscal

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years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The updates should be applied using a retrospective transition method to each period presented. We adopted ASU 2016-15 as of December 31, 2016, and although we changed the historical presentation on the consolidated statements of cash flows, we did not have any other material impact on our consolidated financial statements.

        In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Topic 718. The ASU is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We are in the process of evaluating the impact on our consolidated financial statements upon adoption.

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INDUSTRY

Global Mobile Internet

Mobile internet user base and penetration

        The number of global mobile internet users reached 3.3 billion in 2017 and is expected to grow at a CAGR of 5.3% to 5.0 billion by 2025, according to GSMA Intelligence. The global mobile internet penetration rate was 43% in 2017 and is expected to reach 61% in 2025, according to GSMA Intelligence.

        The growth in global mobile internet penetration is expected to be primarily driven by the strong growth in developing markets such as Asia Pacific, Sub-Saharan Africa, Latin America, Middle East and North Africa, while markets in Europe and North America are approaching saturation, according to GSMA Intelligence.


Mobile Internet Penetration by Region (2017 vs. 2025E)

GRAPHIC


Source: © GSMA Intelligence 2018

Smartphone market

        The adoption of global mobile internet has become increasingly widespread and mobile devices have become an integral part of our daily lives. According to IDC, the global smartphone shipment volume was 1.5 billion units in 2017 and is expected to grow to 1.7 billion in 2022. In particular, Asia Pacific and Latin America have exhibited the strongest growth in receiving smartphone shipments and have been the key drivers of the global smartphone market expansion. The following table sets forth the numbers of global smartphone shipments for each of the periods indicated.

 
  2011   2012   2013   2014   2015   2016   2017   2018E   2019E   2020E   2021E   2022E  

Global Smartphone Shipment (in millions)

    494.4     726.7     1,018.7     1,301.5     1,437.6     1,468.9     1,462.0     1,493.2     1,540.3     1,591.2     1,639.5     1,678.9  

Source: IDC

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Mobile Smart Input Market

Overview

        Mobile smart input is unique among mobile applications in that it is generally launched and used across multiple applications on mobile devices, which results in frequent use and generates high data value. The rapid expansion in mobile internet networks and mobile device user base over the past ten years has presented an enormous opportunity for the mobile smart input market.

        Mobile smart input products fall into two categories: default smart inputs developed by mobile device manufacturers such as Apple and Samsung exclusively for their branded devices and third-party developed smart input methods such as our TouchPal Smart Input and Microsoft/SwiftKey.

Third-party smart input providers

        Third-party smart input providers distribute their smart input products through two major channels: pre-installations on smartphones prior to shipment through partnerships with mobile device manufacturers and user downloads on digital distribution platforms such as Google Play Store.

        Pre-installation of third-party smart input applications offer a way to enhance mobile device features. As a result, mobile device manufacturers, including those that develop their own smart inputs, are often willing to partner with third-party smart input providers for pre-installation of their products. As of the date of this prospectus, almost all major mobile device manufacturers have certain partnerships of this nature with certain third-party smart input providers.

Change in User Behavior

User preferences have shifted from PC towards mobile devices

        Internet users around the globe live in an "always-on" world due to the ubiquity of mobile devices and mobile internet access. According to comScore, mobile devices accounted for 69% of digital media time spent in 2017.

        Browsing habits are also changing rapidly in recent years as smartphones have become the primary devices through which people access the internet. Although mobile devices accounted for only 5% of global web browsing in terms of page views in 2010, it overtook desktop web browsing to account for a majority of web browsing in terms of page views in October 2016, according to StatCounter. During July 2018, mobile and tablet devices together accounted for 56.9% of global web browsing in terms of page views, compared to 43.1% for desktop devices during the same period, according to StatCounter.

Mobile device users tend to spend more time on apps than web browsers

        More than 80% of mobile minutes in all markets are spent on apps and only a small portion of mobile minutes are spent on web browsers, according to comScore.

        The degree of preference for mobile apps over mobile web browsers among internet content consumers varies based on the type of content being consumed. There is a clear and strong preference for mobile apps when it comes to content related to entertainment and social networking, according to IAB.

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Mobile Device Users' Preference by Content Type in 2017

GRAPHIC


Source: IAB

Mobile Advertising Opportunities

        The global advertising industry continues to experience a shift in advertising spending from traditional offline channels such as television commercials to online channels. According to Zenith's Advertising Expenditure Forecast in March 2018, global online advertising spending increased at a CAGR of 18.8% from US$72.4 billion in 2011 to US$203.6 billion in 2017. Global online advertising spending is expected to reach US$273.8 billion in 2020.

        The growth in the broader online advertising market is primarily driven by mobile advertising. Global mobile advertising spending reached US$107.1 billion in 2017 and is expected to reach US$179.7 billion in 2020, according to Zenith.

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Mobile Advertising Expenditure
US$ billion

GRAPHIC


Source: Zenith, Advertising Expenditure Forecast, March 2018

AI and Big Data Application

        Tremendous advances in the density of computing power and data availability have enabled entirely new applications for digital technology and services. The demand for such applications in turn drives further advances in the ability to collect, manage, process, and deliver data. As a result, the ability to leverage AI and big data analytics based on user profiles and behaviors is crucial for delivering targeted content and for improving user engagement.

The proliferation of data

        The continuing increase in global online activity results in rapid growth in the amounts of data available. Big data analytics can be used to generate user insights and to improve business performance. IDC forecasts that the global data volume will grow to 163 zettabytes in 2025, a tenfold increase over the 16.1 zettabytes of data generated in 2016. Data assets including information on a mobile internet user's profile, historical interaction with mobile devices and applications, and preferences in content consumption are the basis for delivering relevant content to such user. Access to a large volume of available data online about a user is the foundation for understanding the user on an individual basis.

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Dramatic rise in the size of global database

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Source: IDC

AI capability is the engine

        The rapidly increasing quantity and availability of digital data is placing greater importance on AI technology. Large scale data analytics and deep learning algorithms allow businesses to extract useful information from large datasets and create a foundation for delivering targeted responses and more effective solutions. New computational methods and more cost-effective computing power now enable technology companies to process and draw insights from data using machine learning approaches. These insights can be used to optimize content delivery to targeted users in a way that was not possible in the past.

        In order to improve AI capabilities, it is crucial to continually refine the algorithms via training of the neural network and improving its inference capability. In return, advanced AI capabilities improve data veracity and allow a more precise analysis and understanding of user behaviors.

    AI application—Targeted content delivery

        Targeted content delivery is shifting towards individual user preference. In the past, showing and receiving content was relatively simple, with content providers design what to show and the audience receive what is given. However, with the development of the internet and data analytics, audience is no longer uniformly defined or segmented. More and more data generated by individual end users is accumulated and analyzed, and has revealed that the preferences of end users tend to be more obviously differentiated from one another than one might expect. AI helps to take this understanding one step further to allow a more meaningful and thorough analysis. With abundant data available, the mechanism of matching content with relevant users can become smarter which in turn would improve the efficiency of getting the right content to the right end users.

    AI application—Virtual assistance

        The advancement of AI has led to the development and an increasing adoption of virtual assistants, which is expected to reach a market size of $15.8 billion by 2021 from $1.6 billion in 2015 in terms of revenue from sales of virtual assistants, according to Tractica. In particular, voice-activated virtual assistants are becoming increasingly popular, most notably with voice search and voice-enabled messaging.

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BUSINESS

Our Mission

        Our mission is to empower everyone to express themselves and enjoy relevant content seamlessly.

Overview

        We are a fast-growing mobile internet company. Sophisticated big data analytics and proprietary AI capability are the backbone of our business.

        Our global portfolio of mobile applications serves a large global user base comprised of an average of 132.6 million DAUs across more than 240 countries and regions in June 2018, compared to an average of 75.6 million DAUs in June 2017, representing 75.3% year-on-year growth.

        Our core product, TouchPal Smart Input, is an intelligent input method for mobile devices and generates a massive, diverse set of user interaction data. We employ proprietary AI and big data analytical technologies both to process such data and a large amount of multi-language content that we source and organize from the internet, and to develop advanced multilingual natural language processing and semantic understanding technologies. These technologies enable us to obtain in-depth user insights and identify market opportunities, which set the foundation for developing content-rich mobile applications that deliver relevant content for different verticals such as lifestyle, healthcare and entertainment. We have also built a rich library of user profiles and interests that allows us to grow our user base effectively.

        TouchPal Smart Input boasts an advanced multilingual language model that supports more than 110 languages and offers an effective and enjoyable typing experience on mobile devices. Named one of the Google Play Best Apps of 2015, TouchPal Smart Input has high popularity and superior engagement among mobile internet users around the world. In June 2018, it reached 125.4 million DAUs on average and was launched 72 times per day per active user on average. TouchPal Smart Input's distinctive feature is that it operates across virtually all other mobile applications such as social network apps, e-commerce apps and browsers.

        Building upon user insights accumulated through our TouchPal Smart Input, we have formulated a systematic approach to developing a global product portfolio, through which we deliver relevant content and grow our user base. In addition to TouchPal Smart Input, we have launched a portfolio of 15 other mobile applications as of June 30, 2018 and most of them are content-rich applications. Those mobile applications reached 9.4 million MAUs and 2.9 million DAUs on average in December 2017 and 22.2 million MAUs and 7.3 million DAUs on average in June 2018. Most of our global portfolio applications have achieved high user ratings ranging from 4.5 to 4.7 out of 5 on Google Play Store.

        Our user-centric and data-driven approach has enabled us to release appealing products to capture mobile internet users' ever-evolving content needs and help us rapidly attract targeted users by cross-selling to existing users and acquiring new users based on our user profile analysis. For example, by leveraging our data analytics capabilities, we have identified an increasing number of users who are interested in fitness-related topics and content. To capture the business opportunity presented by this trend, we developed two fitness mobile applications, HiFit and ManFIT. We also built a profile of target users based on our user insights. We believe that this approach has allowed us to effectively grow our user base. Through HiFit and ManFIT, we deliver rich content such as workout videos to our users based on their profiles. We believe that potential users matching such profile are more likely to be interested in these applications.

        We continue to improve our AI capabilities and, in March 2018, launched Talia, an AI-powered virtual personal assistant that understands everyday conversations and delivers relevant content to users in multiple scenarios. Talia is integrated seamlessly with our TouchPal Smart Input. Talia automatically

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offers services to users in a variety of usage scenarios, such as content recommendations, web searches and weather forecasts.

        We have a proven and scalable monetization capability in mobile advertising. We leverage our in-depth user insights to deliver targeted and engaging advertisements that are relevant to users across our various mobile applications. The effective price per impression and the number of our average daily impressions delivered on our global portfolio products increased by approximately 36% and 537%, respectively, from the first half of 2017 to the first half of 2018.

        We generate revenues primarily from mobile advertising. Our net revenues grew rapidly from US$11.0 million in 2016 to US$37.3 million in 2017, representing 238.5% year-on-year growth. Our net revenues grew rapidly from US$9.1 million for the six months ended June 30, 2017 to US$50.3 million for the same period of 2018, representing 451.7% year-on-year growth. Our net loss decreased from US$30.7 million in 2016 to US$23.7 million in 2017 due to our revenue growth and operating leverage. We recorded net income of US$3.5 million for the six months ended June 30, 2018, compared to net loss of US$16.2 million for the same period of 2017. We generated gross profit of US$17.2 million in 2017, compared to gross loss of US$9.1 million in 2016, implying an improvement of gross profit margin from negative 82.8% in 2016 to 46.2% in 2017. We recorded gross profit of US$42.2 million for the six months ended June 30, 2018, as compared to gross loss of US$1.1 million for the same period of 2017, implying an improvement of gross profit margin from negative 11.6% for the six months ended June 30, 2017 to 84.0% for the same period of 2018. Of our total advertising revenue generated from our global portfolio products, our TouchPal Smart Input contributed substantially all in 2016, approximately 71% in 2017 and 33% in the six months ended June 30, 2018, and our other global portfolio products contributed approximately 29% in 2017 and 67% in the six months ended June 30, 2018.

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Our Strengths

        We believe that the following strengths contribute to our success and distinguish us from our competitors.

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A fast-growing mobile internet company with a large global user base

        We are a fast-growing AI and big data-driven mobile internet company empowering people to express themselves and enjoy relevant content seamlessly.

        Building upon user insights accumulated through our TouchPal Smart Input, we have formulated a systematic approach to developing a global product portfolio, through which we deliver relevant content and grow user base. We have built a large user base for our global product portfolio spanning more than 240 countries and regions as of June 2018, reaching an average of 132.6 million DAUs, which grew from 75.6 million DAUs in June 2017, representing 75.3% year-on-year growth.

Superior user engagement and stickiness

        Our products have enjoyed superior user engagement and stickiness. Most notably, our core product, TouchPal Smart Input, is an AI-powered input method for mobile devices that operates across mobile applications and is compatible across mobile operating systems. In June 2018, TouchPal Smart Input was launched an average of 72 times per day per active user and reached a DAU/MAU ratio of 73.0%. The average number of launch times of TouchPal Smart Input per day per active user in each of the four consecutive quarters ended June 30, 2018 was generally consistent. Of the new users who activated TouchPal Smart Input in 2017, 44% on average remained active users six months after activation.

        TouchPal Smart Input has achieved its popularity and high retention rate by offering a user-friendly interface and an array of compelling smart functionalities and features. These functionalities and features include (i) predictive input features such as next-word prediction, mistyping correction and auto spelling correction; (ii) cloud-based user accounts that store and sync users' preferences and frequently used words and text patterns, so that users can seamlessly enjoy the same level of user experience across different mobile applications and between different mobile devices; and (iii) AI-powered integrated virtual personal assistant, Talia.

        In addition to TouchPal Smart Input, our other global portfolio products have also enjoyed superior user engagement and stickiness, reaching a DAU/MAU ratio of 32.7% in June 2018.

In-depth user insights driven by big data analytics and AI technology

        Sophisticated big data analytics and proprietary AI technology are the backbone of our business.

        Our core product, TouchPal Smart Input, generates a massive, diverse set of user interaction data. We employ proprietary AI and big data analytical technologies to process such data and a large amount of multi-language content that we source and organize from the internet and develop advanced multilingual natural language processing and semantic understanding technologies. These technologies enable us to obtain in-depth user insights and identify market opportunities, which sets the foundation for developing content-rich mobile applications and growing user base effectively. We have also built a rich library of user profiles and interests that allows us to deliver relevant content to each user.

        Distinct from most other mobile applications, TouchPal Smart Input is launched within almost all other mobile applications across social network apps, e-commerce apps and browsers. The cross-app feature of TouchPal Smart Input has allowed us to generate a large and diverse set of multi-language user interaction data. We have organized such data and built a unique and rich set of databases that allow us to understand users to a degree that can be difficult for other stand-alone mobile application operators to recreate.

        Our AI capability has also allowed us to develop our proprietary virtual personal assistant, Talia. With the support of our advanced natural language processing and semantic understanding technologies, Talia understands everyday conversations and delivers relevant and on-demand content to

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users in multiple scenarios. Talia is integrated seamlessly with TouchPal Smart Input. When certain requests, interests or demands are perceived from users' conversations using TouchPal Smart Input, Talia automatically offers services to users in a variety of usage scenarios, such as content recommendations, web searches, weather forecasts, dining recommendations, and travel assistance. We believe the integration with a mobile smart input creates synergies in which Talia benefits from users' superior engagement with TouchPal Smart Input and at the same time Talia enhances users' experience with TouchPal Smart Input.

Highly effective expansion of product offerings and user base

        We leverage our in-depth user insights to identify market opportunities. Supported by our strong research, development and execution capabilities, as of June 30, 2018, we have developed and launched 15 other global portfolio applications in addition to TouchPal Smart Input and most of them are content-rich applications. These mobile applications cover verticals such as lifestyle, healthcare and entertainment.

        We have built profiles of targeted users for each of our global portfolio applications based on our in-depth user insights. We believe that potential users matching such profiles are more likely to be interested in these applications. As a result, each of our products has attracted a sizable user base on its own and received high user ratings on Google Play Store.

Proven and highly scalable monetization capability

        We derive substantially all of our revenue from mobile advertising. Our mobile advertising revenue grew at 251.5% year on year from US$10.0 million in 2016 to US$35.0 million in 2017 and grew at 453.1% year on year from US$8.8 million for the six months ended June 30, 2017 to US$48.5 million for the same period of 2018. Our advertising spaces grow with the increase of our user base and the number of product offerings. The effective price per impression on our advertising spaces and the number of our average daily impressions delivered on our global portfolio products increased by approximately 36% and 537%, respectively, from the first half of 2017 to the first half of 2018.

        We attract and retain advertising customers with our ability to obtain valuable user insights drawn from our large global user base with substantial socioeconomic, geographic and demographic diversity. We leverage such insights to deliver personally engaging advertisements that are relevant to users across our various mobile applications, helping our advertising customers to precisely target audiences.

        Our AI-powered virtual personal assistant, Talia, improves user experience and user engagement for TouchPal Smart Input and has the potential to generate a large volume of searches that present monetization opportunities for search ads.

Experienced management team with strong track-record of innovation

        We are led by our highly committed, technology-driven founders and management team. Our management and core R&D team have strong academic backgrounds and deep industry expertise. Many have prior experience with global technology companies such as Microsoft Corporation and Intel Corporation.

        We have a culture of innovation. Approximately half of our employees are software engineers and product designers tasked with research and development and focused on innovation and technological advancement. Our excellence in innovation has been recognized internationally and rewarded with prestigious awards and accolades. For example, TouchPal Smart Input won the Mobile Innovation Award at the GSMA Global Mobile Awards in Barcelona in 2009 and was named one of the Google Play Best Apps of 2015. In addition, we were named one of the "Top 10 Most Innovative Companies in China" by Fast Company in 2014. More importantly, we have been able to develop a growing portfolio

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of mobile applications, most of which have achieved high user ratings ranging from 4.5 to 4.7 out of 5 on Google Play Store.

Our Strategies

        We intend to achieve our mission and further grow our business by pursuing the following strategies:

Continue to expand our user base

        In order to expand our user base and deepen our global presence, we strive to maintain our existing user base and to attract new users. We intend to enhance the superior experience that our users enjoy with our product offerings. We also plan to develop and launch new mobile applications that are individually designed to target new groups of users who match certain profiles and have specific interests and demands for content and information. We understand that mobile device users from different geographic regions tend to have different interests and demands for content and information as well as different preferences for content delivery and user experience. We intend to capitalize on our understanding of such difference and to develop more products that cater to users from different geographic regions.

Continue to invest in next-generation AI and natural language processing technologies

        Our sophisticated big data analytics and AI capability are essential to the successful utilization of user-generated data to develop sophisticated user insights. We plan to continue to invest in both hardware and software systems that enable us to develop these technological capabilities. We intend to invest in more computational resources that power our AI capability, such as graphics processing unit farms. We intend to refine our natural language processing and machine learning technologies to enhance and optimize our user insights. We also intend to upgrade the AI engine behind our virtual personal assistant Talia. In addition, we intend to continue to broaden the application of our AI capability in our research and development process in order to make our mobile applications and advertising services more intelligent for our users and advertisers.

Strengthen targeted content delivery based on user insights

        We intend to continue investing in and improving our ability to deliver targeted content to our users. This will allow our users to enjoy relevant content and advertising that appear personalized and native to the experience of individual users. We also plan to further leverage our AI personal assistant, Talia, as an intelligent and versatile channel for distribution of highly targeted content in a variety of use cases and scenarios.

Further improve advertising performance

        We specialize in innovative performance-based advertising services to help our advertising customers achieve a high level of success in terms of precision targeting of the preferred audience and realization of cost-effective conversion rates. We plan to continue to design and employ more effective advertising features and formats for our advertising customers such as video advertisements.

        We also plan to increase the relevance and value of advertisements distributed through our products by leveraging our in-depth user insights to further improve precision targeting for our advertising customers.

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Pursue strategic acquisitions and investments

        We intend to selectively pursue acquisitions or investments in potential targets or assets in fields that we believe are highly strategic and complementary to our business, such as natural language processing technology, AI technology and content apps.

Our Products

        Based on our profound user insights and a rich library of user profiles, we have developed a growing global portfolio of products in various categories. They range from mobile device smart input and VoIP calling to content-rich applications including those for fitness training and hydration assistance, addressing a variety of usage scenarios and user demands and, in this process, helping us to accomplish our mission.

        We have achieved significant expansion of our user base for our global portfolio products, largely driven by our ability to identify and meet individual users' actual interests and demands. Our core application TouchPal Smart Input was launched in 2008 and reached 132.6 million DAUs on average in June 2018. In addition to TouchPal Smart Input, we have launched 15 other global portfolio products as of June 30, 2018, and those products reached 7.3 million DAUs on average and 22.2 million MAUs in June 2018. We have also managed to achieve a high level of engagement and stickiness among our users. In June 2018, the DAU/MAU ratio of our global product portfolio reached 68.4% as compared to 66.0% in June 2017.

TouchPal Smart Input GRAPHIC

        TouchPal Smart Input, our core product, is an AI-powered innovative input method for mobile devices. First launched in 2008 and continuously improved ever since, TouchPal Smart Input is an award-winning product. It won the Mobile Innovation Award at the GSMA Global Mobile Awards in Barcelona in 2009 and the Google Play Best Apps of 2015. TouchPal Smart Input had an average of 125.4 million DAUs in more than 240 countries and regions in June 2018.

        TouchPal Smart Input features a number of smart functionalities powered by our proprietary AI technology. Prominent examples of such AI-driven functionalities include predictive input features and its integrated virtual personal assistant Talia.

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        Talia is integrated seamlessly with TouchPal Smart Input and is available on the widely-used Android operating system. We believe the integration creates synergies in which Talia benefits from users' superior engagement with TouchPal Smart Input and at the same time Talia enhances users' experience with TouchPal Smart Input. Development has been under way to bring Talia to iOS and other mobile operating systems and to make Talia a standalone mobile application that can be directly integrated with the mobile operating systems to provide a variety of smart functionalities such as textual and voice searches through natural language style user interactions.

        The diagrams below illustrate how Talia functions inside TouchPal Smart Input.

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        We employ our AI and big data analytics technologies to process and analyze our massive number of users' interactions with TouchPal Smart Input in different languages to improve our language model, enrich our language databases, and strengthen our support for each language. In addition, the proprietary deep learning engine behind TouchPal Smart Input is fueled and enriched by users' interaction with the application. It enables the application to achieve semantic understanding, adapt to each user, and provide an increasingly improved and customized user experience over time. As a concrete manifestation of such improvement and customization, when users increase the duration and frequency of their interactions with TouchPal Smart Input, it gets and feels "smarter" by way of improved accuracy with next-word prediction, mistyping correction and auto spelling correction, which in turn helps us attract more users, thus forming a self-reinforcing virtuous cycle.

        Based on our user insights, TouchPal Smart Input recommends relevant content to its targeted users through a number of channels, such as news feeds, short video feeds and dynamic GIF content recommendations.

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        The diagrams below illustrate how TouchPal Smart Input recommends relevant content to users.

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        TouchPal Smart Input boasts an advanced multilingual language model that supports more than 110 different languages. We have developed our capabilities in each foreign language by creating a natural language model behind the application and building upon the vast internet content in each relevant language. Our language databases are enriched, and our support for each language is strengthened, with the increase of the amount of users' interaction with the application in the relevant languages.

        TouchPal Smart Input can be installed across major mobile operating systems, including Android and iOS operating systems, and can be used within any application that is launched by a mobile device user. TouchPal Smart Input recognizes user-generated data via the traditional typing mechanism as well as gesture typing, swipe typing and voice typing.

        TouchPal Smart Input features cloud-based user accounts that store and sync users' preferences and frequently used words and text patterns so that users can seamlessly enjoy the same level of user experience across different mobile applications and between different mobile devices.

Other Mobile Applications

        Based on our in-depth user insights, we continuously seek to identify large and fast-growing groups of mobile device users with certain unmet or emerging interests and demands. We then design and develop mobile applications to satisfy the interests and demands of those users who match our targeted

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profiles. Following this user-centric and data-driven approach, we have developed and brought to market the following global portfolio applications.

        We developed a series of fitness applications, including HiFit and ManFIT in 2017, in order to allow users who are interested in a fit and healthy lifestyle to watch workout videos shared by professional personal trainers, follow comprehensive workout programs, customize workout schedules, set up workout reminders and use a detailed tracking diary to form healthy fitness habits. These functionalities have been designed to help our targeted users to efficiently meet their needs by simply using their mobile devices on the go, anywhere and anytime. HiFit is currently available on both Android and iOS operating systems.

        AhaCall is an international VoIP application that enables users to call both land lines and mobile phones in more than 200 countries and regions. For users, calls cost virtual credits and are otherwise free of charge. Users may purchase virtual credits with cash but may also earn virtual credits for free by watching video advertisements, making user referrals, or completing other tasks. AhaCall combines high quality call services with the delivery of relevant content and native ads in content feeds. AhaCall is currently available on both Android and iOS operating systems.

        First launched in 2018, Cherry is a mobile application that helps women track menstrual cycles and provides women with healthcare-related content. Cherry is currently available on Android operating systems, and we expect to release its iOS version in the near future.

        First launched in 2018, Horoscope Secret is a mobile application that provides horoscope and fortune-related content. Horoscope Secret is currently available on Android operating systems.

        First launched in 2017, Drink Water Reminder is a mobile application that helps users drink an appropriate amount of water on a daily basis by enabling users to track drinking habits and offering both detailed graphical statistics and friendly reminders for users to stay hydrated. Drink Water Reminder is currently available on Android operating systems.

        First launched in 2016, Blue Light Filter is a mobile application that helps protect users' eyes by adjusting the screen color of a mobile device to filter light within certain range of wavelengths known to be harmful for eyes. Blue Light Filter is currently available on Android operating systems.

        First launched in 2018, VeeU is a mobile application that displays horizontal aggregated video content and professional user-generated short video content. VeeU is currently available on Android operating systems, and we expect to release its iOS version in the near future.

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TouchPal Phonebook ( GRAPHIC ) GRAPHIC

        First launched in 2010, TouchPal Phonebook ( GRAPHIC ) is primarily a domestic Chinese communication application that enables users in China to make phone calls through internet for free, to search contacts on the dial pad and to block spam calls. TouchPal Phonebook is currently available on both Android and iOS operating systems.

        We have introduced to TouchPal Phonebook an increasing number of social media features geared towards users in China's urban and rural areas outside the major cosmopolitan cities such as Beijing, Shanghai and Guangzhou. For example, it offers personalized content recommendation feeds and it also curates user-generated content grouped by users from a similar geographic background.

Product Distribution

        We distribute our products and acquire users primarily through user downloads from digital distribution platforms and pre-installations on mobile devices.

Downloads

        We acquire new users through downloads of our products from digital distribution platforms such as Google Play Store and the Apple App Store. Some of these users acquired through downloads are drawn to our applications through word-of-mouth or general interest in one of our global portfolio products, thus growing our user base organically. A majority of our users are drawn to our products through our paid marketing campaigns on third party platforms, such as Facebook and Google AdMob. The number of users acquired through downloads of our products increased by 178.7% year on year from the second quarter of 2017 to the second quarter of 2018.

Pre-installations

        We have established ourselves as a trusted provider of smart input for mobile devices and have entered into collaboration agreements with mobile device manufacturers to pre-install TouchPal Smart Input on select mobile devices.

        In 2017, TouchPal Smart Input was pre-installed and activated on mobile devices shipped by more than 50 mobile device manufacturers such as OPPO, Vivo and HTC. The corresponding pre-installation and activation figure increased by 51.2% year on year from the second quarter of 2017 to the second quarter of 2018.

        We believe that our collaboration with smart mobile device manufacturers is a testament to the strengths of our products and will help further expand our user base and improve our user engagement.

Marketing

        We market our brand, products and services globally to mobile internet users primarily through online social media sites including Facebook, Instagram and Twitter, and through search engines such as Google. We also market our brand, products and services to our global business partners through trade show exhibitions.

        As of the date of this prospectus, we have over 5.5 million followers on Facebook. We promote our brand, products and services on Facebook through posts, pictures and short films and have received a large number of views and positive comments.

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Monetization

        We generate substantially all of our revenues through mobile advertising, which accounted for 90.4%, 93.8% and 96.4% of our total revenue in 2016, 2017 and the six months ended June 30, 2018, respectively. We also generate revenues from sales of virtual items in a live social video community on our TouchPal Phonebook launched in 2017 and, to a lesser extent, from licensing of our TouchPal Smart Input to certain mobile device manufacturer for pre-installation.

        Our value proposition to advertisers is driven by our large, engaged and sticky user base, insightful understanding of user interests and demands, and precision targeting of content to the preferred audience in a variety of usage scenarios. We provide performance-based advertising solutions that are compelling to our advertisers.

        The number of our available advertising spaces is a function of the size of our user base and the number of our product offerings. The number of our average daily impressions delivered on our global portfolio products increased by approximately 537% from the first half of 2017 to the first half of 2018. We possess the technical capability to efficiently managing our advertising spaces. At the same time, our priority is to achieve a balance between user experience and utilization of advertising spaces.

        Our advertisers are from a broad range of industries, including healthcare, e-commerce, online games, merchant services and business services. Most of our advertisers are represented by third-party advertising exchanges and agencies. Our top two advertising customers in 2016 and 2017 in terms of revenue contribution were both international online advertising exchanges, with which we have entered into their standard form of contracts. These contracts do not have a specific term and may be terminated by either party upon a material breach by the other party or, in respect of certain contracts, with or without cause and only upon written notice to the other party. Our business depends on our relationships with these large advertising exchanges and agencies. For more details, see "Risk Factors—We depend on certain third-party advertising exchanges and agencies for a large portion of our mobile advertising revenues."

        We believe that our user-centric and data-driven approach to product development and content delivery, both powered by our AI and big data capabilities, attracts advertising customers and drives the growth of our advertising revenues.

        Our advertising spaces within our products can accommodate a variety of ad formats:

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        Native ads in content feed.     Most native ads are integrated into content feeds. They can be pictures, texts, or videos. The diagrams below illustrate native ads in the newsfeed of the AhaCall app and in the HiFit app.

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        Other native ads.     Besides content feeds, native ads can also be cards or blocks matching the style of the functions in the host app. The diagrams below illustrate exemplary native ads in the Horoscope Secret app.

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Technology

        Technology is the key to our success. Our research and development efforts focus on AI and big data analytical capabilities.

        We constantly employ and improve our AI technology and big data analytics to drive the growth of our entire business. We focus the use of such technology on generating in-depth user insights and developing product offerings that are geared towards and satisfy the interests and demands of mobile device users matching certain profiles in a variety of usage scenarios. We believe that our user-centric and data-driven approach to developing and improving our product offerings, powered by our AI and big data analytical capabilities, helps us attract and retain a large global user base, which in turn generates more data for us to analyze and utilize in developing more attractive and valuable products, thus forming a self-reinforcing virtuous cycle. We also focus the use of our AI technology and big data analytics on generating in-depth user insights for operating our global advertising system.

Natural language processing, semantic understanding in multiple languages

        As of the date of this prospectus, our natural language processing and semantic understanding technology supports more than 110 languages. We employ machine learning, corpus linguistics and other technologies to process and understand user-generated data, internet content and user interactions with our products, and predict user intentions, identify relevant content from the internet and build our rich library of user insights. These technologies also enable our virtual personal assistant

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Talia to understand everyday conversations and to deliver relevant and on-demand content to users in a variety of scenarios.

Web content analysis and information extraction

        We have built a proprietary distributed system which regularly and timely crawls and indexes an enormous amount of content in multiple languages from the internet. With our advanced multilingual natural language processing technology and semantic understanding technologies, we can process over one billion webpages every month and systematically organize content from these webpages.

Data integration, mining and analytics

        We have deployed a highly-scalable, distributed data system to manage and mine our massive and diverse data, comprising over one billion new records of daily data increments. We have developed an industry-leading data warehouse and real-time data analysis platform to support our build-up of user insights. We have also developed a business intelligence system which facilitates our product planning, data analytics, user growth and acquisition, monetization, and other crucial business activities.

AI-powered advertising system

        We have developed a distributed, real-time advertising system to optimize our advertising performance. Relying on our AI technology and in-depth user insights, this advertising system enables our advertising customers to reach our large and diverse active user base and to achieve precision targeting of the preferred audience and to distribute ads to highly targeted audience.

Technology infrastructure

        We have built a reliable and smart network infrastructure with sufficient redundant topologies to ensure high availability and a low risk of downtime. We have also built a scalable hybrid cloud infrastructure to minimize cost and sustain performance in periods of high network traffic.

        We dedicate ourselves to building our technology infrastructure to support our business in a cost-effective manner. As of June 30, 2018, we had 12 data centers (IDC), 639 physical servers, 177 virtual servers and 16 public cloud sites in 9 countries.

Research and Development

        Our founders and management team have maintained their strong commitment to technological innovation since our inception. Approximately half of our employees are software engineers and product designers tasked with research and development to achieve innovation and advancement. Our excellence in innovation has been recognized internationally and rewarded with prestigious awards and accolades. For example, TouchPal Smart Input won the Mobile Innovation Award at the GSMA Global Mobile Awards in Barcelona in 2009 and we were named one of the "Top 10 Most Innovative Companies in China" by Fast Company in 2014.

Intellectual Property

        Protection of our intellectual property has been a strategic priority for our business since the inception of our company. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as non-competition and confidentiality agreements and contractual clauses, to establish and protect our intellectual property rights. Before we launch any new products or services, we apply for registration of related patents. Except for certain licenses for off-the-shelf software used in connection with our day-to-day operations, we generally do not rely on third-party licenses of intellectual property for use in our business.

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        As of June 30, 2018, we held 41 patents in China and 21 patents in countries and regions outside of China, covering inventions and designs; we have 33 patent applications currently pending in China and 49 patent applications currently pending in countries and regions outside of China; we have submitted 31 international patent applications through the procedures under the Patent Cooperation Treaty, or PCT; and we intend to apply for more patents to protect our core technologies and intellectual properties. As of June 30, 2018, we have registered 188 trademarks with the Trademark Office of the State Administration for Industry and Commerce in China, including our company's name "CooTek," CooTek logos, trademarks relating to our products such as TouchPal Smart Input and TouchPal Phonebook; and we are in the process of applying for the registration of 35 other trademarks in China; we have registered 8 trademarks, and are in the process of applying for registration of 25 other trademarks, in countries and regions outside of China. As of June 30, 2018, we are the registered owner of 28 software copyrights in China, each of which we have registered with the State Copyright Bureau of China. As of June 30, 2018, we own the rights to more than 100 domain names that we use in connection with the operation of our business, including our CooTek and TouchPal websites cootek.com and touchpal.com.

        In addition to the foregoing protections, we generally control access to and use of our proprietary and other confidential information through the use of internal and external controls. For example, for external controls, we enter into confidentiality agreements or agree to confidentiality clauses with our advertising customers and mobile device manufacturers and, for internal controls, we adopt and maintain relevant policies governing the operation and maintenance of our IT systems and the management of user-generated data.

User Privacy and Data Security

        We developed our products to empower everyone to express themselves and enjoy relevant content seamlessly. We place paramount importance on, and dedicate significant amount of resources to, the protection of the personal privacy of each of our users and the security of their data.

        Transparency.     Our end user license agreement describes our data use practices and how privacy works on our mobile applications. We provide our users with adequate and timely notices as to what data are being collected, and we undertake to manage and use the data collected in accordance with applicable laws and make reasonable efforts to prevent unauthorized use, loss or leak of such user data. Our users may opt out of personal data collection or choose to have personal data erased from our servers.

        Protection.     We have adopted comprehensive policies, procedures and guidelines to regulate our employees' actions in relation to user data in order to protect user privacy and data security. We also have adopted a strict access control mechanism to ensure implementation of least privilege and need-to-know principles and to protect user privacy while meeting business requirements. For instance, we strictly limit the number and clearance level of personnel who may access user data or those servers that store user data. In addition, we employ a variety of technical solutions to prevent and detect risks and vulnerabilities in user privacy and data security, such as encryption, firewall, vulnerability scanning and log audit. For instance, we have a team of privacy professionals who participate in new product and feature development and are dedicated to the ongoing review and monitoring of data security practices. We store and transmit all user data in encrypted format on separate servers depending on each individual user's location. We do not share any input data from our users or any user insight data with third parties or allow third parties to access user data stored on our servers, and we also utilize firewalls to protect against potential cyber-attacks or unauthorized access. We periodically audit our systems and procedures to detect information security risks and privacy risks.

        Compliance.     Various laws and regulations, such as the GDPR in the European Union and the Cyber Security Law of the PRC, govern the collection, use, retention, sharing, and security of the

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personal data we receive from and about our users. Privacy groups and government bodies have increasingly scrutinized the ways in which companies link personal identities and data associated with particular users with data collected through the internet, and we expect such scrutiny to continue to increase. We devote substantial amount of resources to the compliance with, and the prevention of any violation of, the laws and regulations relating to user privacy and data security. For additional information on our efforts to comply with applicable laws and regulations relating to user privacy and data security, see "Risk Factors—Risks Related to Our Business and Industry—If we fail to prevent security breaches, cyber-attacks or other unauthorized access to our systems or our users' data, we may be exposed to significant consequences, including legal and financial exposure, reputational harm and loss of users, and our reputation, business and operating results may be materially and adversely affected." and "Risk Factors—Risks Related to Our Business and Industry—Data privacy concerns relating to our products and current practices may, particularly in light of increased regulatory scrutiny of and user expectations regarding the processing, collection, use, storage, dissemination, transfer and disposal of user data, could require changes to our business practices and may result in declines in user growth or engagement, increased costs of operations and threats of lawsuits, enforcement actions and related liabilities, including financial penalties."

Competition

        We face intense competition for users, usage time and advertising customers. TouchPal Smart Input competes primarily with default mobile device input methods, including Apple input for iOS devices, Gboard and Samsung mobile keyboard. Our TouchPal Smart Input also competes with other alternative input method products for mobile devices that offer similar language prediction capabilities and other smart features, such as Microsoft/SwiftKey. Our other global portfolio applications such as HiFit in the health and fitness category and AhaCall in the communications category compete with applications of the same or a similar kind. Talia may face competition from other intelligent personal assistant products such as Apple's Siri, Amazon's Alexa, Microsoft's Cortana and Google's Assistant if we further develop Talia into an independent mobile application not integrated with TouchPal Smart Input. In addition, we compete with all major internet companies for user attention and advertising spend.

Employees

        We had 299, 383 and 385 employees as of December 31, 2016, December 31, 2017 and June 30, 2018, respectively. The following table sets forth the breakdown of our employees by function as of June 30, 2018:

Function:
   

Research and development

  237

Sales and marketing

  66

Operations

  33

General and administrative

  49

Total

  385

        As required by laws and regulations in China, we contribute to various statutory employee benefit plans that are organized by municipal and provincial governments, including pension, medical insurance, unemployment insurance, work-related injury insurance and maternity insurance plans as well as the housing provident fund. We are required under Chinese law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.

        We enter into labor contracts and standard confidentiality and intellectual property agreements with our key employees. The labor contracts with our key personnel typically include a standard

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non-compete covenant that prohibits the employee from competing with us, directly or indirectly, during his or her employment and for one year after the termination of his or her employment.

Facilities

        Our headquarters are located in Shanghai, China, where we currently lease and occupy approximately 3,700 square meters of office space. We also lease offices in Beijing, Guangzhou, Shenzhen and other cities, with an aggregate area of approximately 440 square meters of office space. We also have research and development personnel who are responsible for AI at our office in Silicon Valley, the United States, where we lease shared office space in an incubator center.

        Below is a summary of the term of each of our current leases and we plan to renew most of them when they expire:

Leased properties
  Term   Area (square meters)

Shanghai

  1, 2 and 3 years   3,704

Beijing

  1.5 years   187

Guangzhou

  1 year   126

Shenzhen

  1 year   125

Other cities

  3 months - 1 year   *

Total

      4,142

*
12 Workstations

Insurance

        We do not maintain insurance policies covering damages to our network infrastructures or information technology systems. We also do not maintain business interruption insurance or general third-party liability insurance, nor do we maintain product liability insurance or key-man insurance. We consider our insurance coverage to be in line with that of other companies in the same industry of similar size in China.

Legal Proceedings

        We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our management's time and attention.

        On June 28, 2018, we filed a lawsuit against the Trademark Review and Adjudication Board, or TRAB, of the State Administration for Industry and Commerce of the PRC seeking a revocation of TRAB's verdict that rejected our application of No.14911470 " GRAPHIC " trademark. On May 8, 2018, TRAB rejected our application of No.14911470 " GRAPHIC " trademark due to the existence of a trademark owned by a PRC company unrelated to us that also contained the Chinese characters " GRAPHIC ," or the reference trademark. The reference trademark was declared invalid by TRAB in August 2016. Before TRAB rejected our application, a lawsuit concerning the declaration of invalidity of such reference trademark was on trial in Beijing Intellectual Property Court. On May 30, 2018, the court ruled in favor of TRAB's declaration and invalidated the reference trademark. Therefore, we believe the basis of TRAB's verdict rejecting our application no longer exists and such verdict should be revoked. Although the outcome of this case cannot be predicted with certainty, we do not believe that the ultimate resolution of this matter will have a material adverse effect on our financial position or on our results of operations.

        Other than the above, we are currently not a party to any legal or administrative proceedings.

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REGULATION

        We are an international company that is registered under the laws of Cayman Islands. Our principal offices are located in China while we have built a large user base in more than 240 countries and regions around the world. As a result of this organizational structure and the scope of our operations, we are subject to a variety of laws in different countries, including those related to personal privacy, data protection, content restrictions, telecommunications, intellectual property, consumer protection, advertising and marketing, labor, foreign exchange, competition and taxation. These laws and regulations are constantly evolving and may be interpreted, implemented or amended in a manner that could harm our business. It also is likely that if our business grows and evolves and our products and services are used more globally, we will become subject to laws and regulations in additional jurisdictions. This section sets forth the summary of material laws and regulations relevant to our business operations.

Regulations Relating to Personal Privacy and Data Protection

        In the area of personal privacy and data protection, we are subject to the laws in various jurisdictions where our products are available for use, and such laws and regulations can impose stringent requirements. Such requirements also vary from jurisdiction to jurisdiction. Many jurisdictions, including China and the U.S., continue to consider the need for greater regulation or reform to the existing regulatory framework.

        In the U.S., there is no single comprehensive national law governing the collection and use of user data or personal information. Instead, the U.S. has both federal and state laws in parallel and regulations that sometimes overlap and even contradict one another. In addition, there are many guidelines developed by government authorities and industry groups that, although lacking the force of law, are considered "best practices" and are relied upon for setting standards. All states in the U.S. have now passed laws to regulate the actions that a business must take in the event of a data breach, such as prompt disclosure and notification to affected users and regulatory authorities. In addition, some states have enacted statutes and rules requiring businesses to reasonably protect certain types of personal information they hold or to otherwise comply with certain specified data security requirements for personal information. At the federal level, the Federal Trade Commission Act, or the FTC Act, is a federal consumer protection law that prohibits unfair or deceptive practices and has been applied to offline and online privacy and data security policies. The Federal Trade Commission, or the FTC, empowered by the FTC Act, oversees consumer privacy compliance of most companies doing business in the U.S. and provides various guidelines regarding privacy and security practices for different industries. The FTC has brought many enforcement actions against companies for failing to comply with their own privacy policies and for the unauthorized disclosure of personal data. The U.S. federal and state legislatures will likely continue to consider the need for greater regulation aimed at restricting certain targeted advertising practices.

        In the EU, the GDPR, which came into effect on May 25, 2018, increased our burden of regulatory compliance and requires us to change certain of our privacy and data security practices in order to achieve compliance. The GDPR implements more stringent operational requirements for processors and controllers of personal data, including, for example, requiring expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements, and higher standards for data controllers to demonstrate that they have obtained either valid consent or have another legal basis in place to justify their data processing activities. The GDPR further provides that EU member states may make their own additional laws and regulations in relation to certain data processing activities, which could further limit our ability to use and share personal data and could require localized changes to our operating model. Under the GDPR, fines of up to €20 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, may be assessed for non-compliance, which significantly increases

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our potential financial exposure for non-compliance. Since the GDPR only came into effect recently, the potential risks associated with non-compliance therewith are uniquely difficult to predict. Moreover, the implementation of the GDPR may require substantial amendments to our procedures and policies, and these changes could impact our business by increasing its operational and compliance costs.

        In recent years, PRC government authorities have issued various regulations on the use of the internet that are designed to protect personal information from unauthorized disclosure. For example, the Measures for the Administration of Internet Information Services issued by the State Council in 2000 and revised in 2011, or the ICP Measures, prohibit an internet information services provider from insulting or slandering a third party or infringing upon the lawful rights and interests of a third party. In addition, PRC regulations authorize PRC telecommunication authorities to demand rectification of unauthorized disclosure by the entities that provide information to internet users, or ICP operators.

        Chinese law does not prohibit ICP operators from collecting and analyzing personal information from their users. The PRC government, however, has the power and authority to order ICP operators to submit personal information of an internet user if such user posts any prohibited content or engages in illegal activities on the internet. In addition, the Several Provisions on Regulating the Market Order of Internet Information Services, or the Several Provisions, issued by the Ministry of Industry and Information Technology, or MIIT, stipulate that ICP operators must not, without the users' consent, collect information on users that can be used, alone or in combination with other information, to identify the user, or User Personal Information, and may not provide any User Personal Information to third parties without users' prior consent. ICP operators may only collect User Personal Information necessary to provide their services and must expressly inform the users of the method, content and purpose of the collecting and processing such User Personal Information. In addition, an ICP operator may use User Personal Information only within its scope of services. ICP operators are also required to ensure the security of User Personal Information, and take immediate remedial measures if User Personal Information is suspected to have been disclosed. If the consequences of any such disclosure are expected to be serious, the ICP operator must immediately report to the telecommunications regulatory authorities and cooperate with the authorities in their investigations. We require our users to accept a user agreement whereby they agree to provide certain personal information to us. If we violate foregoing regulations, the MIIT or its local bureaus may impose penalties and we may be liable for damage caused to our users.

        In December 2012, the Standing Committee of the National People's Congress, or the SCNPC, enacted the Decision to Enhance the Protection of Network Information, to enhance the protection of User Personal Information in electronic form, which provides that ICP operators must expressly inform their users of the purpose, manner and scope of the ICP operators' collection and use of User Personal Information, publish the ICP operators' standards for their collection and use of User Personal Information, and collect and use User Personal Information only with the consent of the users and only within the scope of such consent. The Information Protection Decision also mandates that ICP operators and their employees must keep strictly confidential User Personal Information that they collect, and that ICP operators must take such technical and other measures as are necessary to safeguard the information against disclosure.

        The Order for the Protection of Telecommunication and Internet User Personal Information, or the Order for Personal Information, issued by MIIT in July 2013 sets forth requirements that are stricter and with wider scope. An ICP operator is only allowed to collect or use personal information if such collection is necessary for its services. Further, the ICP operator must disclose to its users the purpose, method and scope of any such collection or use, and must obtain consent from the users whose information is being collected or used. ICP operators are also required to establish and publish their protocols relating to personal information collection or use, keep any collected information strictly confidential, and take technological and other measures to maintain the security of such information. ICP operators are required to cease any collection or use of the user personal information, and

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de-register the relevant user account, when a given user stops using the relevant internet service. ICP operators are further prohibited from divulging, distorting or destroying any such personal information, or selling or providing such information unlawfully to other parties. In addition, if an ICP operator appoints an agent to undertake any marketing or technical services that involve the collection or use of personal information, the ICP operator is still required to supervise and manage the protection of the information. The Order for Personal Information states, in broad terms, that violators may face warnings, fines, and disclosure to the public and, in the most severe cases, criminal liability.

        Pursuant to the Ninth Amendment to the Criminal Law, promulgated by the SCNPC in August 2015, any internet service provider that fails to fulfill its obligations regarding internet information security administration under applicable laws and refuses to rectify upon governmental orders, shall be subject to criminal penalty. Interpretations of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in Criminal Cases Involving Infringement of Personal Information, issued in May 2017, clarified certain standards of the conviction and sentence of the criminals in relation to personal information infringement.

        In addition, the PRC General Provisions of the Civil Law, promulgated in March 2017, provides that laws protect personal information of natural persons. Any organization or individual who needs to obtain personal information shall obtain it legally and ensure the security of such personal information, and shall not illegally collect, use, process, transmit, trade, provide, or publish such personal information. In August 2014, the Supreme People's Court promulgated the Provisions of the Supreme People's Court on Application of Laws to Cases Involving Civil Disputes over Infringement upon Personal Rights and Interests by Using Information Networks, pursuant to which if an ICP operator discloses genetic information, medical records, health examination data, criminal record, home address, private events and or other personal information of a natural person online, causing damage to such person, the People's Court would support a claim by the victim for recovery of damages from the infringing ICP operator.

        In January 2015, the State Administration for Industry and Commerce, or SAIC, promulgated the Measures on Punishment for Infringement of Consumer Rights, pursuant to which business operators collecting and using personal information of consumers must comply with the principles of legitimacy, propriety and necessity, specify the purpose, method and scope of collection and use of the information, and obtain the consent of the consumers whose personal information is to be collected.

Regulations Relating to Foreign Investment

        Industry Catalogue Related to Foreign Investment.     Investment activities in China by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment, which was promulgated by the Ministry of Commerce of the PRC, or MOFCOM, and the National Development and Reform Commission, or NDRC, as amended from time to time. Industries listed in the catalogue are divided into three categories: encouraged, restricted and prohibited. Industries not listed in the catalogue are generally open to foreign investment unless specifically restricted by other PRC regulations. Establishment of wholly foreign-owned enterprises is generally allowed in encouraged industries. For some restricted industries, foreign investors can only conduct investment activities through equity or contractual joint ventures, while in some cases PRC partners are required to hold the majority interests in such joint ventures. In addition, projects in the restricted category are subject to higher-level governmental approvals. Foreign investors are not allowed to invest in industries in the prohibited category.

        Foreign Investment in Telecommunication Business.     Regulations for Administration of Foreign-Invested Telecommunications Enterprises, or the FITE Regulations, promulgated by the PRC State Council, or State Council, in 2001 and most recently amended in February 2016 set forth detailed requirements with respect to, among others, capitalization, investor qualifications and application

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procedures in connection with the establishment of a foreign-invested telecommunications enterprise. The FITE Regulations prohibit a foreign investor from holding more than 50% of the total equity interest in any value-added telecommunications service business in China and the major foreign investor in any value-added telecommunications service business in China shall demonstrate a good track record in such industry. The MIIT issued an Announcement on Issues concerning the Provision of Telecommunication Services in Mainland China by Service Providers from Hong Kong and Macau, allowing investors from Hong Kong and Macau to hold more than 50% of the equity in FITEs engaging in certain specified categories of value-added telecommunications services.

        In 2006, the Ministry of Information Industry, or the MII, the predecessor of the MIIT, issued the Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, pursuant to which, a PRC company that holds a license for providing internet information services, or an ICP license, is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors to conduct value-added telecommunications businesses illegally in China. Furthermore, the trademarks and domain names that are used in the provision of internet content services must be owned by the ICP operator or its shareholders. In addition, an ICP operator shall have appropriate facilities for its approved business operations and to maintain such facilities in the regions covered by its license.

        In view of these restrictions on foreign direct investment in the basic telecommunications sector and value-added telecommunications sector, we established domestic VIEs to engage in basic telecommunications and value-added telecommunications services. Due to a lack of interpretative materials from the relevant PRC governmental authorities, there are uncertainties regarding whether PRC governmental authorities would consider our corporate structure and contractual arrangements to constitute foreign ownership of a telecommunications business. In order to comply with PRC regulatory requirements, we operate a portion of our business through our VIEs, with which we have contractual relationships but in which we do not have an actual ownership interest. If our current ownership structure is found to be in violation of current or future PRC laws, rules or regulations regarding the legality of foreign investment in the PRC internet sector, we could be subject to severe penalties.

Regulations Relating to Telecommunications Services

        In 2000, the State Council promulgated the Telecommunications Regulations, or the Telecom Regulations, most recently amended in February 2016, which set out the general framework for regulating telecommunication services by PRC companies. The Telecom Regulations differ "basic telecommunications services" from "value-added telecommunications services". The Catalogue of Telecommunications Business, most recently updated in December 2015, categorizes VoIP services as basic telecommunications services, on the other hand, categorizes information services, internet data centers and internet access as value-added telecommunications services.

        In 2000, the State Council issued the Measures for the Administration of Internet Information Services, or the ICP Measures, most recently amended in January 2011. The ICP Measures define "internet information services" as the services of providing internet information to online users, which is further divided into "commercial internet information services" and "non-commercial internet information services. "A commercial internet information services operator must obtain a value-added telecommunications services license, or ICP license for internet information services, from the MIIT or its local branch at the provincial or municipal level in accordance with the Telecom Regulations before providing any commercial internet information services in China. Our business includes providing VoIP services and other value-added telecommunications services such as internet information service.

        The ICP Measures further stipulate that entities providing online information services regarding news, publishing, education, medicine, health, pharmaceuticals and medical equipment must procure

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the consent of the national authorities responsible for such areas prior to applying for an operating license from the MIIT or its local branch at the provincial or municipal level. Moreover, ICP operators must display their operating license numbers in conspicuous locations on their home pages. ICP operators are required to police their internet platforms and remove certain prohibited content. Many of these requirements mirror internet content restrictions that have been announced previously by PRC ministries, such as the MIIT, and the Ministry of Culture and Tourism of the PRC, formerly the Ministry of Culture, or the MOCT.

        The Measures on the Administration of Telecommunications Business Operating Permit, promulgated by MIIT in 2009 and most recently amended in July 2017, sets forth detailed activities that an enterprise are permitted to conduct under their licenses. A commercial telecommunication service operator must first obtain an ICP license from the MIIT, or its provincial level authorities if providing mere inter-provincial services. A licensed telecommunication services operator must conduct its business, whether basic or value-added, in accordance with the specifications in its Telecommunications Services Operating License.

        The Cyberspace Administration of China, or CAC, issued the Provisions on the Administration of Mobile Internet Applications Information Services, or the APP Provisions, in June 2016. Under the APP Provisions, mobile application providers are prohibited from engaging in any activity that may endanger national security, disturb the social order, or infringe the legal rights of third parties, and may not produce, copy, issue or disseminate through mobile applications any content prohibited by laws and regulations. The APP Provisions also require ICP operators, such as us, to procure relevant approval to provide services through such applications.

        We currently hold two Value-added Telecommunications Services Operating Licenses issued respectively by MIIT on September 29, 2016 and renewed on January 9, 2018, and by Shanghai Communications Administration, the branch of MIIT, on July 27, 2016 and renewed on April 2, 2018. As of the date of this prospectus, we have not obtained the Basic Telecommunications Services Operating License for our business.

Regulations Relating to Online News Services

        In May 2017, the CAC promulgated the Administrative Regulations for Internet News Information Services, or the News Regulations, pursuant to which internet news information services include the services of collecting, editing, and releasing internet news information, reposting such news information, and providing a platform to spread such news information. Subsequently, the CAC promulgated the Detailed Implementing Rules of Administration of Internet News Information Services Approval. Both of these rules require the general Websites of non-news organizations to apply to the State Council Information Office, or SCIO, for approval after obtaining the consent of the SCIO at the provincial level before they commence to provide news dissemination services. As of the date of this prospectus, we have not obtained the approval for our online news services.

Regulations Relating to Internet Audio-Visual Program Services

        The State Administration of Radio and Television, or SART, and MIIT jointly issued the Administrative Provisions for the Internet Audio-Video Program Service, or the Audio-visual Program Provisions, in 2007 and amended in August 2015. The Audio-visual Program Provisions define "internet audio-visual programs services" as the production, edition and integration of audio-video programs, the supply of audio-video programs to the public via the internet, and providing uploading and audio-video programs transmission services to a third party. Entities engaging in internet audio-visual programs services must obtain internet audio-visual program transmission licenses, which will only be issued to state-owned or state-controlled entities unless the license applicants have obtained internet audio-visual program transmission licenses prior to the promulgation of the Audio-visual Program Provisions in

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accordance with the then-in-effect laws and regulations. According to the Categories of the Internet Audio-Video Program Services promulgated by SART in March 2017, "aggregation of internet audio-visual programs", meaning ""editing and arranging the internet audio-visual programs on the same website and providing searching and watching services to public users," falls into the definition of the aforementioned "internet audio-visual programs services." As of the date of this prospectus, we have not obtained the internet audio-visual program transmission license for our business.

Regulations Relating to Online Cultural Products

        In 2011, the MOCT issued the Provisional Regulations for the Administration of Online Culture, or the Online Culture Regulations, which applies to entities engaging in activities related to "internet cultural products, "including the cultural products that are produced specially for internet use, such as online music and entertainment, online games, online plays, online performances, online art works and Web animations, and those cultural products that, through technical means, produce or reproduce music, entertainment, games, plays and other art works for internet dissemination. Further, commercial entities are required to apply to the relevant local branch of the MOCT for an Online Culture Operating Permit if they engage in any of the following types of activities:

    the production, duplication, importation, release or broadcasting of internet cultural products;

    the dissemination of online cultural products on the internet or transmission thereof via internet or mobile phone networks to users' terminals such as computers, fixed-line or mobile phones, television sets, gaming consoles and internet surfing service sites such as internet cafés for the purpose of browsing, using or downloading such products; or

    the exhibition or holding of contests related to internet cultural products.

        The MOCT issued a Notice on Strengthening the Administration of Online Performance, or the Online Performance Notice, in July 2016, and the Measures of Administration of Online Performance Operating Activities, or Online Performance Measures, effective in January 2017. The Online Performance Notice and the Online Performance Measures both stipulate that online performance service providers must obtain Online Culture Operating Permits and that online performances must not contain any content that is horrific, cruel, violent, vulgar or humiliating in nature, mocking persons with disabilities, including photographs or video clips that infringing on third parties' privacy or other rights, featuring animal abuse, or presenting characters or other features of online games that have not been registered and approved for publication by applicable PRC governmental authorities. A violator of these regulations may face an order of correction from competent authorities, or be subject to confiscation of illegal proceeds or a fine. If the violation is severe, competent authorities may order the violator to cease its operation for rectification, revoke the violator's Online Culture Operating Permit, or impose applicable criminal liability.

        We currently hold two Online Culture Operating Permits issued respectively by Shanghai Municipal Culture, Radio Broadcasting, Film and Television Administration on April 11, 2016 and by Guangdong Provincial Department of Culture on February 9, 2018.

Regulations Relating to Online Advertising Services

        The PRC Congress enacted the Advertising Law effective in September 2015, which increases the potential legal liability of providers of advertising services, and includes provisions intended to strengthen identification of false advertising and the power of regulatory authorities. In July 2016, the SAIC issued the Interim Measures of the Administration of Online Advertising, or the SAIC Interim Measures. The Advertising Law and the SAIC Interim Measures both provide that advertisements posted or published through the internet shall not affect users' normal usage of network, and advertisements published in the form of pop-up windows on the internet must display an outstanding

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"close" sign with a button to close the pop-up windows. The SAIC Interim Measures provide that all online advertisements must be marked as "Advertisement" so that viewers can easily identify them as such. The Advertising Law and SAIC Interim Measures will require us to conduct more stringent examination and monitoring of our advertisers and the content of their advertisements.

Regulations Relating to Cyber Security

        In China, the PRC Congress promulgated the PRC Cyber-security Law, or Cyber-security Law, effective in June 2017. Under the Cyber-security Law, "Network operators" who are broadly defined as network owners, network administrator , and network service providers are subject to various security protection-related obligations. As a network service provider, our obligations include:

    complying with security protection obligations in accordance with tiered requirements with respect to maintenance of the security of internet systems, which include designing internal security management rules and developing manuals, appointing personnel in charge of internet security, adopting measures to prevent computer viruses and activities that threaten internet security, adopting measures to monitor and record status of network operations, holding Internet security training events, retaining user logs for at least six months, and adopting measures such as data classification, key data backup, and encryption for the purpose of securing networks from interference, vandalism, or unauthorized visits, and preventing network data from leakage, theft, or tampering; and

    verifying users' identities before signing agreements or providing services such as network access, domain name registration, landline telephone or mobile phone access, information publishing, or real-time communication services; and formulating internet security emergency response plans, timely handling security risks, initiating emergency response plans, taking appropriate remedial measures, and reporting to governmental authorities;

        Under the PRC Cyber-security Law, network service providers must inform users about and report to the relevant governmental authorities any known security defects or bugs, and must provide constant security maintenance services for their products and services. Network products and service providers may not contain or provide any malware. Network service providers who do not comply with the PRC Cyber-security Law may be subject to fines, suspension of their businesses, shutdown of their websites, and revocation of their business licenses.

        The CAC issued the Measures for Security Review of Cyber Products and Services for Trial Implementation, or the Cyber-security Review Measures, effective in June 2017. Under the Cyber-security Review Measures, the following cyber products and services will be subject to cyber-security review:

    important cyber products and services purchased by networks, and information systems related to national security; and

    the purchase of cyber products and services by operators of critical information infrastructure in key industries and fields, such as public communications and information services, energy, transportation, water resources, finance, public service, and electronic administration, and other critical information infrastructure, that may affect national security.

        The CAC is responsible for organizing and implementing cyber-security reviews, while the competent departments in finance, telecommunications, energy, transportation and other key industries are responsible for organizing and implementing security review of cyber products and services in their respective industries. There are still substantial uncertainties with respect to the interpretation and implementation of the Cyber-security Review Measures.

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Regulations Relating to Intellectual Property Protection

        China has adopted comprehensive legislation governing intellectual property rights, including copyrights, patents and trademarks.

Copyright

        Under the PRC Copyright Law promulgated by the National People's Congress in 1990 and most recently amended in 2010, copyright protection extends to internet activities, products disseminated over the internet and software products. In addition, there is a voluntary registration system administered by the China Copyright Protection Center, and requires registration of any pledge of a copyright. Its implementing regulation, Computer Software Copyright Registration Procedures, was promulgated in 2011 and most recently amended in January 2013, specifies detailed procedures and requirements regarding the registration of software copyrights.

        To address the problem of copyright infringement related to content posted or transmitted over the internet, the PRC National Copyrights Administration, or the NCA and the MIIT jointly promulgated the Measures for Administrative Protection of Copyright Related to Internet in 2005. Upon receipt of an infringement notice from a legitimate copyright holder, an ICP operator must take remedial actions immediately by removing or disabling access to the infringing content. If an ICP operator knowingly transmits infringing content or fails to take remedial actions after receipt of a notice of infringement harming public interest, the ICP operator could be subject to administrative penalties, including an order to cease infringing activities, confiscation by the authorities of all income derived from the infringement activities, or payment of fines.

        The Provisions of the Supreme People's Court on Certain Issues Related to the Application of Law in the Trial of Civil Cases Involving Disputes on Infringement of the Information Network Dissemination Rights provides that disseminating works, performances or audio-video products by internet users or internet service providers via the internet without the consents of the copyright owners shall be deemed to have infringed the right of dissemination of the copyright owner. Under the Regulations on the Protection of the Right to Network Dissemination of Information, promulgated by the State Council in 2006 and amended in 2013, an owner of the network dissemination rights with respect to written works or audio or video recordings who believes that information storage, search or link services provided by an internet service provider infringe his or her rights may require that the internet service provider delete, or disconnect the links to, such works or recordings. As of June 30, 2018, we have registered 28 software copyrights in the PRC.

Patent Law

        Under the Patent Law promulgated by PRC Congress in 1984 and most recently amended in 2008, and its implementation regulations issued in 2010, the State Intellectual Property Office is responsible for administering patents in the PRC. The Chinese patent system adopts a "first to file" principle, which means that where more than one person files a patent application for the same invention, a patent will be granted to the person who filed the application first. To be patentable, invention or utility models must meet all three conditions: novelty, inventiveness and practical applicability. A patent is valid for 20 years in the case of an invention and 10 years in the case of utility models and designs. A third-party user must obtain consent or proper license from the patent owner to use the patent. Otherwise, third-party use constitutes an infringement of patent rights. As of June 30, 2018, we had 41 patents in the PRC.

Trademark Law

        Under the Trademark Law promulgated by PRC Congress in 1982 and most recently amended in 2013, and its implementation regulations issued in 2002 and amended in April 2014, the Trademark

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Office of the Administration for Industry and Commerce is responsible for the registration and administration of trademarks. The Administration for Industry and Commerce under the State Council has established a Trademark Review and Adjudication Board for resolving trademark disputes. As with patents, China has adopted a "first-to-file" principle for trademark registration. If two or more applicants apply for registration of identical or similar trademarks for the same or similar commodities, the application that was filed first will receive preliminary approval and will be publicly announced. For applications filed on the same day, the trademark that was first used will receive preliminary approval and will be publicly announced. Registered trademarks are valid for ten years from the date the registration is approved. A registrant may apply to renew a registration within twelve months before the expiration date of the registration. If the registrant fails to apply in a timely manner, a grace period of six additional months may be granted. If the registrant fails to apply before the grace period expires, the registered trademark shall be deregistered. Renewed registrations are valid for ten years. As of June 30, 2018, we had 188 trademarks in the PRC.

Domain Name

        Domain names are protected in the PRC under the Administrative Measures on the Internet Domain Names promulgated by the MIIT, which became effective on November 1, 2017. The MIIT is the primary regulatory authority responsible for the administration of the PRC internet domain names. The registration of domain names in China has adopted a "first-to-file" principle. A domain name applicant will become the domain name holder upon the completion of its application procedure.

        As of June 30, 2018, we had registered more than 100 domain names, including "cootek.com" and "touchpal.com".

Internet Infringement

        Under the Tort Law promulgated by PRC Congress in 2009, an internet user or an internet service provider that infringes upon the civil rights or interests of others through using the internet assumes tort liability. If an internet user infringes upon the civil rights or interests of another through internet, the victim has the right to notify and request the facilitating internet service provider to take necessary measures including deletion, blocking or disconnection of any relevant internet link. If, the internet service provider fails to take necessary measures upon notification in a timely manner to stop the infringement, such internet service provider shall be jointly and severally liable for any additional harm caused by its failure to act. According to the Tort Law, civil rights and interests include the personal rights and rights of property, such as the right to life, right to health, right to name, right to reputation, right to honor, right of portraiture, right of privacy, right of marital autonomy, right of guardianship, right to ownership, right to usufruct, right to security interests, copyright, patent right, exclusive right to use trademarks, right to discovery, right to equity interests and right of heritage, among others.

Regulations Relating to User Protection

        The Measures on the Complaint Settlement of the Telecommunication Services Users, issued by MIIT in May 2016, requires telecommunication services providers to respond to their users within fifteen days upon the receipt of any complaint delivered by such users, the failure of which will give the complaining users the right to file a complaint against the service providers with the provincial branch offices of the MIIT.

Regulations Relating to M&A and Overseas Listings

        In 2006, six PRC regulatory agencies, including the MOFCOM, the State Assets Supervision and Administration Commission, the State Administration of Taxation, or the SAT, the SAIC, the China Securities Regulatory Commission, or the CSRC, and the State Administration of Foreign Exchange, or

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the SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rule, amended in 2009. The M&A Rule requires an offshore special purpose vehicle, formed for purposes of the overseas listing of equity interests in PRC companies through acquisitions of PRC domestic companies and controlled directly or indirectly by PRC companies or individuals, to obtain the approval of the CSRC prior to any listing or trading of such special purpose vehicle's securities on any overseas stock exchange. In 2006, the CSRC published on its official Website procedures for obtaining its approval of overseas listings by special purpose vehicles, which requires the filing of a number of documents with the CSRC. The application of this PRC regulation remains unclear, with no consensus currently existing among leading PRC law firms regarding the scope of the applicability of the CSRC approval requirements.

        The M&A Rules also establish procedures and requirements that could make some acquisitions of Chinese companies by foreign investors more time-consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a Chinese domestic enterprise.

        In February 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the Circular 6, which established a security review system for mergers and acquisitions of domestic enterprises by foreign investors. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having "national defense and security" concerns and mergers and acquisitions by which foreign investors may acquire "de facto control" of domestic enterprises with "national security" concerns. In August 2011, the MOFCOM promulgated the Rules on Implementation of Security Review System, or the MOFCOM Security Review Rules, to replace the Interim Provisions of the Ministry of Commerce on Matters Relating to the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by the MOFCOM in March 2011. The MOFCOM Security Review Rules, which came into effect on September 1, 2011, provide that the MOFCOM will look into the substance and actual impact of a transaction and prohibit foreign investors from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions.

Regulations Relating to Foreign Currency Exchange and Dividend Distribution

        The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, or the Foreign Exchange Regulations, which were promulgated by the State Council in 1996 and most recently amended in 2008. Under the Foreign Exchange Regulations, the RMB is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of the PRC, unless the prior approval of the SAFE is obtained and prior registration with the SAFE is made. Dividends paid by a PRC subsidiary to its overseas shareholder are deemed income of the shareholder and are taxable in the PRC. Pursuant to the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange promulgated by the PBOC in 1996, foreign-invested enterprises in the PRC may purchase or remit foreign currency, subject to a cap approved by the SAFE, for settlement of current account transactions without the approval of the SAFE. Foreign currency transactions under the capital account are still subject to limitations and require approvals from, or registration with, the SAFE and other relevant PRC governmental authorities.

        In July 2014, the SAFE promulgated the Circular on Issues Concerning Foreign Exchange Administration over the Overseas Investment and Financing and Roundtrip Investment by Domestic Residents Via Special Purpose Vehicles, or SAFE Circular 37, which replaced Relevant Issues Concerning Foreign Exchange Control on Domestic Residents" Corporate Financing and Roundtrip

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Investment through Offshore Special Purpose Vehicles, or SAFE Circular 75. SAFE Circular 37 requires PRC residents, including PRC institutions and individuals, to register with the local SAFE office in connection with their direct establishment or indirect control of an offshore entity, referred to in SAFE Circular 37 as a "special purpose vehicle" for the purpose of holding domestic or offshore assets or interests. PRC residents must also file amendments to their registrations in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. Under these regulations, PRC residents' failure to comply with such regulations may result in restrictions being imposed on the foreign exchange activities of the relevant PRC entity, including the payment of dividends and other distributions to its offshore parent, as well as restrictions on capital inflows from the offshore entity to the PRC entity, including restrictions on the ability to contribute additional capital to the PRC entity. Further, failure to comply with the various SAFE registration requirements could result in liability under PRC laws for evasion of foreign exchange regulations.

        Under SAFE Circular 37, if a non-listed special purpose vehicle uses its own equity to grant equity incentives to any directors, supervisors, senior management or any other employees directly employed by a domestic enterprise which is directly or indirectly controlled by such special purpose vehicle, or with which such an employee has established an employment relationship, related PRC residents and individuals may, prior to exercising their rights, apply to the SAFE for foreign exchange registration formalities for such special purpose vehicle. However, in practice, different local SAFE offices may have different views and procedures on the interpretation and implementation of the SAFE regulations, and since SAFE Circular 37 was the first regulation to regulate the foreign exchange registration of a non-listed special purpose vehicle's equity incentives granted to PRC residents, there remains uncertainty with respect to its implementation.

        In February 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13, which amended SAFE Circular 37 by requiring PRC residents or entities to register the incorporation or control of an offshore entity for purposes of offshore investment or offshore financing with qualified banks rather than SAFE or its local branches.

        Under the Administration Measures on Individual Foreign Exchange Control issued by PBOC in 2006, and related Implementation Rules issued by the SAFE in 2007, all foreign exchange transactions involving an employee share incentive plan, share option plan, or similar plan participated in by onshore individuals shall obtain approval from the SAFE or its local office.

        The principal regulations governing distribution of dividends of foreign holding companies include the Foreign Investment Enterprise Law promulgated in 1986 and most recently amended in September 2016, and the Administrative Rules under the Foreign Investment Enterprise Law promulgated in 2001 and amended in February, 2014.

        Under these regulations, foreign investment enterprises in China may pay dividends only out of their accumulated after-tax profits, if any, determined in accordance with the PRC accounting standards and regulations. In addition, foreign investment enterprises in the PRC are required to allocate 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 registered capital of the enterprises. Wholly foreign-owned enterprises may, at their own discretion, allocate a portion of their after-tax profits according to PRC accounting standards to staff welfare and bonus funds. These reserves are not distributable as cash dividends. Furthermore, under the Enterprise Income Tax Law, which became effective in January, 2008 and amended in February 2017, the maximum tax rate for the withholding tax imposed on dividend payments from PRC foreign invested companies to their overseas investors that are not regarded as "resident" for tax purposes is 20%. The rate was reduced to 10% under the Implementing Regulations for the PRC Enterprise Income Tax Law issued by the State Council. However, a lower withholding tax

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rate of 5% might be applied if there is a tax treaty between China and the jurisdiction of the foreign holding companies, such as is the case with Hong Kong, and certain requirements specified by PRC tax authorities are satisfied.

Regulations Relating to Employee Share Option Plans

        Pursuant to the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Listed Company, or SAFE Circular 7, issued by the SAFE in February 2012, employees, directors, supervisors, and other senior management participating in any share incentive plan of an overseas publicly-listed company who are PRC citizens or non-PRC citizens residing in China for a continuous period of not less than one year, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which may be a PRC subsidiary of such overseas listed company, and complete certain other procedures.

        In addition, the SAT has issued certain circulars concerning employee share options and restricted shares. Under these circulars, employees working in the PRC who exercise share options or are granted restricted shares will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed company are obligated to file documents related to employee share options and restricted shares with relevant tax authorities and to withhold individual income taxes of employees who exercise their share option or purchase restricted shares. If the employees fail to pay or the PRC subsidiaries fail to withhold income tax in accordance with relevant laws and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC governmental authorities.

Regulations Relating to Employment and Social Insurance

        The PRC Labor Contract Law promulgated by PRC Congress in 2007 and amended in December 2012, and its implementation rules issued by the State Council in 2008, require employers to provide written contracts to their employees, restrict the use of temporary workers and aim to give employees long-term job security. Violations of the PRC Labor Law and the PRC Labor Contract Law may result in fines and other administrative sanctions, and serious violations may result in criminal liabilities.

        Pursuant to the PRC Labor Contract Law, employment contracts lawfully concluded prior to the implementation of the PRC Labor Contract Law and continuing as of the date of its implementation shall continue to be performed. Where an employment relationship was established prior to the implementation of the PRC Labor Contract Law but no written employment contract was concluded, a contract must be concluded within one month after its implementation.

        The PRC governmental authorities have passed a variety of laws and regulations regarding social insurance and housing funds from time to time, including, among others, the PRC Social Insurance Law, the Regulation of Insurance for Labor Injury, the Regulations of Insurance for Unemployment, the Provisional Insurance Measures for Maternal Employees, and the Interim Provisions on Registration of Social Insurance. Pursuant to these laws and regulations, PRC companies must make contributions at specified levels for their employees to the relevant local social insurance and housing fund authorities. Failure to comply with such laws and regulations may result in various fines and legal sanctions and supplemental contributions to the local social insurance and housing fund regulatory authorities.

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MANAGEMENT

Directors and Executive Officers

        The following table sets forth information regarding our directors and executive officers as of the date of this prospectus.

Directors and Executive Officers
  Age   Position/Title
Karl Kan Zhang   38   Chairman of the Board of Directors and Chief Architect
Susan Qiaoling Li   40   Director and President
Michael Jialiang Wang   39   Director and Chief Executive Officer
Jim Jian Wang   38   Director and Chief Technology Officer
Duane Ziping Kuang   55   Director
Glen Qian Sun   45   Director
Haibing Wu   46   Independent Director Appointee*
Jue Yao   45   Independent Director Appointee*
Teng Ren   31   Chief Data Officer
Jean Liqin Zhang   39   Chief Financial Officer
Joe Haichao Xie   32   Vice President of Global Business
Jiang Zhu   35   Senior Product Director
Jack Xuesheng Gong   36   Senior Engineering Director

*
Each of Mr. Haibing Wu and Ms. Jue Yao has accepted our appointment to be a director of the company, effective upon the SEC's declaration of effectiveness of our registration statement on Form F-1, of which this prospectus is a part.

         Mr. Karl Kan Zhang co-founded our company in 2008 and has served as Chairman of our Board of Directors since March 2012 and our Chief Architect since August 2008. Prior to founding our company, Mr. Zhang served as a research and development manager at Microsoft Advanced Technology Center from 2004 to 2008. Prior to that, Mr. Zhang served as a software engineer at Intel China Software Lab from 2002 to 2004. Mr. Zhang received his bachelor's degree in mechanical and electronic engineering from Shanghai University in 2002.

         Ms. Susan Qiaoling Li co-founded our company in 2008, and has served as our President since April 17, 2018 and our director since October 2012. Ms. Li first served as our Chief Marketing Officer in 2008, and was then appointed as our Head of Global Business Division in September 2015. Prior to founding our company, Ms. Li served as a program manager in Microsoft China Co., Ltd.'s Shanghai Branch from 2005 to 2008, where she gained extensive experience in developing software and managing key accounts. Prior to that, Ms. Li served as a software quality engineer at Intel (China) Co., Ltd from 2003 to 2005. Ms. Li received her bachelor's degree in automation from Tsinghua University in 2000 and her master's degree in computer engineering from North Carolina State University in 2003.

         Mr. Michael Jialiang Wang co-founded our company in 2008 and has served as our Chief Executive Officer since August 2008 and our director since March 2012. Prior to founding our company, Mr. Wang served as a product manager at Microsoft R&D Group in China from 2005 to 2008. Mr. Wang received his bachelor's and master's degrees in electronic engineering from Shanghai Jiao Tong University in 2000 and 2005, respectively.

         Mr. Jim Jian Wang co-founded our company in 2008 and has served as our Chief Technology Officer since August 2008 and our director since July 2014. Prior to founding our company, Mr. Wang served as a development team leader at NTT Data in Tokyo, Japan from 2007 to 2008, where he developed a web crawler program. Prior to that, Mr. Wang served as a project manager in Shanghai JT-Omron Software Co., Ltd from 2002 to 2007. Mr. Wang received his bachelor's degree in mechatronic engineering and automation from Shanghai University in 2002.

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         Mr. Duane Ziping Kuang has served as our director since August 2012. Mr. Kuang founded Qiming Venture Partners in 2006, a private equity firm affiliated to one of our major shareholders, and has been serving as its managing partner since then. Mr. Kuang also serves on the boards of companies invested by Qiming Venture Partners, such as Mutto Optronics Corporation (TWSE: 4950). Mr. Kuang has over 20 years of operational and investment experience with technology companies. Prior to founding Qiming Venture Partners, Mr. Kuang was a director of Intel Capital China from 1999 to 2015. Prior to that, Mr. Kuang served as a general manager in Cisco Systems since 1994. Mr. Kuang received his master's degree in computer science from Stanford University and his MBA from the University of California Berkeley.

         Mr. Glen Qian Sun has served as our director since July 2014. Mr. Sun is a partner of Sequoia Capital China, a private equity firm affiliated to one of our major shareholders. Mr. Sun has also served on the board of 500.com Limited (NYSE: WBAI) as an independent director since 2013. Prior to joining Sequoia Capital China in 2006, Mr. Sun served as an associate at General Atlantic LLC, a private equity firm, from 2003 to 2005, focusing on technology and internet related investment in China. Mr. Sun also worked as a management consultant at Monitor Group from 1997 to 1999. Mr. Sun received his bachelor's degree in applied mathematics from Harvard College in 1997, and his MBA from Harvard Business School and J.D. from Harvard Law School in 2003.

         Mr. Haibing Wu will serve as our independent director immediately upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part. Mr. Wu has also served on the board of Acorn International, Inc. (NYSE: ATV) as an independent director since September 2016. Mr. Wu has over 20 years of experience in finance. He has been a partner of Vision Knight Capital, a leading private equity firm since April 2018. Prior to that, Mr. Wu served as the chief financial officer at Plateno Hotels Group (formerly known as 7 Days Group Holdings Limited) from October 2007 to March 2018. Mr. Wu also worked at PricewaterhouseCoopers in the United States from May 2000 to February 2006 and later worked as a senior manager in the assurance department of PricewaterhouseCoopers Zhong Tian CPAs Limited Company from February 2006 to October 2007. Mr. Wu received his bachelor's degree in engineering economics from Shanghai Jiao Tong University in 1994, and master's degree in business administration from Michigan State University in 2000.

         Ms. Jue Yao will serve as our independent director immediately upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part. Ms. Yao has also served on the board of Yintech Investment Holdings Limited (Nasdaq:YIN) as an independent director since April 2016. Ms. Yao has extensive experience in accounting and corporate finance. Ms. Yao served as the chief financial officer of Qihoo 360 Technology Co., Ltd., or Qihoo 360, a company formerly listed on the New York Stock Exchange (NYSE: QIHU) and currently listed on the Shanghai Stock Exchange (SSE: 601360), from 2014 to April 2018. Since 2006, Ms. Yao has held various positions at Qihoo 360, including its financial director and vice president of finance from 2008 to 2012 and its co-chief financial officer from 2012 to 2014. From 1999 to 2006, Ms. Yao held various positions, including financial director, at Sohu.com Inc. From 1996 to 1999, Ms. Yao was a senior auditor at KPMG. Ms. Yao received her bachelor's degree in international accounting from the University of International Business and Economics in 1996. Ms. Yao is a member of the Chinese Institute of Certified Public Accountants.

         Mr. Teng Ren co-founded our company in 2008 and served as our Chief Data Officer since July 2015. Mr. Ren joined our company directly after his graduation from Shanghai Jiao Tong University in 2010, where he received his bachelor's degree in computer science and engineering. He worked in our company as the Principle Architect in charge of developing the engine of TouchPal Smart Input from 2010 to 2012, then as the Principle Architect in charge of our Big Data Department from 2012 to 2015.

         Ms. Jean Liqin Zhang has served as our Chief Financial Officer since January 2017. Ms. Zhang joined our company in April 2013 as our Financial Director. Prior to joining us, Ms. Zhang worked at Ernst & Young from 2007 to 2013 with her last position as a senior manager. Prior to that, Ms. Zhang

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served as a consultant at Accenture Resource OG from 2004 to 2007 and as an auditor at PricewaterhouseCoopers LLP from 2002 to 2004. Ms. Zhang received her bachelor's degree in economics from Shanghai Jiao Tong University in 2002.

         Mr. Joe Haichao Xie has served as our Vice President of Global Business since January 2018. Mr. Xie first joined our company in 2010 serving as a software design engineer, and later has held numerous positions with our company. Mr. Xie received his bachelor's and master's degrees in computer science and technology from Dalian University of Technology in 2007 and 2009, respectively.

         Mr. Jiang Zhu has served as our Senior Product Director since February 2017. Mr. Zhu first joined our company in March 2010 as a Software Development Engineer. Before joining our company, Mr. Zhu worked as a software engineer at Sybase R&D Center (Shanghai) from 2009 to 2010. Mr. Zhu received his bachelor's degree in computer application technology from Shanghai Jiao Tong University in 2006, and his master's degree in computer science from Shanghai Jiao Tong University in 2009.

         Mr. Jack Xuesheng Gong has served as our Senior Engineering Director since May 2015. Before joining our company, Mr. Gong worked as a senior development engineer at Baidu Inc. (Nasdaq: BIDU) from 2010 to 2015, where he worked on designing and developing the core business strategies of Baidu Union, an advertising product based on Baidu's search engine. Mr. Gong received his bachelor's and master's degrees in computer science from Dalian University of Technology in 2007 and 2010, respectively.

Board of Directors

        Our board of directors will consist of eight directors upon the SEC's declaration of effectiveness of our registration statement on Form F-1, of which this prospectus is a part. A director is not required to hold any shares in our company by way of qualification. A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with our company is required to declare the nature of his interest at a meeting of our directors. A director may vote in respect of any contract, proposed contract, or arrangement notwithstanding that he may be interested therein, and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our directors at which any such contract or proposed contract or arrangement is considered. The directors may exercise all the powers of the company to borrow money, mortgage its undertaking, property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party.

Committees of the Board of Directors

        We will establish three committees under the board of directors immediately upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part: an audit committee, a compensation committee and a nominating and corporate governance committee. We will adopt a charter for each of the three committees. Each committee's members and functions are described below.

        Audit Committee. Our audit committee will consist of Mr. Haibing Wu, Ms. Jue Yao and Mr. Karl Kan Zhang. Mr. Haibing Wu will be the chairman of our audit committee. We have determined that Mr. Haibing Wu and Ms. Jue Yao satisfy the "independence" requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange and meet the independence standards under Rule 10A-3 under the Securities Exchange Act of 1934, as amended. We have determined that each of Mr. Haibing Wu and Ms. Jue Yao qualifies as an "audit committee financial expert." The audit

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committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:

    appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;

    reviewing with the independent auditors any audit problems or difficulties and management's response;

    discussing the annual audited financial statements with management and the independent auditors;

    reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures;

    reviewing and approving all proposed related party transactions;

    meeting separately and periodically with management and the independent auditors; and

    monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

        Compensation Committee.     Our compensation committee will consist of Ms. Jue Yao, Mr. Haibing Wu and Mr. Karl Kan Zhang. Ms. Jue Yao will be the chairwoman of our compensation committee. We have determined that Ms. Jue Yao and Mr. Haibing Wu satisfy the "independence" requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The compensation committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee will be responsible for, among other things:

    reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers;

    reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;

    reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and

    selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person's independence from management.

        Nominating and Corporate Governance Committee.     Our nominating and corporate governance committee will consist of Mr. Karl Kan Zhang, Mr. Haibing Wu and Ms. Jue Yao. Mr. Karl Kan Zhang will be the chairman of our nominating and corporate governance committee. Mr. Haibing Wu and Ms. Jue Yao satisfy the "independence" requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The nominating and corporate governance committee will assist the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee will be responsible for, among other things:

    selecting and recommending to the board nominees for election by the shareholders or appointment by the board;

    reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity;

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    making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and

    advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken.

Duties of Directors

        Under Cayman Islands law, our directors owe fiduciary duties to us, including a duty of loyalty, a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the skills they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association and the class rights vested thereunder in the holders of the shares. A shareholder may in certain circumstances have rights to damages if a duty owed by the directors is breached.

        Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:

    convening shareholders' annual general meetings and reporting its work to shareholders at such meetings;

    declaring dividends and distributions;

    appointing officers and determining the term of office of the officers;

    exercising the borrowing powers of our company and mortgaging the property of our company; and

    approving the transfer of shares in our company, including the registration of such shares in our share register.

Terms of Directors and Officers

        Our officers are elected by and serve at the discretion of the board of directors. Our directors are not subject to a term of office and hold office until such time as they are removed from office by ordinary resolution of the shareholders or by the board. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies, or is found by our company to be or becomes of unsound mind; (iii) resigns his office by notice in writing to the company, (iv) without special leave of absence from our board, is absent from three consecutive board meetings and our board of directors resolve that his office be vacated; (v) is prohibited by law from being a director; or (vi) is removed from office pursuant to any other provision of our post-listing amended and restated memorandum and articles of association, effective upon the completion of this offering.

Employment Agreements and Indemnification Agreements

        We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We may also terminate an executive officer's employment without cause upon three-month advance written

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notice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required by applicable law of the jurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month advance written notice.

        Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer's employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.

        In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach our suppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment with or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express consent; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executive officer's termination, or in the year preceding such termination, without our express consent.

        We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.

Compensation of Directors and Executive Officers

        For the fiscal year ended December 31, 2017, we paid an aggregate of approximately RMB8.5 million (US$1.3 million) in cash to our executive officers, and we did not pay any compensation to our non-executive directors. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. Our PRC subsidiary and VIEs are required by law to make contributions equal to certain percentages of each employee's salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.

Share Incentive Plans

2012 Stock Incentive Plan

        In November 2012, we adopted the 2012 Stock Incentive Plan, as amended from time to time, or the 2012 Plan, to attract and retain the best available personnel, provide additional incentives to employees, directors and advisors and promote the success of our business. The maximum aggregate number of our ordinary shares which may be issued pursuant to all awards under the 2012 Plan is 226,153,637 ordinary shares. As of the date of this prospectus, awards to purchase 185,182,989 ordinary shares have been granted and outstanding, excluding awards that were forfeited or cancelled after the relevant grant dates.

        The following paragraphs describe the principal terms of the 2012 Plan.

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        Types of Awards.     The 2012 Plan permits the awards of options, restricted shares, restricted share units, or RSUs, or any other form of awards granted to a participant pursuant to the 2012 Plan.

        Plan Administration.     Our board of directors or a committee of one or more members of the board of directors will administer the 2012 Plan. The plan administrator will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant.

        Award Agreement.     Awards granted under the 2012 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event of the participant's employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

        Eligibility.     We may grant awards to our senior managers, advisors or employees .

        Vesting Schedule.     In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.

        Exercise of Awards.     The plan administrator determines the exercise price for each award, which is stated in the award agreement. The vested portion of awards will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the maximum exercisable term is ten years from the date of a grant.

        Transfer Restrictions.     Awards may not be transferred in any manner by the participant other than by will or the laws of descent and distribution, except as otherwise authorized by the plan administrator during the lifetime of the participant.

        Termination and amendment of the 2012 Plan.     Unless terminated earlier, the 2012 Plan has a term of ten years. Our board of directors has the authority to amend or terminate the 2012 Plan. However, no such action may adversely affect in any material way any awards previously granted unless agreed by the participant.

2018 Share Incentive Plan

        In August 2018, our shareholders and board of directors adopted the 2018 Share Incentive Plan, or the 2018 Plan, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the success of our business. The maximum aggregate number of shares which may be issued under the 2018 Plan shall initially be 2.0% of the total number of shares issued and outstanding immediately following the completion of this offering, plus an annual increase on the first day of each of the first five (5) complete fiscal years after the completion of this offering and during the term of this plan commencing with the fiscal year beginning January 1, 2019, by an amount equal to 2.0% of the total number of shares issued and outstanding on the last day of the immediately preceding fiscal year (excluding issued shares reserved for future option exercise and restricted share unit vesting). As of the date of this prospectus, no award has been granted under the 2018 Plan.

        The following paragraphs summarize the terms of the 2018 Plan.

        Types of Awards.     The 2018 Plan permits the awards of options, restricted shares, restricted share units, or other types of awards granted to a participant pursuant to the terms of the 2018 Plan.

        Plan Administration.     The board of directors or a committee of one or more members of the board of directors will administer the 2018 Plan. The plan administrator will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant.

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        Award Agreement.     Awards granted under the 2018 Plan are evidenced by an award agreement that sets forth the terms and conditions for each grant, which may include the term of the award, the provisions applicable in the event the grantee's employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

        Eligibility.     We may grant awards to our employees, directors and consultants of our company. However, we may grant options that are intended to qualify as incentive share options only to our employees and employees of our parent companies and subsidiaries.

        Vesting Schedule.     In general, the plan administrator determines the vesting schedule, which is set forth in the relevant award agreement.

        Exercise of Options.     The plan administrator determines the exercise price for each option, which is stated in the award agreement. The plan administrator shall determine the time or times at which an option may be exercised in whole or in part, but the maximum term of any option is ten years.

        Transfer Restrictions.     Awards may not be transferred in any manner by the recipient other than in accordance with the exceptions provided in the 2018 Plan, such as transfers by will or the laws of descent and distribution.

        Termination and Amendment of the 2018 Plan.     Unless terminated earlier, the 2018 Plan has a term of ten years. Our board of directors has the authority to amend or terminate the plan. However, no such action may adversely affect in any material way any awards previously granted unless agreed by the recipient.

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        The following table summarizes, as of the date of this prospectus, the awards granted under our Plan to several of our directors and executive officers and to other individuals as a group, excluding awards that were forfeited or cancelled after the relevant grant dates.

Name
  Ordinary Shares
Underlying
Outstanding
Options or RSUs
  Exercise Price
(US$/Share)
  Date of Grant   Date of Expiration

Teng Ren

    15,360,000   0.0105   January 1, 2013   December 31, 2022

    15,360,000   0.0315   June 1, 2014   May 31, 2024

Jean Liqin Zhang

    *   0.0105   April 8, 2013   April 7, 2023

    *   0.0315   July 31, 2014   July 30, 2024

    * (1)   March 15, 2018   March 14, 2028

Joe Haichao Xie

    *   0.0105   January 1, 2013   December 31, 2022

    *   0.0315   July 31, 2014   July 30, 2024

    *   0.1000   January 1, 2016   December 31, 2025

    * (1)   March 15, 2018   March 14, 2028

Jiang Zhu

    *   0.0105   January 1, 2013   December 31, 2022

    *   0.0315   July 31, 2014   July 30, 2024

    *   0.1000   January 1, 2016   December 31, 2025

    * (1)   March 15, 2018   March 14, 2028

Jack Xuesheng Gong

    *   0.0315   May 11, 2015   May 10, 2025

    *   0.1000   January 1, 2016   December 31, 2025

    *   0.1000   May 11, 2016   May 10, 2026

    * (1)   March 15, 2018   March 14, 2028

Other individuals as a group

    124,458,189   from 0.0105 to 0.1800    

*
The options and restricted shares units in aggregate held by each of these officers represent less than 1% of our total outstanding shares.

(1)
Restricted share units.

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PRINCIPAL SHAREHOLDERS

        Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary shares as of the date of this prospectus by:

        The calculations in the table below are based on 2,978,331,701 ordinary shares on an as-converted basis outstanding as of the date of this prospectus, and                        Class A ordinary shares and 246,224,465 Class B ordinary shares outstanding immediately after the completion of this offering, assuming the underwriters do not exercise their over-allotment option.

        Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

 
   
   
  Ordinary Shares Beneficially Owned
After This Offering
 
 
  Ordinary Shares
Beneficially Owned
Prior to This
Offering
   
   
  Total
Ordinary
Shares
on an as-
Converted
Basis
   
   
 
 
   
   
   
  % of
Aggregate
Voting
Power †[nc_cad,217]
 
 
  Class A
Ordinary
Shares
  Class B
Ordinary
Shares
  % of
Beneficial
Ownership
 
 
  Number   %  

Directors and Executive Officers**:

                                           

Karl Kan Zhang (1)

    246,224,465     8.3 %                              

Susan Qiaoling Li (2)

    215,624,465     7.2 %                              

Michael Jialiang Wang (3)

    215,624,465     7.2 %                              

Jim Jian Wang (4)

    128,368,349     4.3 %                              

Duane Ziping Kuang

                                       

Glen Qian Sun

                                       

Haibing Wu***

                                       

Jue Yao***

                                       

Teng Ren

    *     *                                

Jean Liqin Zhang

    *     *                                

Joe Haichao Xie

    *     *                                

Jiang Zhu

    *     *                                

Jack Xuesheng Gong

    *     *                                

All Directors and Executive Officers as a Group

    852,751,184     22.3 %                              

Principal Shareholders:

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Qiming Funds (5)

    540,786,459     18.2 %                              

Sequoia Capital China GF Holdco III-A, Ltd. (6)

    534,404,772     17.9 %                              

SIG China Investments Master Fund III, LLLP (7)

    423,875,937     14.2 %                              

Kan's Global CoolStuff Investment Inc. (1)(8)

    246,224,465     8.3 %                              

Jialiang's Global Creativity Investment Inc. (2)(9)

    215,624,465     7.2 %                              

LQL Global Innovation Investment Inc. (3)(10)

    215,624,465     7.2 %                              

Jian's Global CoolStuff Investment Inc. (4)(11)

    128,368,349     4.3 %                              

*
Less than 1% of our total outstanding shares.

**
Except for Duane Ziping Kuang and Glen Qian Sun, the business address of our directors and executive officers is 2nd Floor, Building 7, No.2007 Hongmei Road, Xuhui District, Shanghai, China. The business address of Duane Ziping Kuang is Unit 3906 Jinmao Tower, No.88 Century Boulevard, Shanghai, China. The business address of Glen Qian Sun is Room2805, No.1266 Nanjing West Road, Shanghai, China.

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***
Each of Mr. Haibing Wu and Ms. Jue Yao have accepted our appointment to be a director of our company, effective upon the SEC's declaration of effectiveness of our registration statement on Form F-1, of which this prospectus is a part.

For each person and group included in this column, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the total number of shares outstanding, which is 2,978,331,701 on an as-converted basis as of the date of this prospectus, and the number of shares such person or group has the right to acquire upon exercise of option, warrant or other right within 60 days after the date of this prospectus.

††
For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our Class A and Class B ordinary shares as a single class. Each holder of Class A ordinary shares is entitled to one vote per share and each holder of our Class B ordinary shares is entitled to twenty-five votes per share on all matters submitted to them for a vote. Our Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. Our Class B ordinary shares are convertible at any time by the holder thereof into Class A ordinary shares on a one-for-one basis.

(1)
Represents 246,224,465 ordinary shares directly held by Kan's Global CoolStuff Investment Inc., a British Virgin Island company wholly owned by Mr. Karl Kan Zhang. The register office of Kan's Global CoolStuff Investment Inc. is at Drake Chambers P.O. Box 3321, Road Town, Tortola, British Virgin Islands.

(2)
Represents 215,624,465 ordinary shares directly held by LQL Global Innovation Investment Inc., a British Virgin Island company wholly owned by Ms. Susan Qiaoling Li. The register office of LQL Global Innovation Investment Inc. is at Drake Chambers P.O. Box 3321, Road Town, Tortola, British Virgin Islands.

(3)
Represents 215,624,465 ordinary shares directly held by Jialiang's Global Creativity Investment Inc., a British Virgin Island company wholly owned by Mr. Michael Jialiang Wang. The register office of Jialiang's Global Creativity Investment Inc. is at Drake Chambers P.O. Box 3321, Road Town, Tortola, British Virgin Islands.

(4)
Represents 128,368,349 ordinary shares directly held by Jian's Global CoolStuff Investment Inc., a British Virgin Island company wholly owned by Mr. Jim Jian Wang. The register office of Jian's Global CoolStuff Investment Inc. is at Drake Chambers P.O. Box 3321, Road Town, Tortola, British Virgin Islands.

(5)
Represents (i) 312,204,386 Series A preferred shares, 79,635,753 Series B preferred shares, 26,034,766 Series B-1 preferred shares, 63,988,280 Series C preferred shares, and 8,816,163 Series D preferred shares held by Qiming Venture Partners II, L.P., a Cayman Islands exempted limited partnership; (ii) 27,338,322 Series A preferred shares, 6,973,342 Series B preferred shares, 2,279,746 Series B-1 preferred shares, 5,603,163 Series C preferred shares, and 771,991 Series D preferred shares held by Qiming Venture Partners II-C, L.P, a Cayman Islands exempted limited partnership.; and (iii) 4,543,313 Series A preferred shares, 1,158,889 Series B preferred shares, 378,868 Series B-1 preferred shares, 931,181 Series C preferred shares, and 128,296 Series D preferred shares by Qiming Managing Directors Fund II, L.P. , a Cayman Islands exempted limited partnership. Qiming Venture Partners II, L.P., Qiming Venture Partners II-C, L.P., and Qiming Managing Directors Fund II, L.P. are collectively referred to as Qiming Funds. The general partner of both Qiming Venture Partners II, L.P. and Qiming Venture Partners II-C, L.P. is Qiming GP II, L.P., a Cayman Islands exempted limited partnership. The general partner of both Qiming Managing Directors Fund II, L.P. and Qiming GP II, L.P. is Qiming Corporate GP II, Ltd., a Cayman Islands exempted limited company. Voting and investment power of the shares held by the Qiming Funds is exercised by the investment committee of Qiming Corporate GP II, Ltd., which consists of Duane Kuang, Gary Rieschel, JP Gan and Robert Headley. The registered office of Qiming Funds is at P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

(6)
Represents 524,688,322 Series C preferred shares, and 9,716,450 Series D preferred shares held by Sequoia Capital China GF Holdco III-A, Ltd., an exempted company with limited liability incorporated in the Cayman Islands. The sole shareholder of Sequoia Capital China GF Holdco III-A, Ltd. is Sequoia Capital China Growth Fund III, L.P. The general partner of Sequoia Capital China Growth Fund III, L.P. is SC China Growth III Management, L.P., whose general partner is SC China Holding Limited. SC China Holding Limited is wholly owned by SNP China Enterprises Limited, which in turn is wholly owned by Mr. Neil Nanpeng Shen. The registered office of Sequoia Capital China GF Holdco III-A, Ltd. is at Cricket Square, Hutchins Drive P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands.

(7)
Represents 269,602,205 Series B preferred shares, 88,139,183 Series B-1 preferred shares, 56,418,099 Series C preferred shares, and 9,716,450 Series D convertible preferred shares held by SIG China Investments Master Fund III, LLLP, a Delaware limited liability limited partnership. SIG Asia Investment, LLLP, a Delaware limited liability limited partnership, is the investment manager for SIG China Investments Master Fund III, LLLP pursuant to an investment management agreement, and as such, has discretionary authority to vote and dispose of the 269,602,205 Series B preferred shares, 88,139,183 Series B-1 preferred shares, 56,418,099 Series C preferred shares, and 9,716,450 Series D convertible preferred shares. Heights Capital Management, Inc., a Delaware Corporation, is the investment manager for SIG Asia Investment, LLLP pursuant to an investment management agreement, and as such, has the discretionary to dispose and vote the 269,602,205 Series B preferred shares, 88,139,183 Series B-1 preferred shares, 56,418,099 Series C preferred shares, and 9,716,450 Series D convertible preferred shares. Mr. Authur Dantchik, in his capacity as president of SIG Asia Investment, LLLP, and vice president of Heights Capital Management, Inc. may also be deemed to have investment discretion over the shares held by SIG China Investments Master Fund III, LLLP. Mr. Dantchik disclaims any such investment discretion or beneficiary ownership with respect to these shares. The registered office of SIG China Investments Master Fund III, LLLP is at One Commence Center, 1201 N. Orange Street, Suite 715, Wilmington, DE, USA.

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(8)
Represents 246,224,465 ordinary shares directly held by Kan's Global CoolStuff Investment Inc., a British Virgin Island company wholly owned by Mr. Karl Kan Zhang. The register office of Kan's Global CoolStuff Investment Inc. is at Drake Chambers P.O. Box 3321, Road Town, Tortola, British Virgin Islands.

(9)
Represents 215,624,465 ordinary shares directly held by Jialiang's Global Creativity Investment Inc., a British Virgin Island company wholly owned by Mr. Michael Jialiang Wang. The register office of Jialiang's Global Creativity Investment Inc. is at Drake Chambers P.O. Box 3321, Road Town, Tortola, British Virgin Islands.

(10)
Represents 215,624,465 ordinary shares directly held by LQL Global Innovation Investment Inc., a British Virgin Island company wholly owned by Ms. Susan Qiaoling Li. The register office of LQL Global Innovation Investment Inc. is at Drake Chambers P.O. Box 3321, Road Town, Tortola, British Virgin Islands.

(11)
Represents 128,368,349 ordinary shares directly held by Jian's Global CoolStuff Investment Inc., a British Virgin Island company wholly owned by Mr. Jim Jian Wang. The register office of Jian's Global CoolStuff Investment Inc. is at Drake Chambers P.O. Box 3321, Road Town, Tortola, British Virgin Islands.

        As of the date of this prospectus, a total of 498,483,997 preferred shares are held by 2 record holders in the United States, representing 16.7% of our total outstanding shares on an as-converted basis.

        We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. See "Description of Share Capital—History of Securities Issuances" for historical changes in our shareholding structure.

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RELATED PARTY TRANSACTIONS

Contractual Arrangements with our Variable Interest Entities and their Shareholders

        See "Corporate History and Structure."

Private Placements

        See "Description of Share Capital—History of Securities Issuances."

Shareholders Agreement

        See "Description of Share Capital—History of Securities Issuances."

Employment Agreements and Indemnification Agreements

        See "Management—Employment Agreements and Indemnification Agreements."

Share Incentive Plan

        See "Management—2012 Stock Incentive Plan."

Transactions with Certain Affiliates

        In November 2016, we extended a loan of RMB0.5 million (US$0.1 million) to Mr. Jim Jian Wang. The loan bears an annual interest rate of 4.08% and is repayable in cash under a 36-month-installment repayment scheme. The loan has been fully repaid in February 2018.

        In April 2017, we extended a loan of RMB2.0 million (US$0.3 million) to Mr. Teng Ren. The loan bears an annual interest rate of 4.08% and becomes due after one years upon the expiration of lock-up period. The loan has been fully repaid in March 2018.

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DESCRIPTION OF SHARE CAPITAL

        We are an exempted company incorporated in the Cayman Islands and our corporate affairs are governed by our memorandum and articles of association, the Companies Law (2018 Revision) of the Cayman Islands, which we refer to as the Companies Law below, and the common law of the Cayman Islands.

        As of the date of this prospectus, our authorized share capital is US$50,000.00 divided into 5,000,000,000 shares, par value of US$0.00001 each, of which (i) 2,920,061,989 shares are designated as ordinary shares; (ii) 442,174,065 shares are designated as Series A preferred shares; (iii) 553,299,062 shares are designated as Series B preferred shares; (iv) 119,688,525 shares are designated as Series B-1 preferred shares; (viii) 651,629,045 shares are designated as Series C preferred shares; (ix) 223,478,358 shares are designated as Series D preferred shares, (x) 89,668,956 shares are designated as Series D-1 preferred shares. As of the date of this prospectus, 898,393,690 ordinary shares, 442,174,065 Series A preferred shares, 553,299,062 Series B preferred shares, 119,688,525 Series B-1 preferred shares, 651,629,045 Series C preferred shares, 223,478,358 Series D preferred shares, and 89,668,956 Series D-1 preferred shares are issued and outstanding. All of our issued and outstanding ordinary and preferred shares are fully paid.

        Immediately upon the completion of this offering, our authorized share capital will be US$150,000 divided into 15,000,000,000 shares comprising (i) 13,750,000,000 Class A Ordinary Shares of a par value of US$0.00001 each, (ii) 250,000,000 Class B Ordinary Shares of a par value of US$0.00001 each and (iii) 1,000,000,000 shares of a par value of US$0.00001 each of such class or classes as the Board may determine in accordance our post-offering amended and restated memorandum and articles of association. We will have                 Class A ordinary shares issued and outstanding and 246,224,468 Class B ordinary shares issued and outstanding, assuming the underwriters do not exercise the over-allotment option.

Our Post-Offering Memorandum and Articles of Association

        We expect to adopt, subject to the approval of our board of directors and shareholders, our seventh amended and restated memorandum and articles of association, which will become effective and replace our current sixth amended and restated memorandum and articles of association in its entirety immediately prior to the completion of this offering. The following are summaries of material provisions of the post-offering amended and restated memorandum and articles of association that we expect to adopt and of the Companies Act, insofar as they relate to the material terms of our ordinary shares.

        Objects of Our Company.     Under our post-offering amended and restated memorandum and articles of association, the objects of our company are unrestricted and we have the full power and authority to carry out any object not prohibited by the laws of the Cayman Islands.

        Ordinary Shares.     Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Our ordinary shares are issued in registered form. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their shares.

        Conversion.     Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or disposition of Class B ordinary shares by a holder thereof to any person other than holders of Class B ordinary shares or their affiliates, such Class B ordinary shares shall be automatically and immediately converted into the same number of Class A ordinary shares.

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        Dividends.     The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Our post-offering amended and restated articles of association provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which our board of directors determine is no longer needed. Dividends may also be declared and paid out of share premium account or any other fund or account which can be authorized for this purpose in accordance with the Companies Law. Under the laws of the Cayman Islands, our company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.

        Voting Rights.     In respect of all matters subject to a shareholders' vote, each holder of Class A ordinary shares is entitled to one vote per share and each holder of Class B ordinary shares is entitled to twenty-five votes per share on all matters subject to vote at our general meetings. Our Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. Voting at any shareholders' meeting is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any shareholder present in person or by proxy.

        A quorum required for a meeting of shareholders consists of one or more shareholders present or representing by proxy and holding shares which represent, in aggregate, not less than one-third of all votes attaching to the issued and outstanding voting shares entitled to vote at general meetings. Shareholders may be present in person or by proxy or, if the shareholder is a corporation or other non-natural person, by its duly authorized representative. Shareholders' meetings may be convened by our board of directors on its own initiative or upon a request to the directors by shareholders holding, at the date of deposit of the requisition, shares which represent, in aggregate, no less than one-third of all votes attaching to all our issued and outstanding shares, in which case the directors are obliged to call such meeting and to put the resolutions so requisitioned to a vote at such meeting; however, our post-offering amended and restated memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders. Advance notice of at least ten (10) calendar days is required for the convening of our annual general shareholders' meeting and any other general shareholders' meeting.

        An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our company, as permitted by the Companies Law and our post-offering amended and restated memorandum and articles of association. A special resolution will be required for important matters such as a change of our name or making changes to our post-offering amended and restated memorandum and articles of association. Holders of the ordinary shares may, among other things, consolidate or subdivide their shares by ordinary resolution.

        General Meetings of Shareholders.     As a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders' annual general meetings. Our post-offering memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors.

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        Shareholders' general meetings may be convened by a majority of our board of directors. Advance notice of at least ten calendar days is required for the convening of our annual general shareholders' meeting (if any) and any other general meeting of our shareholders. A quorum required for any general meeting of shareholders consists of one or more shareholders present in person or by proxy, representing not less than one-third of all votes attaching to all of our shares in issue and entitled to vote.

        The Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company's articles of association. Our post-offering memorandum and articles of association provide that upon the requisition of shareholders representing in aggregate not less than one-third of all votes attaching to all outstanding shares of our company that as at the date of the deposit carry the right to vote at general meetings, our board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our post-offering memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.

        Election, Removal and Remuneration of Directors.     Unless otherwise determined by our company in general meeting, our post-offering memorandum and articles of association provide that our board will consist of not less than three directors. There are no provisions relating to retirement of directors upon reaching any age limit.

        The directors have the power to appoint any person as a director either to fill a vacancy on the board or as an addition to the existing board. Our shareholders may also appoint any person to be a director by way of ordinary resolution. A director shall not be required to hold any Shares in the Company by way of qualification.

        Subject to restrictions contained in our post-offering amended and restated memorandum and articles of association, a director may be removed with or without cause by ordinary resolution.

        In addition, the office of any director shall be vacated if the director (i) becomes bankrupt or makes any arrangement or composition with his creditors, (ii) dies or is found to be or becomes of unsound mind, (iii) resigns his office by notice in writing to our company, (iv) without special leave of absence from our board is absent from three consecutive board meetings and our board resolves that his office be vacated, or (v) is removed from office pursuant to our post-offering amended and restated memorandum and articles of association.

        The remuneration of the directors may be determined by the directors or by ordinary resolution of shareholders.

        Transfer of Ordinary Shares.     Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.

        Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:

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        If our directors refuse to register a transfer they shall, within three calendar months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

        The registration of transfers may, after compliance with any notice required of the New York Stock Exchange, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 calendar days in any calendar year as our board may determine from time to time.

        Liquidation.     On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. 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 in proportion to the par value of the shares held by them.

        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 calendar days prior to the specified time of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.

        Redemption, Repurchase and Surrender of Shares.     We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner as may be determined by our board of directors. Our company may also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Law, the redemption or repurchase of any share may be paid out of our company's profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Law no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.

        Variations of Rights of Shares.     If at any time, our share capital is divided into different classes or series of shares, the rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series), whether or not our company is being wound-up, may be varied with the consent in writing of all the holders of the issued shares of that class or series or with the sanction of a resolution passed by a majority of the votes cast at a separate meeting of the holders of the shares of the class or series. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.

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        Issuance of Additional Shares.     Our post-offering amended and restated memorandum of association authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.

        Our post-offering amended and restated memorandum of association also authorizes our board of directors to establish from time to time one or more series of preference shares and to determine, with respect to any series of preference shares, the terms and rights of that series, including but not limited to:

        Our board of directors may issue preference shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.

        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 annual audited financial statements. See "Where You Can Find Additional Information."

        Anti-Takeover Provisions.     Some provisions of our post-offering memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:

        However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our post-offering memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.

        Exempted Company.     We are incorporated as an exempted company with limited liability under the Companies Law. The Companies Law distinguishes between ordinary resident companies and exempted companies. Any company that is incorporated in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be incorporated as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:

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        "Limited liability" means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).

Differences in Corporate Law

        The Companies Law is modeled after that of England but does not follow recent English statutory enactments and differs from laws applicable to U.S. 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, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company's articles of association. The plan must be filed with the Registrar of Companies of the Cayman Islands 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 that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

        A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose, a company is a "parent" of a subsidiary if it holds issued shares that together represent at least ninety percent (90%) of the votes at a general meeting of the subsidiary.

        The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.

        Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the merger or consolidation, provide the dissenting shareholder complies strictly with the procedures set out in the Companies Law. The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

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        Separate from the statutory provisions relating to mergers and consolidations, the Companies Law also contains statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement 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 has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:

        The Companies Law also contains a statutory power of compulsory acquisition which may facilitate the "squeeze out" of dissentient minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90% of the shares affected within four months, the offeror may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.

        If an arrangement and reconstruction is thus approved, or if a tender offer is made and accepted, a dissenting shareholder would have no rights comparable to appraisal rights, save that objectors to a takeover offer may apply to the Grand Court of the Cayman Islands for various orders that the Grand Court of the Cayman Islands has a broad discretion to make, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

        Shareholders' Suits.     In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the foregoing principle, including when:

        Indemnification of Directors and Executive Officers and Limitation of Liability.     Cayman Islands law does not limit the extent to which a company's memorandum and 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 post-offering amended and restated memorandum and articles of association permit indemnification of officers and directors for losses,

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damages, costs and expenses incurred in their capacities as such unless such losses or damages arise from dishonesty or fraud of such directors or officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.

        In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our post-offering amended and restated memorandum and articles of association.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

        Directors' Fiduciary Duties.     Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

        As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his position as director (unless the company permits him to do so) and a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.

        Shareholder Action by Written Consent.     Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our post-offering amended and restated articles of association provide that shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.

        Shareholder Proposals.     Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.

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        The Companies Law provide shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company's articles of association. [Our post-offering amended and restated articles of association allow our shareholders holding in aggregate not less than one-third of all votes attaching to the outstanding shares of our company entitled to vote at general meetings to requisition an extraordinary general meeting of our shareholders, in which case our board is obliged to convene an extraordinary general meeting and to put the resolutions so requisitioned to a vote at such meeting.] Other than this right to requisition a shareholders' meeting, our post-offering amended and restated articles of association do not provide our shareholders with any other right to put proposals before annual general meetings or extraordinary general meetings. As an exempted Cayman Islands company, we are not obliged by law to call shareholders' annual general meetings.

        Cumulative Voting.     Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation's certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder's voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our post-offering amended and restated articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

        Removal of Directors.     Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our post-offering amended and restated articles of association, directors may be removed with or without cause, by an ordinary resolution of our shareholders.

        Transactions with Interested Shareholders.     The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an "interested shareholder" for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target's outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target's board of directors.

        Cayman Islands law has no comparable statute.     As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority shareholders.

        Dissolution; Winding up.     Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation's outstanding shares. Delaware

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law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.

        Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so. Under the Companies Law and our post-offering amended and restated articles of association, our company may be dissolved, liquidated or wound up by a special resolution of our shareholders.

        Variation of Rights of Shares.     Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our post-offering amended and restated articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the written consent of the holders of a majority 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.

        Amendment of Governing Documents.     Under the Delaware General Corporation Law, a corporation's governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by Cayman Islands law, our post-offering amended and restated memorandum and articles of association may only be amended with a special resolution of our shareholders.

        Rights of Non-resident or Foreign Shareholders.     There are no limitations imposed by our post-offering amended and restated memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our post-offering amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.

History of Securities Issuances

        The following is a summary of our securities issuances in the past three years.

        On January 10, 2017, we repurchased and cancelled an aggregate of 14,158,256 ordinary shares from (i) Kan's Global CoolStuff Investment Inc, a company incorporated in British Virgin Islands wholly owned by Mr. Karl Kan Zhang, our Chairman and Chief Architect, (ii) LQL Global Innovation Investment Inc., a company incorporated in British Virgin Islands wholly owned by Ms. Susan Qiaoling Li, our director and President, (iii) Jialiang's Global Creativity Investment Inc., a company incorporated in British Virgin Islands wholly owned by Mr. Michael Jialiang Wang, our director and Chief Executive Officer; and (iv) Jian's Global CoolStuff Investment Inc., a company incorporated in British Virgin Islands wholly owned by Mr. Jim Jian Wang, our director and Chief Technology Officer, at a per share price of US$ 0.2119, for an aggregate consideration of US$3.0 million.

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        On July 14, 2016, we issued an aggregate of 223,478,358 Series D preferred shares to Chance Talent Management Limited, New Alliance CC Limited, Qiming Venture Partners II, L.P., Qiming Venture Partners II-C L.P., Qiming Managing Directors Fund II, L.P., SIG China Investments Master Fund III, LLLP, Sequoia Capital China GF Holdco III-A, Ltd. and Tranquility Communications Limited for an aggregate consideration of US$46.0 million.

        On January 10, 2017, we issued 89,668,956 Series D-1 preferred shares to HG Qiandao Limited for consideration of US$20.0 million.

        On January 10, 2017, we repurchased and cancelled 9,438,838 Series A Preferred Shares from Qualcomm International, Inc., at a per share price of US$ 0.2119 per share, for an aggregate consideration of US$2.0 million.

        We have granted options to purchase our ordinary shares and restricted shares units to certain of our directors, executive officers and employees. See "Management—2012 Stock Incentive Plan."

        We entered into our shareholders agreement on January 10, 2017 with our shareholders, which consist of holders of ordinary shares and preferred shares.

        The shareholders agreement provides for certain preferential rights, including right of first refusal, co-sale rights, preemptive rights and provisions governing the board of directors and other corporate governance matters. Those preferential rights governing the board of directors will automatically terminate upon the completion of this offering.

        Pursuant to our shareholders agreement dated January 10, 2017, we have granted certain registration rights to our shareholders. Set forth below is a description of the registration rights granted under the agreement.

        Demand Registration Rights.     Holders holding at least 10% or more of the outstanding series A preferred shares, series B preferred shares, series B-1 preferred shares, series C preferred shares, or series D preferred shares have the right to demand in writing that we file a registration statement covering the registration of all or part of their registrable securities. We have the right to defer filing of a registration statement for a period of not more than 90 days after the receipt of the request of the initiating holders under certain conditions, but we cannot exercise the deferral right more than once for more than 90 days in any twelve-month period. We are not obligated to effect more than three demand registrations, other than demand registration to be effected pursuant to registration statement on Form F-3, for which an unlimited number of demand registrations shall be permitted so long as such offerings are in excess of US$1,000,000.

        Piggyback Registration Rights.     If we propose to file a registration statement for a public offering of our securities, we must offer holders of our registrable securities an opportunity to include in the registration the number of registrable securities of the same class or series as those proposed to be registered. If the managing underwriters of any underwritten offering determine in its view the number of registrable securities exceeds the maximum offering size, (i) the registrable securities shall all be excluded, or (ii) allocate first to us, second to exclude up to 25% of their registrable securities pursuant to the piggyback registration, and third to any other party.

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        Form F-3 Registration Rights.     Any holder may request us to file an unlimited number of registration statements on Form F-3 as long as registered offerings are each for the ordinary shares having aggregate offering price of no less than US$1,000,000. Within 15 days of receiving such request, we shall effect the registration of the securities on Form F-3.

        Expenses of Registration.     We will bear all registration expenses, other than underwriting discounts and selling commissions incurred in connection with any demand, piggyback or F-3 registration.

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DESCRIPTION OF AMERICAN DEPOSITARY SHARES

American Depositary Shares

        Deutsche Bank Trust Company Americas, as depositary, will register and deliver the ADSs. Each ADS will represent ownership of         Class A ordinary shares, deposited with Deutsche Bank AG, Hong Kong Branch, as custodian for the depositary. Each ADS will also represent ownership of any other securities, cash or other property which may be held by the depositary. The depositary's corporate trust office at which the ADSs will be administered is located at 60 Wall Street, New York, NY 10005, USA. The principal executive office of the depositary is located at 60 Wall Street, New York, NY 10005, USA.

        The Direct Registration System, or DRS, is a system administered by The Depository Trust Company, or DTC, pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements issued by the depositary to the ADS holders entitled thereto.

        We will not treat ADS holders as our shareholders and accordingly, you, as an ADS holder, will not have shareholder rights. Cayman Islands law governs shareholder rights. The depositary will be the holder of the Class A ordinary shares underlying your ADSs. 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 sets out ADS holder rights as well as the rights and obligations of the depositary. The laws of the State of New York govern the deposit agreement and the ADSs. See "—Jurisdiction and Arbitration."

        The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of American Depositary Receipt. For directions on how to obtain copies of those documents, see "Where You Can Find Additional Information."

Holding the ADSs

        You may hold ADSs either (1) directly (a) by having an American Depositary Receipt, or ADR, which is a certificate evidencing a specific number of ADSs, registered in your name, or (b) by holding ADSs in DRS, or (2) indirectly through your broker or other financial institution. If you hold ADSs directly, you are an ADS holder. This description assumes you hold your ADSs directly. ADSs will be issued through DRS, unless you specifically request certificated ADRs. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

Dividends and Other Distributions

        The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Class A ordinary shares or other deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent as of the record date (which will be as close as practicable to the record date for our Class A ordinary shares) set by the depositary with respect to the ADSs.

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        The depositary 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, 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, shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our shares or any value for them if we and/or the depositary determines that it is illegal or not practicable for us or the depositary to make them available to you.

Deposit, Withdrawal and Cancellation

        The depositary will deliver ADSs if you or your broker deposit Class A ordinary shares or evidence of rights to receive Class A 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 depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons entitled thereto.

        [Except for Class A ordinary shares deposited by us in connection with this offering, no shares will be accepted for deposit during a period of 180 days after the date of this prospectus. The 180 day lock up period is subject to adjustment under certain circumstances as described in the section entitled "Shares Eligible for Future Sales—Lock-up Agreements."]

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        You may turn in your ADSs at the depositary's corporate trust office or by providing appropriate instructions to your broker. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the Class A ordinary shares and any other deposited securities underlying the ADSs to you or a person you designate at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its corporate trust office, to the extent permitted by law.

        You may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR and will send you a statement confirming that you are the owner of uncertificated ADSs. Alternatively, upon receipt by the depositary of a proper instruction from a holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to you an ADR evidencing those ADSs.

Voting Rights

        You may instruct the depositary to vote the Class A ordinary shares or other deposited securities underlying your ADSs at any meeting at which you are entitled to vote pursuant to any applicable law, the provisions of our memorandum and articles of association, and the provisions of or governing the deposited securities. Otherwise, you could exercise your right to vote directly if you withdraw the Class A ordinary shares. However, you may not know about the meeting sufficiently enough in advance to withdraw the Class A ordinary shares.

        If we ask for your instructions and upon timely notice from us by regular, ordinary mail delivery, or by electronic transmission, as described in the deposit agreement, the depositary will notify you of the upcoming meeting at which you are entitled to vote pursuant to any applicable law, the provisions of our memorandum and articles of association, and the provisions of or governing the deposited securities, and arrange to deliver our voting materials to you. The materials will include or reproduce (a) such notice of meeting or solicitation of consents or proxies; (b) a statement that the ADS holders at the close of business on the ADS record date will be entitled, subject to any applicable law, the provisions of our memorandum and articles of association, and the provisions of or governing the deposited securities, to instruct the depositary as to the exercise of the voting rights, if any, pertaining to the Class A ordinary shares or other deposited securities represented by such holder's ADSs; and (c) a brief statement as to the manner in which such instructions may be given or deemed given in accordance with the third to last sentence of this paragraph if no instruction is received, to the depositary to give a discretionary proxy to a person designated by us. Voting instructions may be given only in respect of a number of ADSs representing an integral number of Class A ordinary shares or other deposited securities. For instructions to be valid, the depositary must receive them in writing on or before the date specified. The depositary will try, as far as practical, subject to applicable law and the provisions of our memorandum and articles of association, to vote or to have its agents vote the Class A ordinary shares or other deposited securities (in person or by proxy) as you instruct. The depositary will only vote or attempt to vote as you instruct. If we timely requested the depositary to solicit your instructions but no instructions are received by the depositary from an owner with respect to any of the deposited securities represented by the ADSs of that owner on or before the date established by the depositary for such purpose, the depositary shall deem that owner to have instructed the depositary to give a discretionary proxy to a person designated by us with respect to such deposited securities, and the depositary shall give a discretionary proxy to a person designated by us to vote such

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deposited securities. However, no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter if we inform the depositary we do not wish such proxy given, substantial opposition exists or the matter materially and adversely affects the rights of holders of the Class A ordinary shares.

        We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the Class A ordinary shares underlying your ADSs. In addition, there can be no assurance that ADS holders and beneficial owners generally, or any holder or beneficial owner in particular, will be given the opportunity to vote or cause the custodian to vote on the same terms and conditions as the holders of our Class A ordinary shares.

        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 you may have no recourse if the Class A ordinary shares underlying your ADSs are not voted as you requested.

        In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we request the depositary to act, we will give the depositary notice of any such meeting and details concerning the matters to be voted at least 30 business days in advance of the meeting date.

Compliance with Regulations

        Each ADS holder and beneficial owner shall (a) provide such information as we or the depositary may request pursuant to law, including, without limitation, relevant Cayman Islands law, any applicable law of the United States of America, our memorandum and articles of association, any resolutions of our Board of Directors adopted pursuant to such memorandum and articles of association, the requirements of any markets or exchanges upon which the Class A ordinary shares, ADSs or ADRs are listed or traded, or to any requirements of any electronic book-entry system by which the ADSs or ADRs may be transferred, regarding the capacity in which they own or owned ADRs, the identity of any other persons then or previously interested in such ADRs and the nature of such interest, and any other applicable matters, and (b) be bound by and subject to applicable provisions of the laws of Cayman Islands, our memorandum and articles of association, and the requirements of any markets or exchanges upon which the ADSs, ADRs or Class A ordinary shares are listed or traded, or pursuant to any requirements of any electronic book-entry system by which the ADSs, ADRs or Class A ordinary shares may be transferred, to the same extent as if such ADS holder or beneficial owner held Class A ordinary shares directly, in each case irrespective of whether or not they are ADS holders or beneficial owners at the time such request is made.

        Each ADS holder and beneficial owner shall comply with our requests pursuant to Cayman Islands law, the rules and requirements of the New York Stock Exchange and any other stock exchange on which the Class A ordinary shares are, or will be, registered, traded or listed or our memorandum and articles of association, which requests are made to provide information, inter alia, as to the capacity in which such ADS holder or beneficial owner owns ADS and regarding the identity of any other person interested in such ADS and the nature of such interest and various other matters, whether or not they are ADS holders or beneficial owners at the time of such requests.

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Fees and Expenses

        As an ADS holder, you will be required to pay the following service fees to the depositary bank and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs):

Service
  Fees

To any person to which ADSs are issued or to any person to which a distribution is made in respect of ADS distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash)

  Up to US$0.05 per ADS issued

Cancellation of ADSs, including the case of termination of the deposit agreement

 

Up to US$0.05 per ADS cancelled

Distribution of cash dividends

 

Up to US$0.05 per ADS held

Distribution of cash entitlements (other than cash dividends) and/or cash proceeds from the sale of rights, securities and other entitlements

 

Up to US$0.05 per ADS held

Distribution of ADSs pursuant to exercise of rights.

 

Up to US$0.05 per ADS held

Distribution of securities other than ADSs or rights to purchase additional ADSs

 

Up to US$0.05 per ADS held

Depositary services

 

Up to US$0.05 per ADS held on the applicable record date(s) established by the depositary bank

        As an ADS holder, you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs) such as:

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        The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary bank to the holders of record of ADSs as of the applicable ADS record date.

        The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients' ADSs in DTC accounts in turn charge their clients' accounts the amount of the fees paid to the depositary banks.

        In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.

        The depositary may make payments to us or reimburse us for certain costs and expenses, by making available a portion of the ADS fees collected in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree from time to time.

Payment of Taxes

        You will be responsible for any taxes or other governmental charges payable, or which become payable, on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register or transfer your ADSs or allow you to withdraw the deposited securities represented by your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to you any net proceeds, or send to you any property, remaining after it has paid the taxes. You agree to indemnify us, the depositary, the custodian and each of our and their respective agents, directors, employees and affiliates for, and hold each of them harmless from, any claims with respect to taxes (including applicable interest and penalties thereon) arising from any refund of taxes, reduced rate of withholding at source or other tax benefit obtained for you. Your obligations under this paragraph shall survive any transfer of ADRs, any surrender of ADRs and withdrawal of deposited securities or the termination of the deposit agreement.

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Reclassifications, Recapitalizations and Mergers

If we:
  Then:
Change the nominal or par value of our Class A ordinary shares   The cash, shares or other securities received by the depositary will become deposited securities.

Reclassify, split up or consolidate any of the deposited securities

 

Each ADS will automatically represent its equal share of the new deposited securities.

Distribute securities on the Class A ordinary shares that are not distributed to you, or Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action

 

The depositary may 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.

Amendment and Termination

        We may agree with the depositary to amend the deposit agreement and the form of ADR without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, including expenses incurred in connection with foreign exchange control regulations and other charges specifically payable by ADS holders under the deposit agreement, or materially prejudices a substantial existing right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. 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 . If any new laws are adopted which would require the deposit agreement to be amended in order to comply therewith, we and the depositary may amend the deposit agreement in accordance with such laws and such amendment may become effective before notice thereof is given to ADS holders.

        The depositary will terminate the deposit agreement if we ask it to do so, in which case the depositary will give notice to you at least 90 days prior to termination. The depositary may also terminate the deposit agreement if the depositary has told us that it would like to resign, or if we have removed the depositary, and in either case we have not appointed a new depositary within 90 days. In either such case, the depositary must notify you at least 30 days before termination.

        After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: collect distributions on the deposited securities, sell rights and other property and deliver Class A ordinary shares and other deposited securities upon cancellation of ADSs after payment of any fees, charges, taxes or other governmental charges. Six months or more after the date of termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on 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 has no liability for interest. After such sale, the depositary's only obligations will be to account for the money and other cash. After termination, we shall be discharged from all obligations under the deposit agreement except for our obligations to the depositary thereunder.

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Books of Depositary

        The depositary will maintain ADS holder records at its depositary office. You may inspect such records at such office during regular business hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the Company, the ADRs and the deposit agreement.

        The depositary will maintain facilities in the Borough of Manhattan, The City of New York to record and process the issuance, cancellation, combination, split-up and transfer of ADRs.

        These facilities may be closed at any time or from time to time when such action is deemed necessary or advisable by the depositary in connection with the performance of its duties under the deposit agreement or at our reasonable written request.

Limitations on Obligations and Liability

        The deposit agreement expressly limits our obligations and the obligations of the depositary and the custodian. It also limits our liability and the liability of the depositary. The depositary and the custodian:

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        The depositary and any of its agents also disclaim any liability (i) for any failure to carry out any instructions to vote, the manner in which any vote is cast or the effect of any vote or failure to determine that any distribution or action may be lawful or reasonably practicable or for allowing any rights to lapse in accordance with the provisions of the deposit agreement, (ii) the failure or timeliness of any notice from us, the content of any information submitted to it by us for distribution to you or for any inaccuracy of any translation thereof, (iii) any investment risk associated with the acquisition of an interest in the deposited securities, the validity or worth of the deposited securities, the credit-worthiness of any third party, (iv) for any tax consequences that may result from ownership of ADSs, Class A ordinary shares or deposited securities, or (v) for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the depositary or in connection with any matter arising wholly after the removal or resignation of the depositary, provided that in connection with the issue out of which such potential liability arises the depositary performed its obligations without gross negligence or willful misconduct while it acted as depositary.

        In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.

Jurisdiction and Arbitration

        The laws of the State of New York govern the deposit agreement and the ADSs and we have agreed with the depositary that the federal or state courts in the City of New York shall have exclusive jurisdiction to hear and determine any dispute arising from or in connection with the deposit agreement and that the depositary will have the right to refer any claim or dispute arising from the relationship created by the deposit agreement to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association.

Jury Trial Waiver

        The deposit agreement provides that, to the extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable in the facts and circumstances of that case in accordance with applicable case law.

Requirements for Depositary Actions

        Before the depositary will issue, deliver or register a transfer of an ADS, split-up, subdivide or combine ADSs, make a distribution on an ADS, or permit withdrawal of Class A ordinary shares, the depositary may require:

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        The depositary may refuse to issue and deliver ADSs or register transfers of ADSs generally when the register of the depositary or our transfer books are closed or at any time if the depositary or we determine that it is necessary or advisable to do so.

Your Right to Receive the Shares Underlying Your ADSs

        You have the right to cancel your ADSs and withdraw the underlying Class A ordinary shares at any time except:

        The depositary shall not knowingly accept for deposit under the deposit agreement any Class A ordinary shares or other deposited securities required to be registered under the provisions of the Securities Act, unless a registration statement is in effect as to such Class A ordinary shares.

        This right of withdrawal may not be limited by any other provision of the deposit agreement.

Direct Registration System

        In the deposit agreement, all parties to the deposit agreement acknowledge that the DRS and Profile Modification System, or Profile, will apply to uncertificated ADSs upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements issued by the depositary to the ADS holders entitled thereto. Profile is a required feature of DRS which allows a DTC participant, claiming to act on behalf of an ADS holder, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register such transfer.

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SHARES ELIGIBLE FOR FUTURE SALES

        Upon completion of this offering, we will have        ADSs outstanding, representing approximately        % of our outstanding ordinary shares, assuming the underwriters do not exercise their over-allotment option to purchase additional ADSs. All of the ADSs sold in this offering will be freely transferable by persons other than by our "affiliates" without restriction or further registration under the Securities Act. Sales of substantial amounts of our ADSs in the public market could adversely affect prevailing market prices of our ADSs. Prior to this offering, there has been no public market for our ordinary shares or the ADSs. We intend to apply to list the ADSs on the New York Stock Exchange, but we cannot assure you that a regular trading market will develop in the ADSs. We do not expect that a trading market will develop for our ordinary shares not represented by the ADSs.

Lock-up Agreements

        We [have agreed], for a period of 180 days after the date of this prospectus, not to offer, pledge, sell, contract to sell, sell any portion or contract to purchase, purchase any portion or contract to sell, grant any option, right or contract to purchase, lend or otherwise transfer or dispose of, except in this offering, any of our ordinary shares or ADSs or securities that are substantially similar to our ordinary shares or ADSs, including but not limited to any options or warrants to purchase our ordinary shares, ADSs or any securities that are convertible into or exchangeable for, or that represent the right to receive, our ordinary shares, ADSs or any such substantially similar securities (other than pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date such lock-up agreement was executed), without the prior written consent of the representatives of the underwriters.

        Furthermore, each of [our directors, executive officers and existing shareholders and certain option holders] has also entered into a similar lock-up agreement for a period of 180 days from the date of this prospectus, subject to certain exceptions, with respect to our ordinary shares, ADSs and securities that are substantially similar to our ordinary shares or ADSs. These parties collectively own [all of] our outstanding ordinary shares, without giving effect to this offering.

        The restrictions described in the preceding paragraphs will be automatically extended under certain circumstances. See "Underwriting."

        Other than this offering, we are not aware of any plans by any significant shareholders to dispose of significant numbers of our ADSs or ordinary shares. However, one or more existing shareholders or owners of securities convertible or exchangeable into or exercisable for our ADSs or ordinary shares may dispose of significant numbers of our ADSs or ordinary shares in the future. We cannot predict what effect, if any, future sales of our ADSs or ordinary shares, or the availability of ADSs or ordinary shares for future sale, will have on the trading price of our ADSs from time to time. Sales of substantial amounts of our ADSs or ordinary shares in the public market, or the perception that these sales could occur, could adversely affect the trading price of our ADSs.

Rule 144

        All of our ordinary shares that will be outstanding upon the completion of this offering, other than those ordinary shares sold in this offering, are "restricted securities" as that term is defined in Rule 144 under the Securities Act and may be sold publicly in the United States only if they are subject to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirement such as those provided by Rule 144 and Rule 701 promulgated under the Securities Act. In general, beginning 90 days after the date of this prospectus, a person (or persons whose shares are aggregated) who at the time of a sale is not, and has not been during the three months preceding the sale, an affiliate of ours and has beneficially owned our restricted securities for at least six months will be entitled to sell the restricted securities without registration under the Securities

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Act, subject only to the availability of current public information about us, and will be entitled to sell restricted securities beneficially owned for at least one year without restriction. Persons who are our affiliates and have beneficially owned our restricted securities for at least six months may sell a number of restricted securities within any three-month period that does not exceed the greater of the following:

        Sales by our affiliates under Rule 144 are also subject to certain requirements relating to manner of sale, notice and the availability of current public information about us.

Rule 701

        In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases our ordinary shares from us in connection with a compensatory stock plan or other written agreement executed prior to the completion of this offering is eligible to resell those ordinary shares in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144. However, the Rule 701 shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.

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TAXATION

        The following summary of the material Cayman Islands, PRC 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 registration statement, 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 U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the People's Republic of China and the United States. To the extent that the discussion relates to matters of Cayman Islands tax law, it represents the opinion of Maples and Calder (Hong Kong) LLP, our counsel as to Cayman Islands law, and to the extent it relates to PRC tax law, it represents the opinion of Junhe LLP, our counsel as to PRC law.

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 after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

        Payments of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and no withholding tax will be required on the payment of dividends or capital to any holder of our ADSs or ordinary shares, nor will gains derived from the disposal of our ADSs or ordinary shares be subject to Cayman Islands income or corporation tax.

People's Republic of China Taxation

        Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with "de facto management body" within the PRC is considered a resident enterprise. The implementation rules define the term "de facto management body" as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the "de facto management body" of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation's general position on how the "de facto management body" text should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its "de facto management body" in China only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise's financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise's primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.

        We believe that CooTek (Cayman) Inc. is not a PRC resident enterprise for PRC tax purposes. CooTek (Cayman) Inc. is not controlled by a PRC enterprise or PRC enterprise group and we do not believe that CooTek (Cayman) Inc. meets all of the conditions above. CooTek (Cayman) Inc. is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests

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in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. In addition, we are not aware of any offshore holding companies with a similar corporate structure as ours ever having been deemed a PRC "resident enterprise" by the PRC tax authorities. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term "de facto management body."

        If the PRC tax authorities determine that CooTek (Cayman) Inc. is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. In addition, non-resident enterprise shareholders (including our ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of CooTek (Cayman) Inc. would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that CooTek (Cayman) Inc. is treated as a PRC resident enterprise.

United States Federal Income Tax Considerations

        The following discussion is a summary of United States federal income tax considerations relating to the acquisition, ownership and disposition of our ADSs or ordinary shares by a U.S. Holder (as defined below) that acquires our ADSs in this offering and holds our ADSs as "capital assets" (generally, property held for investment) under the United States Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing United States federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service, the IRS, with respect to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion does not discuss all aspects of United States federal income taxation that may be important to particular investors in light of their individual investment circumstances, including investors subject to special tax rules (including for example, financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, tax-exempt organizations (including private foundations), holders who are not U.S. Holders, holders who own (directly, indirectly or constructively) 10% or more of our stock, holders who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation, investors that will hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for United States federal income tax purposes, or investors that have a functional currency other than the United States dollar, all of whom may be subject to tax rules that differ significantly from those discussed below). This discussion, moreover, does not address the U.S. federal estate and gift tax or alternative minimum tax consequences of the acquisition or ownership of our ADSs or ordinary shares or the Medicare tax. Each U.S. Holder is urged to consult its tax advisor regarding the United States federal, state, local and non-United States income and other tax considerations of an investment in our ADSs or ordinary shares.

        For purposes of this discussion, a "U.S. Holder" is a beneficial owner of our ADSs or ordinary shares that is, for United States federal income tax purposes, (i) an individual who is a citizen or

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resident of the United States, (ii) a corporation (or other entity treated as a corporation for United States federal income tax purposes) created in, or organized under the law of, the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a United States person under the Code.

        If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ADSs or ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our ADSs or ordinary shares and their partners are urged to consult their tax advisors regarding an investment in our ADSs or ordinary shares.

        For United States federal income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner of the underlying shares represented by the ADSs. Accordingly, deposits or withdrawals of ordinary shares for ADSs will generally not be subject to United States federal income tax. The remainder of this discussion assumes that a U.S. Holder of our ADSs will be treated in this manner.

        A non-United States corporation, such as our company, will be classified as a passive foreign investment company, or PFIC, for United States federal income tax purposes, if, in the case of any particular taxable year, either (i) 75% or more of its gross income for such year consists of certain types of "passive" income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are categorized as a passive asset and the company's goodwill and other unbooked intangibles associated with active business activities may generally be classified as active assets. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock.

        Although the law in this regard is not entirely clear, we treat our VIEs as being owned by us for United States federal income tax purposes, because we control their management decisions and we are entitled to substantially all of the economic benefits associated with these entities, and, as a result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements. If it were determined, however, that we do not own the stock of our VIEs for United States federal income tax purposes, we may be treated as a PFIC for the current taxable year and any subsequent taxable year.

        Assuming that we are the owner of our VIEs for U.S. federal income tax purposes, and based upon our current and projected income and assets, including the proceeds from this offering, and projections as to the value of our assets, based in part on the projected market value of our ADSs following this offering, we do not believe we were a PFIC for the taxable year ended December 31, 2017 and we do not expect to be a PFIC for the current taxable year or in the foreseeable future. While we do not expect to be or become a PFIC in the current or future taxable years, the determination of whether we are or will become a PFIC will depend in part upon the value of our goodwill and other unbooked intangibles (which will depend upon the market value of our ADSs from time-to-time, which may be volatile). In estimating the value of our goodwill and other unbooked intangibles, we have taken into account our anticipated market capitalization immediately following the close of this offering. Among other matters, if our market capitalization is less than anticipated or

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subsequently declines, we may be or become a PFIC for the current or future taxable years. In addition, the composition of our income and our assets will be affected by how, and how quickly, we spend our liquid assets and the cash raised in this offering. Under circumstances where we determine not to deploy significant amounts of cash for capital expenditures and other general corporate purposes, our risk of becoming classified as a PFIC may substantially increase.

        Because determination of PFIC status is a fact-intensive inquiry made on an annual basis and will depend upon the composition of our assets and income, and the continued existence of our goodwill at that time, no assurance can be given that we are not or will not become classified as a PFIC. Our special United States counsel expresses no opinion with respect to our PFIC status and also expresses no opinion with respect to our expectations regarding our PFIC status. If we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or ordinary shares.

        The discussion below under "Dividends" and "Sale or Other Disposition of ADSs or Ordinary Shares" is written on the basis that we will not be classified as a PFIC for United States federal income tax purposes. The United States federal income tax rules that apply if we are treated as a PFIC are generally discussed below under "Passive Foreign Investment Company Rules."

        Subject to the discussion below under "Passive Foreign Investment Company Rules," any cash distributions (including the amount of any PRC tax withheld) paid on our ADSs or ordinary shares out of our current or accumulated earnings and profits, as determined under United States federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles, any distribution we pay will generally be treated as a "dividend" for United States federal income tax purposes. A non-corporate U.S. Holder will be subject to tax on dividend income from a "qualified foreign corporation" at a lower applicable capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain holding period requirements are met. A non-United States corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) will generally be considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information program, or (ii) with respect to any dividend it pays on stock (or ADSs in respect of such stock) which is readily tradable on an established securities market in the United States. We intend to apply to list the ADSs on the New York Stock Exchange. Provided the listing is approved on the New York Stock Exchange, which is an established securities market in the United States, the ADSs are expected to be readily tradable. Since we do not expect that our ordinary shares will be listed on an established securities market, it is unclear whether dividends that we pay on our ordinary shares that are not represented by ADSs will meet the conditions required for the reduced tax rate. There can be no assurance that our ADSs will continue to be considered readily tradable on an established securities market in later years.

        In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid on our ADSs or ordinary shares. We may, however, be eligible for the benefits of the United States-PRC income tax treaty (which the Secretary of Treasury of the United States has determined is satisfactory for the purpose of being a "qualified foreign corporation"). If we are eligible for such benefits, dividends we pay on our ordinary shares, regardless of whether such shares are represented by the

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ADSs, would be eligible for the reduced rates of taxation described in the preceding paragraph. Dividends received on our ADSs or ordinary shares will not be eligible for the dividends received deduction allowed to corporations.

        Dividends will generally be treated as income from foreign sources for United States foreign tax credit purposes and will generally constitute passive category income. Depending on the U.S. Holder's individual facts and circumstances, a U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit not in excess of any applicable treaty rate in respect of any foreign withholding taxes imposed on dividends received on our ADSs or ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction, for United States federal income tax purposes, in respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex and their outcome depends in large part on the U.S. Holder's individual facts and circumstances. Accordingly, U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

        Subject to the discussion below under "Passive Foreign Investment Company Rules," a U.S. Holder will generally recognize capital gain or loss upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder's adjusted tax basis in such ADSs or ordinary shares. Any capital gain or loss will be long-term if the ADSs or ordinary shares have been held for more than one year and will generally be United States source gain or loss for United States foreign tax credit purposes. Long-term capital gains of non-corporate taxpayers are currently eligible for reduced rates of taxation. In the event that gain from the disposition of the ADSs or ordinary shares is subject to tax in the PRC, such gain may be treated as PRC source gain under the United States-PRC income tax treaty. The deductibility of a capital loss may be subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of our ADSs or ordinary shares, including the availability of the foreign tax credit under their particular circumstances.

        If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, and unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder's holding period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition, including a pledge, of ADSs or ordinary shares. Under the PFIC rules:

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        If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares and any of our subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.

        As an alternative to the foregoing rules, a U.S. Holder of "marketable stock" in a PFIC may make a mark-to-market election with respect to such stock, provided that such stock is regularly traded. For those purposes, our ADSs, but not our ordinary shares will be treated as marketable stock upon their listing on the New York Stock Exchange. We anticipate that our ADSs should qualify as being regularly traded, but no assurances may be given in this regard. If a U.S. Holder makes this election, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder's adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that such corporation is not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.

        Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder's indirect interest in any investments held by us that are treated as an equity interest in a PFIC for United States federal income tax purposes.

        We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from the general tax treatment for PFICs described above.

        If a U.S. Holder owns our ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621 or such other form as is required by the United States Treasury Department. Each U.S. Holder is advised to consult its tax advisor regarding the potential tax consequences to such holder if we are or become a PFIC, including the possibility of making a mark-to-market election.

        Certain U.S. Holders are required to report information to the IRS relating to an interest in "specified foreign financial assets," including shares issued by a non-United States corporation, for any year in which the aggregate value of all specified foreign financial assets exceeds US$50,000 (or a higher dollar amount prescribed by the IRS), subject to certain exceptions (including an exception for shares held in custodial accounts maintained with a United States financial institution). These rules also impose penalties if a U.S. Holder is required to submit such information to the IRS and fails to do so.

        In addition, U.S. Holders may be subject to information reporting to the IRS with respect to dividends on and proceeds from the sale or other disposition of our ADSs or ordinary shares. Each U.S. Holder is advised to consult with its tax advisor regarding the application of the United States information reporting rules to their particular circumstances.

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UNDERWRITING

        Under the terms and subject to the conditions contained in the underwriting agreement dated the date of this prospectus, we have agreed to sell to the underwriters named below, for whom Credit Suisse Securities (USA) LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets Inc. are acting as representatives, the following respective numbers of ADSs:

Underwriter
  Number of
ADSs
 

Credit Suisse Securities (USA) LLC

                

Merrill Lynch, Pierce, Fenner & Smith
                      Incorporated

                

Citigroup Global Markets Inc. 

                

Total

                

        The underwriters are offering the ADSs subject to their acceptance of the ADSs from us and subject to prior sale. The underwriting agreement provides that the obligations of the underwriters to purchase the ADSs included in this offering are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated, severally and not jointly, to purchase all the ADSs (other than those covered by the over-allotment option described below) if they purchase any of the ADSs.

        All sales of ADSs in the United States will be made through United States registered broker-dealers. Sales of ADSs made outside the United States may be made by affiliates of the underwriters. The address of Credit Suisse Securities (USA) LLC is Eleven Madison Avenue, New York, NY 10010, United States of America. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated is One Bryant Park, New York, NY 10036, United States of America. The address of Citigroup Global Markets Inc. is 388 Greenwich Street, New York, NY 10013, United States of America.

        We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase [on a pro rata basis] up to             additional ADSs from us at the initial public offering price less the underwriting discounts and commissions. Any ADSs issued or sold under the option will be issued and sold on the same terms and conditions as the other ADSs that are the subject of this offering. The option may be exercised only to cover any over-allotments of ADSs.

        The underwriters propose to offer the ADSs initially at the initial public offering price set forth on the cover of this prospectus. Any ADSs sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $            per ADS. If all the ADSs are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms.

        The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option.

 
  Paid by us  
 
  No Exercise   Full Exercise  

Per ADS

  $              $             

Total

  $              $             

        We estimate that our total expenses of the offering, exclusive of underwriting discounts and commissions, will be $        .

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        The underwriters have informed us that they do not intend sales to accounts over which the underwriters have discretionary authority to exceed 5% of the total number of ADSs offered by them.

        We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any ADSs or ordinary shares or securities convertible into or exchangeable or exercisable for any ADSs or ordinary shares, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of the representatives for a period of 180 days after the date of this prospectus[, except issuances pursuant to employee stock options outstanding on the date hereof.]

        Each of our directors, executive officers and existing shareholders [as well as certain of our option holders] have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any ordinary shares, ADSs or securities convertible into or exchangeable or exercisable for any ordinary shares or ADSs, enter into a transaction that would have the same effect, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position in any ADSs or ordinary shares or securities convertible into or exchangeable or exercisable for any ADSs or ordinary shares, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our ADSs or ordinary shares or securities convertible into or exchangeable or exercisable for any ADSs or ordinary shares, whether any of these transactions are to be settled by delivery of our ordinary shares, ADSs or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, to establish, increase, liquidate or decrease any such position, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of the representatives for a period of 180 days after the date of this prospectus.

        [In addition, through a letter agreement, we will instruct Deutsche Bank Trust Company Americas, as depositary, not to accept any deposit of any ordinary shares or issue any ADSs for 180 days after the date of this prospectus unless we consent to such deposit or issuance. We have also agreed not to provide such consent without the prior written consent of the representatives. The foregoing does not affect the right of ADS holders to cancel their ADSs and withdraw the underlying ordinary shares.]

        Prior to this offering, there has been no public market for the ADSs. Consequently, the initial public offering price for the ADSs will be determined by negotiations among us and the representatives. Among the factors to be considered in determining the initial public offering price are our results of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. Neither we nor the underwriters can assure investors that an active trading market will develop for our ADSs, or that our ADSs will trade in the public market at or above the initial public offering price.

        We have applied to have our ADSs listed on the New York Stock Exchange under the symbol "CTK."

        In connection with the offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act.

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        These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of ADSs or preventing or retarding a decline in the market price of ADSs. As a result, the price of ADSs may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the New York Stock Exchange or otherwise, and, if commenced, may be discontinued at any time.

        A prospectus in electronic format may be made available by e-mail or on the websites or through online services maintained by one or more of the underwriters or their affiliates. In those cases, prospective investors may view offering terms online and may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of ADSs for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters' websites and any information contained in any other website maintained by any of the underwriters is not part of this prospectus, has not been approved and/or endorsed by us or the underwriters and should not be relied upon by investors.

Relationships

        The underwriters and their respective 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. [Certain of the underwriters and their respective affiliates have in the past performed commercial banking, investment banking and advisory services for us from time to time for which they have received customary fees and reimbursement of expenses and] may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) 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 investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment

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recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

        We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.

Notice to Investors

        In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of ADSs described in this prospectus may not be made to the public in that relevant member state other than:

provided that no such offer of ADSs shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.

        For purposes of this provision, the expression an "offer of securities to the public" 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 for the ADSs, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant member state) and includes any relevant implementing measure in the relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.

        The sellers of the ADSs have not authorized and do not authorize the making of any offer of ADSs through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the ADSs as contemplated in this prospectus. Accordingly, no purchaser of the ADSs, other than the underwriters, is authorized to make any further offer of the ADSs on behalf of the sellers or the underwriters.

        This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or Order, or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a "relevant person"). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed

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by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.

        Neither this prospectus nor any other offering material relating to the ADSs described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers . The ADSs have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the ADSs has been or will be:

        Such offers, sales and distributions will be made in France only:

        The ADSs may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier .

        This document, as well as any other offering or marketing material relating to the ADSs which are the subject of the offering contemplated by this prospectus, neither constitutes a prospectus pursuant to Article 652a or Article 1156 of the Swiss Code of Obligations nor a simplified prospectus as such term is understood pursuant to article 5 of the Swiss Federal Act on Collective Investment Schemes. Neither the ADSs nor the shares underlying the ADSs will be listed on the SIX Swiss Exchange and, therefore, the documents relating to the ADSs, including, but not limited to, this document, do not claim to comply with the disclosure standards of the listing rules of SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange.

        The ADSs are being offered in Switzerland by way of a private placement, i.e. to a small number of selected investors only, without any public offer and only to investors who do not purchase the ADSs with the intention to distribute them to the public. The investors will be individually approached from time to time. This document, as well as any other offering or marketing material relating to the ADSs, is confidential and it is exclusively for the use of the individually addressed investors in connection with the offer of the ADSs in Switzerland and it does not constitute an offer to any other person. This document may only be used by those investors to whom it has been handed out in connection with the offering described herein and may neither directly nor indirectly be distributed or made available to other persons without our express consent. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in or from Switzerland.

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        This prospectus is not a formal disclosure document and has not been, nor will be, lodged with the Australian Securities and Investments Commission. It does not purport to contain all information that an investor or their professional advisers would expect to find in a prospectus or other disclosure document (as defined in the Corporations Act 2001 (Australia)) for the purposes of Part 6D.2 of the Corporations Act 2001 (Australia) or in a product disclosure statement for the purposes of Part 7.9 of the Corporations Act 2001 (Australia), in either case, in relation to the ADSs.

        The ADSs are not being offered in Australia to "retail clients" as defined in sections 761G and 761GA of the Corporations Act 2001 (Australia). This offering is being made in Australia solely to "wholesale clients" for the purposes of section 761G of the Corporations Act 2001 (Australia) and, as such, no prospectus, product disclosure statement or other disclosure document in relation to the securities has been, or will be, prepared.

        This prospectus does not constitute an offer in Australia other than to wholesale clients. By submitting an application for the ADSs, you represent and warrant to us that you are a wholesale client for the purposes of section 761G of the Corporations Act 2001 (Australia). If any recipient of this prospectus is not a wholesale client, no offer of, or invitation to apply for, the ADSs shall be deemed to be made to such recipient and no applications for the ADSs will be accepted from such recipient. Any offer to a recipient in Australia, and any agreement arising from acceptance of such offer, is personal and may only be accepted by the recipient. In addition, by applying for the ADSs you undertake to us that, for a period of 12 months from the date of issue of the ADSs, you will not transfer any interest in the ADSs to any person in Australia other than to a wholesale client.

        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 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 offered in this prospectus have not been and will not be registered under the Financial Instruments and Exchange Law of Japan. The ADSs have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan (including any corporation or other entity organized under the laws of Japan), except (i) pursuant to an exemption from the registration requirements of the Financial Instruments and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.

        This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale,

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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 pursuant to Section 275(1), 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, in each case subject to compliance with conditions set forth in the SFA.

        Where the ADSs are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the ADSs pursuant to an offer made under Section 275 of the SFA except:

        The ADSs may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the ADSs must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

        Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province or territory for particulars of these rights or consult with a legal advisor.

        Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

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        This prospectus does not constitute a public offer of the ADSs or ordinary shares, whether by way of sale or subscription, in the Cayman Islands. ADSs or ordinary shares have not been offered or sold, and will not be offered or sold, directly or indirectly, in the Cayman Islands.

        This prospectus has not been and will not be circulated or distributed in the PRC, and our 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 residents of the PRC except pursuant to applicable laws and regulations of the PRC. For the purposes of this paragraph, the PRC does not include Taiwan, Hong Kong or Macau.

        The ADSs have not been and will not be registered or filed with, or approved by, the Financial Supervisory Commission of Taiwan pursuant to relevant securities laws and regulations and may not be offered or sold in Taiwan through a public offering or in circumstances which constitute an offer within the meaning of the Securities and Exchange Act of Taiwan or relevant laws and regulations that require a registration, filing or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorized to offer or sell the ADSs in Taiwan.

        In the State of Qatar, the offer contained herein is made on an exclusive basis to the specifically intended recipient thereof, upon that person's request and initiative, for personal use only and shall in no way be construed as a general offer for the sale of securities to the public or an attempt to do business as a bank, an investment company or otherwise in the State of Qatar. This prospectus and the underlying securities have not been approved or licensed by the Qatar Central Bank or the Qatar Financial Centre Regulatory Authority or any other regulator in the State of Qatar. The information contained in this prospectus shall only be shared with any third parties in Qatar on a need to know basis for the purpose of evaluating the contained offer. Any distribution of this prospectus by the recipient to third parties in Qatar beyond the terms hereof is not permitted and shall be at the liability of such recipient.

        Unless all necessary approvals from the Kuwait Ministry of Commerce and Industry required by Law No. 31/1990 "Regulating the Negotiation of Securities and Establishment of Investment Funds", its Executive Regulations and the various Ministerial Orders issued pursuant thereto or in connection therewith, have been given in relation to the marketing and sale of the ADSs, these may not be marketed, offered for sale, nor sold in the State of Kuwait. Neither this prospectus (including any related document), nor any of the information contained therein is intended to lead to the conclusion of any contract of whatsoever nature within Kuwait. Investors in Kuwait who approach us or any of the underwriters to obtain copies of this prospectus are required by us and the underwriters to keep such prospectus confidential and not to make copies thereof nor distribute the same to any other person in Kuwait and are also required to observe the restrictions provided for in all jurisdictions with respect to offering, marketing and the sale of the ADSs.

        The ADSs have not been offered or sold, and will not be offered or sold, directly or indirectly, in the United Arab Emirates, except: (1) in compliance with all applicable laws and regulations of the United Arab Emirates; and (2) through persons or corporate entities authorized and licensed to

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provide investment advice and/or engage in brokerage activity and/or trade in respect of foreign securities in the United Arab Emirates. The information contained in this prospectus does not constitute a public offer of securities in the United Arab Emirates in accordance with the Commercial Companies Law (Federal Law No. 8 of 1984 (as amended)) or otherwise and is not intended to be a public offer and is addressed only to persons who are sophisticated investors.

        This document relates to an Exempt Offer, as defined in the Offered Securities Rules module of the DFSA Rulebook, or the OSR, in accordance with the Offered Securities Rules of the Dubai Financial Services Authority. This document is intended for distribution only to Persons, as defined in the OSR, of a type specified in those rules. It must not be delivered to, or relied on by, any other Person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The Dubai Financial Services Authority has not approved this document nor taken steps to verify the information set out in it, and has no responsibility for it. The ADSs to which this document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the ADSs offered should conduct their own due diligence on the ADSs. If you do not understand the contents of this document you should consult an authorized financial adviser.

        This prospectus may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Offers of Securities Regulations issued by the Capital Market Authority. The Capital Market Authority does not make any representation as to the accuracy or completeness of this prospectus, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this prospectus. Prospective purchasers of the securities offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities. If you do not understand the contents of this prospectus you should consult an authorized financial adviser.

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EXPENSES RELATED TO THIS OFFERING

        Set forth below is an itemization of the total expenses, excluding underwriting discounts and commissions, that we expect to incur in connection with this offering. With the exception of the SEC registration fee, the Financial Industry Regulatory Authority, or FINRA, filing fee, and the stock exchange application and listing fee, all amounts are estimates.

SEC Registration Fee

  US$                   

FINRA Fee

  US$    

Stock exchange application and listing fee

  US$    

Printing and Engraving Expenses

  US$    

Legal Fees and Expenses

  US$    

Accounting Fees and Expenses

  US$    

Miscellaneous

  US$    

Total

  US$    

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LEGAL MATTERS

        We are being represented by Skadden, Arps, Slate, Meagher & Flom LLP with respect to certain legal matters as to United States federal securities and New York State law. The underwriters are being represented by Cleary Gottlieb Steen & Hamilton LLP with respect to certain legal matters as to United States federal securities and New York State law. The validity of the ordinary shares represented by the ADSs offered in this offering will be passed upon for us by Maples and Calder (Hong Kong) LLP. Certain legal matters as to PRC law will be passed upon for us by Junhe LLP and for the underwriters by Han Kun Law Offices. Skadden, Arps, Slate, Meagher & Flom LLP may rely upon Maples and Calder (Hong Kong) LLP with respect to matters governed by Cayman Islands law and Junhe LLP with respect to matters governed by PRC law. Cleary Gottlieb Steen & Hamilton LLP may rely upon Han Kun Law Offices with respect to matters governed by PRC law.

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EXPERTS

        The financial statements as of December 31, 2016 and 2017, and for each of the two years in the period ended December 31, 2017 included in this prospectus, have been audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such financial statements are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

        The offices of Deloitte Touche Tohmatsu Certified Public Accountants LLP are located at 30/F Bund Center, 222 Yan An Road East, Shanghai, the People's Republic of China.

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WHERE YOU CAN FIND ADDITIONAL INFORMATION

        We have filed a registration statement, including relevant exhibits, with the SEC on Form F-1 under the Securities Act with respect to the underlying ordinary shares represented by the ADSs to be sold in this offering. We have also filed a related registration statement on Form F-6 with the SEC to register the ADSs. This prospectus, which constitutes a part of the registration statement on Form F-1, does not contain all of the information contained in the registration statement. You should read our registration statements and their exhibits and schedules for further information with respect to us and our ADSs.

        Immediately upon the effectiveness of the registration statement on Form F-1 of which this prospectus forms a part, we will become subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we will be required to file reports, including annual reports on Form 20-F, and other information with the SEC. All information filed with the SEC can be obtained over the internet at the SEC's website at www.sec.gov or inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of documents, upon payment of a duplicating fee, by writing to the SEC.

        As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to furnish the depositary with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders' meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, if we so request, will mail to all record holders of ADSs the information contained in any notice of a shareholders' meeting received by the depositary from us.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
  Page  

Report of Independent Registered Public Accounting Firm

    F-2  

Consolidated Balance Sheets as of December 31, 2016 and December 31, 2017

    F-3  

Consolidated Statements of Operations for the years ended December 31, 2016 and December 31, 2017

    F-4  

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016 and December 31, 2017

    F-5  

Consolidated Statements of Changes in Shareholders' Deficit for the years ended December 31, 2016 and December 31, 2017

    F-6  

Consolidated Statements of Cash Flows for the years ended December 31, 2016 and December 31, 2017

    F-7  

Notes to the Consolidated Financial Statements

    F-8  

Schedule I—Financial Information of Parent Company

    F-37  

Unaudited Condensed Consolidated Balance Sheets as of December 31, 2017 and June 30, 2018

    F-41  

Unaudited Condensed Consolidated Statements of Operations for the six months ended June 30, 2017 and 2018

    F-43  

Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the six months ended June 30, 2017 and 2018

    F-44  

Unaudited Condensed Consolidated Statements of Change in Shareholders' Deficit for the six months ended June 30, 2018

    F-45  

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2018

    F-46  

Notes to Unaudited Condensed Consolidated Financial Statements

    F-47  

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and shareholders of CooTek (Cayman) Inc.

    Opinion on the Financial Statements

        We have audited the accompanying consolidated balance sheets of CooTek (Cayman) Inc. (the "Company"), its subsidiaries and its variable interest entities (collectively referred to as the "Group") as of December 31, 2017, and 2016, the related consolidated statements of operations, comprehensive loss, changes in shareholders' deficit, and cash flows for each of the two years in the period ended December 31, 2017, and the related notes and the financial statement schedule listed in the Index at Schedule I (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Group as of December 31, 2017, and 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

    Basis for Opinion

        These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on the Group's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

        We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Group is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control over financial reporting. Accordingly, we express no such opinion.

        Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Shanghai, China

May 10, 2018
We have served as the Group's auditor since 2018.

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COOTEK (CAYMAN) INC.

CONSOLIDATED BALANCE SHEETS

 
  As of December 31,  
 
  2016   2017  
 
  US$
  US$
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

    41,056,314     26,720,158  

Restricted cash

    288,309     306,082  

Account receivable, net of allowance for doubtful accounts of nil and $1,295,149 as of December 31, 2016 and 2017, respectively

    2,506,398     10,979,821  

Amount due from related parties

    24,026     340,955  

Prepaid expenses and other current assets

    3,995,934     5,391,736  

Total current assets

    47,870,981     43,738,752  

Property and equipment, net

   
1,241,585
   
1,943,550
 

Amount due from related parties-non-current

    46,165     24,442  

Other non-current assets

    194,966     554,278  

TOTAL ASSETS

    49,353,697     46,261,022  

LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED SHARES AND SHAREHOLDERS' DEFICIT

             

Current liabilities:

             

Accounts payable (including accounts payable of consolidated VIEs, without recourse to the Company of US$252,563 and US$107,568, respectively, as of December 31, 2016 and 2017)

    3,819,207     5,432,505  

Short-term bank borrowings and current portion of long-term bank borrowings (including short-term bank borrowings of consolidated VIEs, without recourse to the Company of US$116,938 and US$790,816, respectively, as of December 31, 2016 and 2017)

    1,942,084     3,193,381  

Accrued salary and benefits (including accrued salary and benefits of consolidated VIEs, without recourse to the Company of US$204,753 and US$269,245, respectively, as of December 31, 2016 and 2017)

    2,226,715     3,244,931  

Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of consolidated VIEs, without recourse to the Company of US$691,776 and US$951,817, respectively, as of December 31, 2016 and 2017)

    1,815,916     2,422,313  

Deferred revenue (including deferred revenue of consolidated VIEs, without recourse to the Company of US$450,084 and US$276,812, respectively, as of December 31, 2016 and 2017)

    474,588     521,640  

Total current liabilities

    10,278,510     14,814,770  

Long-term borrowing (including long-term borrowing of VIEs, without recourse to the Company of US$583,386 and nil, as of December 31, 2016 and 2017)

    3,176,211      

Total LIABILITIES

    13,454,721     14,814,770  

Commitments (Note 15)

             

Convertible redeemable preferred shares (redemption value of US$181,676,571 and US$209,694,647 as of December 31, 2016 and December 31, 2017, respectively)

   
136,455,592
   
156,367,810
 

Shareholders' equity (deficit):

   
 
   
 
 

Ordinary shares (US$0.00001 par value; 3,000,292,107 and 2,920,061,989 shares authorized and 912,551,946 and 898,393,690 shares issued and outstanding as of December 31, 2016 and December 31, 2017, respectively)

    9,126     8,984  

Additional paid-in capital

    1,153,423     876,560  

Accumulated deficit

    (101,028,568 )   (126,899,750 )

Accumulated other comprehensive income (loss)

    (690,597 )   1,092,648  

Total Shareholders' Deficit

    (100,556,616 )   (124,921,558 )

TOTAL LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED SHARES AND SHAREHOLDERS' DEFICIT

    49,353,697     46,261,022  

   

The accompanying notes are an integral part of these consolidated financial statements.

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COOTEK (CAYMAN) INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 
  For the years ended
December 31,
 
 
  2016   2017  
 
  US$
  US$
 

Net revenues

    11,030,079     37,334,966  

Cost of revenue (including share-based compensation of $24,514 and $31,510 in 2016 and 2017, respectively)

    (20,158,565 )   (20,101,386 )

Gross profit (loss)

    (9,128,486 )   17,233,580  

Operating expenses:

             

General and administrative expenses (including share-based compensation of $222,317 and $1,777,941 in 2016 and 2017, respectively)

    (3,920,057 )   (8,366,698 )

Research and development expenses (including share-based compensation of $445,084 and $544,786 in 2016 and 2017, respectively)

    (8,691,539 )   (12,868,356 )

Sales and marketing expenses (including share-based compensation of $35,298 and $70,707 in 2016 and 2017, respectively)

    (9,396,663 )   (20,161,353 )

Other operating income, net

    605,890     190,338  

Total operating expenses

    (21,402,369 )   (41,206,069 )

Loss from operations

    (30,530,855 )   (23,972,489 )

Interest income, net

    12,887     481,932  

Foreign exchange losses, net

    (188,631 )   (169,556 )

Loss before income taxes

    (30,706,599 )   (23,660,113 )

Income tax expense

        (800 )

Net loss

    (30,706,599 )   (23,660,913 )

Deemed dividend from repurchase of preferred shareholders

        (1,028,055 )

Net loss attributable to ordinary shareholders

    (30,706,599 )   (24,688,968 )

Net Loss per ordinary share:

             

Basic

    (0.03 )   (0.03 )

Diluted

    (0.03 )   (0.03 )

Weighted average shares used in calculating net loss per ordinary share:

             

Basic & Diluted

    912,551,946     898,781,587  

Pro forma net loss per ordinary share (Note 13):

             

Basic

          (0.01 )

Diluted

          (0.01 )

Pro forma weighted average shares used in calculating net loss per ordinary share:

             

Basic & Diluted

          2,976,521,512  

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COOTEK (CAYMAN) INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 
  For the years ended
December 31,
 
 
  2016   2017  
 
  US$
  US$
 

Net Loss

    (30,706,599 )   (23,660,913 )

Other comprehensive loss

             

Foreign currency translation adjustments

    (518,196 )   1,783,245  

Comprehensive Loss

    (31,224,795 )   (21,877,668 )

   

The accompanying notes are an integral part of these consolidated financial statements.

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COOTEK (CAYMAN) INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT

 
  Ordinary shares   Additional
paid-in
capital
  Accumulated
deficit
  Accumulated
other
comprehensive
income (loss)
  Total
shareholders'
deficit
 
 
  Shares
  US$
  US$
  US$
  US$
  US$
 

Balance at January 1, 2016

    912,551,946     9,126     426,210     (70,321,969 )   (172,401 )   (70,059,034 )

Net loss

                (30,706,599 )       (30,706,599 )

Share-based compensation

            727,213             727,213  

Foreign currency translation adjustments

                    (518,196 )   (518,196 )

Balance at December 31, 2016

    912,551,946     9,126     1,153,423     (101,028,568 )   (690,597 )   (100,556,616 )

Net loss

                (23,660,913 )       (23,660,913 )

Repurchase of ordinary shares (Note 10)

    (14,158,256 )   (142 )       (1,451,474 )       (1,451,616 )

Repurchase of Series A Preferred Shares (Note 11)

            (1,153,423 )   (758,795 )       (1,912,218 )

Share-based compensation

            876,560             876,560  

Foreign currency translation adjustments

                    1,783,245     1,783,245  

Balance at December 31, 2017

    898,393,690     8,984     876,560     (126,899,750 )   1,092,648     (124,921,558 )

   

The accompanying notes are an integral part of these consolidated financial statements.

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COOTEK (CAYMAN) INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
  For the years ended
December 31,
 
 
  2016   2017  
 
  US$
  US$
 

Cash flows from operating activities:

             

Net loss

    (30,706,599 )   (23,660,913 )

Adjustments to reconcile net loss to net cash used in operating activities:

             

Depreciation

    555,762     899,018  

Provision for allowance of doubtful accounts

        1,295,149  

Share-based compensation

    727,213     876,560  

Loss on disposal of property, plant and equipment

        2,160  

Changes in assets and liabilities:

             

Accounts receivable

    (1,807,077 )   (9,622,450 )

Prepaid expenses and other current assets

    (992,593 )   (1,137,368 )

Other non-current assets

    88,024     (332,826 )

Accounts payable

    1,769,190     1,611,991  

Accrued salary and benefits

    659,554     1,074,075  

Accrued expenses and other current liabilities

    1,071,541     897,784  

Deferred revenue

    199,533     47,668  

Net cash used in operating activities

    (28,435,452 )   (28,049,152 )

Cash flows from investing activities:

             

Purchases of property, plant and equipment

    (758,735 )   (1,489,567 )

Advances to related parties

    (74,734 )   (293,285 )

Repayment of advances to related parties

    2,076     24,440  

Net cash used in investing activities

    (831,393 )   (1,758,412 )

Cash flows from financing activities:

             

Proceeds from bank borrowings

    5,986,206     1,869,493  

Repayment of bank borrowings

    (679,246 )   (4,016,257 )

Proceeds from issuance of preferred shares

    46,000,000     20,000,000  

Repurchase of ordinary shares

        (1,451,616 )

Repurchase of preferred shares

        (2,000,000 )

Net cash provided by financing activities

    51,306,960     14,401,620  

Net increase (decrease) in cash, cash equivalents, and restricted cash

    22,040,115     (15,405,944 )

Cash, cash equivalents, and restricted cash at beginning of year

    19,845,488     41,344,623  

Effect of exchange rate changes on cash, cash equivalents and restricted cash

    (540,980 )   1,087,561  

Cash, cash equivalents, and restricted cash at end of year

    41,344,623     27,026,240  

Supplemental disclosure of cash flow information:

             

Income taxes paid

        800  

Interest paid

    104,859     172,563  

Reconciliation in amounts on consolidated balance sheets:

             

Cash and cash equivalents

    41,056,314     26,720,158  

Restricted cash

    288,309     306,082  

Total cash, cash equivalents, and restricted cash

    41,344,623     27,026,240  

   

The accompanying notes are an integral part of these consolidated financial statements.

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Principal Activities

        CooTek (Cayman) Inc. (the "Company") was incorporated in the Cayman Islands on March 5, 2012. The Company, its subsidiaries and its consolidated Variable Interest Entities ("VIEs") (collectively referred to as the "Group") are a fast-growing AI and big data-driven mobile internet company serving a large global user base.

History of the Group and reorganization

        The Group's history began in August 2008 with the commencement of operations of Shanghai Han Xiang (CooTek) Information Technology Co., Ltd ("Han Xiang"), a limited liability company incorporated in the People's Republic of China ("PRC") by certain individuals. In October 2010, three outside investors acquired an aggregate of 24.24% equity interest of Han Xiang. In 2012, Han Xiang and its shareholders undertook a reorganization which was conducted to establish a Cayman holding company for the existing business to obtain investment from outside investors and in preparation of an overseas initial public offering. The Group has recognized the net assets of Han Xiang on a historical cost with no change in basis in the consolidated financial statements upon the completion of the reorganization. The shareholders' rights and obligations remained the same after the reorganization.

2. Summary of Significant Accounting Policies

(a)   Basis of Presentation

        The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

(b)   Principles of Consolidation

        The consolidated financial statements include the financial information of the Company, its wholly owned subsidiaries and its consolidated variable interest entities ("VIEs"). All intercompany balances and transactions have been eliminated upon consolidation.

        Applicable PRC laws and regulations currently limit foreign ownership of companies that provide internet content distribution services and any other restrictions. The Company is deemed a foreign legal person under PRC laws and accordingly subsidiaries owned by the Company are not eligible to engage in provisions of internet content or online services. The Group therefore conducts its online business through the following consolidated VIEs:

    Shanghai Han Xiang (CooTek) Information Technology Co., Ltd. ("Han Xiang")

    Shanghai Chu Bao (CooTek) Information Technology Co., Ltd. ("Chu Bao")

    Yingsun Information Technology Co., Ltd. ("Yingsun")

    Molihong Internet Technology Co., Ltd ("Molihong")

        To provide the Group effective control over the VIEs and receive substantially all of the economic benefits of the VIEs, the Company's wholly owned subsidiary, Shanghai ChuLe (CooTek) Information Technology Co., Ltd. ("Chu Le" of "WFOE") entered into a series of contractual arrangements, described below, with The VIEs and their respective shareholders.

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2. Summary of Significant Accounting Policies (Continued)

        Agreements that provide the Company effective control over the VIEs include:

Voting Rights Proxy Agreements & Irrevocable Power of Attorney

        Pursuant to which each of the shareholders of VIEs has executed voting rights proxy agreements, appointing the WFOE, or any person designated by the WFOE, as their attorney-in-fact to (i) call and attend shareholders' meetings of VIEs and execute relevant shareholders' resolutions; (ii) exercise on their behalf all his rights as a shareholder of VIEs, including those rights under PRC laws and regulations and the articles of association of VIEs, such as voting, appointing, replacing or removing directors, (iii) submit all documents as required by governmental authorities on behalf of VIEs, and (iv) assign the shareholding rights of VIEs, including receiving dividends, disposing of equity interest and enjoying the rights and interests during and after liquidation.

Exclusive Call Option Agreements

        Pursuant to which each the VIE shareholders unconditionally and irrevocably granted the WFOE or its designee exclusive options to purchase, to the extent permitted under PRC laws and regulations, all or part of the equity interests in the VIEs. The WFOE has the sole discretion to decide when to exercise the options, and whether to exercise the options in part or in full. Without the WFOE's written consent, the VIE shareholders may not sell, transfer, pledge or otherwise dispose of or create any encumbrance on any of VIEs' assets or equity interests.

Equity Pledge Agreements

        The VIE shareholders agreed to pledge their equity interests in VIEs to the WFOE to secure the performance of the VIEs' obligations under the series of contractual agreements and any such agreements to be entered into in the future. Without prior written consent of the WFOE, the VIEs' shareholders shall not transfer or dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests. If any economic interests were received by means of their equity interests in the VIEs, such interests belong to the WFOE.

        Agreements that transfer economic benefits of VIEs to the Group include:

Exclusive Business Cooperation Agreements

        Under the exclusive services agreement, the Company and the WFOE have the exclusive right to provide comprehensive technical and business support services to the VIEs. In exchange, the VIEs pay annual service fees to the WFOE in the amount equivalent to all of their net income as confirmed by the WFOE. The WFOE has the right to adjust the service fee rates at its sole discretion. The agreement can be early terminated by the WFOE by giving a 30-day prior notice, but not by the VIEs or VIE shareholders.

Loan Agreements

        The WFOE entered into loan agreements with each shareholder of the VIEs. Pursuant to the terms of these loan agreements, the WFOE granted an interest-free loan to each shareholder of the VIEs for the explicit purpose of making a capital contribution to the VIEs. The term of the loans are 10 years and shall be renewed automatically every 3 years for an additional 3 years unless the WFOE

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

terminates the agreement (which option is at the WFOE's sole discretion) at which point the loans are payable on demand. The shareholders of the VIEs may not prepay all or any portion of the loans without the WFOE's consent. The WFOE did not enter into loan agreements with shareholders of Han Xiang, as the capital paid is sufficient for operation.

        Voting Rights Proxy Agreements & Irrevocable Powers of Attorney provide the Company effective control over the VIEs and its subsidiaries, while the Equity Pledge Agreements secure the obligations of the shareholders of the VIEs under the relevant agreements. Because the Company, through the WFOE, has (i) the power to direct the activities of the VIEs that most significantly affect the entity's economic performance and (ii) the right to receive substantially all of the benefits from the VIEs, the Company is deemed the primary beneficiary of the VIEs. Accordingly, the Company has consolidated the VIEs' financial results of operations, assets and liabilities in the Group's consolidated financial statements. The aforementioned agreements are effective agreements between a parent and consolidated subsidiaries, neither of which is accounted for in the consolidated financial statements or are ultimately eliminated upon consolidation (i.e. service fees under the Exclusive Business Cooperation Agreement).

        The Group believes that the contractual arrangements with the VIEs are in compliance with PRC law and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company's ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:

    revoke the business and operating licenses of the Company's PRC subsidiaries and VIEs;

    discontinue or restrict the operations of any related-party transactions between the Company's PRC subsidiaries and VIEs;

    limit the Group's business expansion in China by way of entering into contractual arrangements;

    impose fines or other requirements with which the Company's PRC subsidiaries and VIEs may not be able to comply;

    require the Company or the Company's PRC subsidiaries or VIEs to restructure the relevant ownership structure or operations; or

    restrict or prohibit the Company's use of the proceeds of the additional public offering to finance the Group's business and operations in China.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

        The following consolidated financial statement balances and amounts of the Group's VIEs were included in the accompanying consolidated financial statements after the elimination of intercompany balances and transactions among the Company, its subsidiaries and its VIEs.

 
  As of December 31,  
 
  2016   2017  
 
  US$
  US$
 

ASSETS

             

Cash and cash equivalents

    1,581,504     2,485,998  

Restricted cash

    288,309     306,082  

Account receivable, net

    1,394,739     2,065,324  

Prepaid expense and other assets

    1,792,169     3,665,503  

Property and equipment, net

    7,285     1,951  

Total Assets

    5,064,006     8,524,858  

LIABILITIES

             

Accounts payable

    252,563     107,568  

Short-term borrowing

    116,938     790,816  

Accrued salary and benefits

    204,753     269,245  

Accrued expenses and other current liabilities

    691,776     951,817  

Deferred revenue

    450,084     276,812  

Long-term borrowing

    583,386      

Total Liabilities

    2,299,500     2,396,258  

 

 
  For the years ended
December 31,
 
 
  2016   2017  
 
  US$
  US$
 

Total revenue

    4,070,864     8,353,270  

Operating loss

    (87,032 )   (280,269 )

Net loss

    (82,688 )   (297,852 )

Net cash used in operating activities

    (1,574,360 )   (2,645,362 )

Net cash used in investing activities

        (1,734 )

Net cash provided by financing activities

    716,773     45,673  

        The VIEs' assets are comprised of recognized and unrecognized revenue-producing assets. The recognized revenue producing assets mainly include purchased servers, which are presented in the account of "Property and equipment, net." The unrecognized revenue-producing assets mainly consist of the Internet Content Provider license ("ICP" license), trademarks, copyrights and registered patents, which are not recognized in the consolidated balance sheets.

        Revenues of VIEs included in the consolidated financial statements mainly include revenue of advertising services and sales of virtual items for live social video community. The VIEs contributed 37% and 22% of the Group's consolidated net revenues for years ended December 31, 2016 and 2017, respectively. As of December 31, 2016 and 2017, the VIEs accounted for an aggregate of 10% and 18%

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

respectively, of the consolidated total assets, and 17% and 16% respectively, of the consolidated total liabilities.

        There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the Company or its subsidiaries to provide financial support to the VIEs. However, if the VIEs were ever to need financial support, the Group may, at its option and subject to statutory limits and restrictions, provide financial support to its VIE through loans to the shareholders of the VIEs.

        The Group believes that there are no assets held in the VIEs that can be used only to settle obligations of the VIEs, except for registered capital and the PRC statutory reserves. As the VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the VIEs do not have recourse to the general credit of the Company for any of the liabilities of the VIEs. Relevant PRC laws and regulations restrict the VIEs from transferring a portion of their net assets, equivalent to the balance of its statutory reserve and its share capital, to the Company in the form of loans and advances or cash dividends. Please refer to Note 18 for disclosure of restricted net assets.

(c)   Use of Estimates

        The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. The Group bases its estimates on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant accounting estimates reflected in the Group's financial statements including but not limited to allowance for doubtful accounts, valuation of ordinary shares and preferred shares, valuation allowances of deferred tax assets, and valuation of share-based compensation. Actual results may differ materially from those estimates.

(d)   Fair Value

        Fair value is considered to be the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability.

        Authoritative literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:

    Level 1—Inputs are based on unadjusted quoted prices that are available in active markets for identical assets or liabilities at measurement date.

    Level 2—Significant inputs are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active,

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

      and model-derived valuations in which significant inputs and significant value drivers are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

    Level 3—Significant unobservable inputs that cannot be corroborated by observable market data and reflect management's estimates of assumptions that market participants would use to price an asset or liability.

(e)   Financial Instruments

        The Group's financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, amounts due from related parties, accounts payable, other current liabilities, and bank borrowing. For cash and cash equivalents, restricted cash, accounts receivable, amounts due from related parties, accounts payable, other current liabilities, and short-term borrowing, the carrying amounts of these financial instruments as of December 31, 2016 and 2017 were considered representative of their fair values due to their short-term nature. The Group's long-term bank borrowing consists of floating rate loans. The carrying values of long-term borrowing are approximate their fair values as the impacts to discount the long-term debt with a market based interest rate are insignificant.

(f)    Foreign Currency Translation

        The functional currency of the Company is the United States Dollar ("US$"). The functional currency of the subsidiaries and the VIEs in the PRC is Renminbi ("RMB"). The functional currency of all the other subsidiaries is US$.

        Foreign currency transactions have been translated into the functional currency at the exchange rates prevailing on the date of transactions. Foreign currency denominated monetary assets and liabilities are remeasured into the functional currency at exchange rates prevailing on the balance sheet date. Exchange gains and losses have been included in the determination of net income.

        The Group has chosen the US$ as its reporting currency. Assets and liabilities have been translated using exchange rates prevailing on the balance sheet date. Equity accounts are translated at historical exchange rates. Income statement items have been translated using the average exchange rate for the year. Translation adjustments have been reported as cumulative translation adjustments and are shown as a component of other comprehensive income/loss in the statements of comprehensive loss and consolidated statements of changes in shareholders' deficit.

(g)   Foreign Currency Risk

        The RMB is not a freely convertible currency. The State Administration for Foreign Exchange in the PRC, under the authority of the Peoples Bank of China, controls the conversion of RMB into other currencies. The value of the RMB is subject to changes in central government policies, international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. The Group's cash and cash equivalents and restricted cash denominated in RMB amounted to RMB42,039,390 (amounted to US$6,060,169) and RMB100,419,401 (amounted to US$ 15,368,278) as of December 31, 2016 and 2017, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

(h)   Cash, Cash Equivalents and Restricted cash

        Cash and cash equivalents consist of cash on hand, demand deposits and principal-secured floating rate financial instruments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less when purchased.

        The Group's restricted cash represents amounts held in Group's bank account as guarantee deposit for payments processing services provided by the bank.

(i)    Accounts Receivable, net

        Accounts receivable, net represents those receivables derived from the ordinary course of business and are recorded net of allowance for doubtful accounts. The Group maintains an allowance for doubtful accounts that reflect its best estimate of probable losses inherent in the accounts receivables. In determining collectability of the accounts receivables, the Group considers many factors, such as: creditworthiness of customers, aging of the receivables, payment history of customers, financial condition of the customers and market trends, and specific facts and circumstances.

(j)    Property and Equipment, net

        Property and equipment is recorded at cost less accumulated depreciation and impairment. Depreciation expense of long-lived assets is recorded as either cost of revenue or operating expenses, as appropriate. Depreciation is computed using the straight-line method over the following estimated useful lives by major asset category:

Electronic equipment   3 years
Office equipment and furniture   3 - 5 years
Motor vehicles   3 years
Leasehold improvement   Shorter of the lease term or expected useful life

        Repair and maintenance costs are charged directly to expense as incurred, whereas the cost of renewals and improvement that extend the useful lives of property and equipment are capitalized as additions to the related assets.

(k)   Impairment of Long-lived Assets

        Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Factors considered important that could result in an impairment review include, but are not limited to, significant under-performance relative to historical or planned operating results, significant changes in the manner of use or expected life of the assets or significant changes in our business strategies. An impairment analysis is performed at the lowest level of identifiable cash flows for an asset or asset group based on valuation techniques such as discounted cash flow analysis. An impairment charge is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from the disposition of the asset, if any, are less than the carrying value of the asset net of other liabilities. The estimation of future cash flows requires significant management judgment and actual results may differ from estimated amounts. No impairment was recognized for the years ended December 31, 2016 and 2017.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

(l)    Revenue Recognition

        The Group generates substantially all of its revenue through mobile advertising, which accounted for 90% and 94% of total revenue as of December 31, 2016 and 2017, respectively. The Group also generates other revenues through live social video community and licensing of its Smart Inputs products. In accordance with the criteria set forth in ASC605, Revenue Recognition , the Group recognizes revenue when the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the selling price is fixed or determinable, and (4) collectability is reasonably assured.

        The Group provides advertising services to customers for promotion of their brands through its mobile applications. The Group offers two main advertising arrangements: brand advertisements and performance-based advertising services. For brand advertisements, the Group recognizes revenue ratably based on the number of impressions delivered over the period that the advertising service is provided. For performance-based advertising services, the Group charges fees to advertising customers based on the effectiveness of advertising links, which is measured by active clicks or other actions. Revenue from performance-based advertising services is recognized when a user takes the action requested by the advertisement.

        We provide cash incentives in the form of sales rebates to certain advertising agencies, and account for such incentives as a reduction of revenue. We have estimated and recorded the rebates based on historical transactions and the agreed rebate rates with certain advertising agencies. For the years ended December 31, 2016 and 2017, the rebates recorded by the Group were US$666,741 and US$1,833,085, respectively.

        The Group engages in certain advertising barter transactions for which the fair value was not determinable and therefore no revenues or expenses derived from these barter transactions were recognized.

        Revenue also include sales of virtual items for live social video community of nil and US$1,177,375; and licensing fees for our Smart Inputs products US$351,572 and US$239,915 for the years ended December 31, 2016 and 2017, respectively.

(m)  Deferred Revenue

        Deferred revenue primarily includes cash received in advance from users of live social video community and advertising customers for which the services has not been provided yet.

(n)   Cost of Revenue

        Cost of revenues consist direct costs primarily relating to generating advertising revenue, which include bandwidth costs, Voice-over Internet Protocol ("VoIP") related expense which are charged by telecommunication providers for the Group's VoIP products, such as AhaCall and TouchPal Phonebook, depreciation expenses and service fees for internet data center, and salary and benefits expenses of operation and maintenance department.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

(o)   Research and Development Expenses

        Research and development expenses primarily consist of (1) salary and benefits expenses incurred in the research and development of new products and new functionality, and (2) general expenses and depreciation expenses associated with the research and development activities.

        Expenditures incurred during the research phase are expensed as incurred and no research and development expenses were capitalized as of December 31, 2016 and 2017.

(p)   Sales and Marketing Expenses

        Sales and marketing expenses primarily consist of advertising expenses, salaries and benefits of sales and marketing personnel and fees paid to mobile device manufacturers to pre-install the Group's Smart Input products. Advertising expenses represent online advertising and promotions of the Group's products via social media and demand-side platforms. Such expenses amounted to US$5,132,485 and US$12,858,629, for the years ended December 31, 2016 and December 31, 2017, respectively.

(q)   Operating leases

        Leases where substantially all the rewards and risk of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases are charged to the consolidated statements of operations on a straight-line basis over the lease term.

(r)   Income Taxes

        Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. The Group follows the asset and liability method of accounting for income taxes.

        In accordance with the provisions of ASC 740, Income Taxes, the Group recognizes in the financial statements the benefit of a tax position if the tax position is "more likely than not" to prevail based on the facts and technical merits of the position. Tax positions that meet the "more likely than not" recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. The Group estimates liability for unrecognized tax benefits which are periodically assessed and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The ultimate outcome for a particular tax position may not be determined with certainty prior to the conclusion of a tax audit and, in some cases, appeal or litigation process.

        Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statements carrying amounts and tax bases of assets and liabilities by applying enacted statutory tax rates that will be in effect in the period in which the temporary differences are expected to reverse. The Group considers positive and negative evidence when determining whether some portion or all of the deferred tax assets will not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, historical results of operations, and tax planning strategies. The ultimate realization of deferred tax assets is dependent

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

upon the generation of future taxable income during the periods in which those temporary differences become deductible.

        The actual benefits that are ultimately realized may differ from estimates. As each audit is concluded, adjustments, if any, are recorded in the financial statements in the period in which the audit is concluded. Additionally, in future periods, changes in facts, circumstances and new information may require us to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur. As of December 31, 2016 and 2017, the Group did not have any significant unrecognized uncertain tax positions.

(s)   Employee Contribution Plan

        Pursuant to the relevant labor rules and regulations in the PRC, the Group participates in defined contribution retirement schemes (the "Schemes") organized by the relevant local government authorities for its eligible employees whereby the Group is required to make contributions to the Schemes at certain percentages of the deemed salary rate announced annually by the local government authorities. Contributions to the defined contribution plan are expensed as incurred.

        The Group has no other material obligation for payment of pension benefits except for the annual contributions described above.

(t)    Share-based Compensation

        Fair value recognition provisions according to ASC718, Compensation—Stock Compensation: Overall , is applied to share-based compensation, which requires the Group to recognize expense for the fair value of its share-based compensation awards. Compensation expense adjusted for forfeiture effect on a straight-line basis over the requisite service period, with a corresponding impact reflected in additional paid-in capital.

        Employees' share-based awards are measured at the grant date fair value of the awards and recognized as expenses a) immediately at grant date if no vesting conditions are required, or b) using grade vesting method, net of actual forfeitures, over the requisite service, which is the vesting period.

        The fair value of the share options were assessed using the income approach/discounted cash flow method, with a discount for lack of marketability given that the shares underlying the awards were not publicly traded at the time of grant. This assessment requires complex and subjective judgements regarding the Company's operating history and prospects at the time the grants were made. In addition, the binomial option pricing model is used to measure the value of the share options. The determination of the fair value is affected by the fair value of the ordinary shares volatility, actual and projected employee share-based awards exercise behavior, risk-free interest rates and expected dividends. The fair value of these awards was determined with the assistance from an independent valuation firm using management's estimates and assumptions.

        The expected term represents the period that share-based awards are expected to be outstanding, giving consideration to the contractual terms of the share-based awards, vesting schedules and expectations of future employee exercise behavior. Volatility is estimated based on annualized standard deviation of daily stock price return of comparable companies for the period before valuation date and with similar span as the expected expiration term. The Group accounts for forfeitures of the

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

share-based awards when they occur. Previously recognized compensation cost for the awards is reversed in the period that the award is forfeited. Amortization of share-based compensation is presented in the same line item in the consolidated statements of operations as the cash compensation of those employees receiving the award.

(u)   Comprehensive Income (Loss)

        Comprehensive Income (loss) includes all changes in equity except those resulting from investments by owners and distributions to owners. For the years presented, the Group's total comprehensive income (loss) includes net loss and foreign currency translation adjustments.

(v)   Earnings (Loss) Per Share

        Basic earnings (loss) per share are computed by dividing net income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

        The Company's convertible redeemable preferred shares are participating securities as the preferred shares participate in undistributed earnings on an as-if-converted basis. Accordingly, the Company uses the two-class method of computing earnings (loss) per share, whereby undistributed net income is allocated on a pro rata basis to each participating share to the extent that each class may share net income for the period. Undistributed net loss is not allocated to preferred shares because they are not contractually obligated to participate in the loss of the Group.

        Diluted earnings (loss) per ordinary share reflects the potential dilution that could occur if securities were exercised or converted into ordinary shares. The Group had convertible redeemable preferred shares and share options, which could potentially dilute basic earnings per share in the future. To calculate the number of shares for diluted income per share, the effect of the convertible redeemable preferred shares is computed using the as-if-converted method; the effect of the stock options is computed using the treasury stock method.

(w)  Pro forma net loss per share

        The Group's pro forma basic net loss per share has been computed by dividing net loss attributable to the Group's ordinary shareholders, by the weighted-average number of ordinary shares outstanding for the year ended December 31, 2017 plus the number of ordinary shares resulting from the assumed conversion of the outstanding preferred shares into ordinary shares using the conversion ratio of one for one upon completion of a qualified initial public offering. Diluted earnings per share reflects the potential dilution, using the treasury stock method. During the period in which the Group realizes a net loss, share options would be anti-dilutive to pro forma net loss per share.

(x)   Concentration and risks

        Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and revenue. The Group places its cash and cash equivalents with financial institutions with high credit ratings and quality, and believes that no significant credit exists.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

        The Group conducts credit evaluations of customers, and generally does not require collateral or other security from its customers. The Group establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.

        The following customers accounted for 10% or more of accounts receivable:

 
  As of December 31,  
 
  2016   2017  
 
  US$
  %
  US$
  %
 

Company A

    464,363     18.53 %            *            *

Company B

             *            *   2,880,119     26.23 %

Company C

             *            *   2,404,672     21.90 %

*
Customer with less than 10% of total accounts receivable in the respective year.

(y)   Recent Accounting Pronouncements

        In May 2014, the Financial Accounting Standards Board (the "FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer. The new disclosure requirements will provide information about the nature, amount, timing and uncertainty of revenue and cash flows from revenue contracts with customers. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017.

        The new revenue standards may be applied retrospectively to each prior period presented (full retrospective method) or retrospectively with the cumulative effect recognized as of the date of initial application (the modified retrospective method). The Group as an emerging growth company ("EGC") has elected to adopt the new revenue standard as of the effective date applicable to nonissuers and will implement the new revenue standard on January 1, 2019 using the modified retrospective method. The Group is in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements and currently does not expect the adoption will have significant effects on the Group's revenue recognition practices, financial positions, results of operations or cash flows. The new standard will require the Group to provide more robust disclosures than required by previous guidance, including disclosures related to disaggregation of revenue into appropriate categories, performance obligations, and the judgments made in revenue recognition determinations.

        In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern, which requires management of public and private companies to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. Management's evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The new standard is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. The Group has adopted ASU 2014-15, assessed its

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

ability to continue as a going concern and concluded that substantial doubt about its ability to continue as a going concern does not exist.

        In February 2016, the FASB issued ASU2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing a right-of-use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either operating or financing. The definition of a lease has been revised in regards to when an arrangement conveys the right to control the use of the identified asset under the arrangement which may result in changes to the classification of an arrangement as a lease. The ASU expands the disclosure requirements of lease arrangements. This ASU will become effective for the Group on January 1, 2019, and requires adoption using a modified retrospective approach. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. The Group is in the process of evaluating the impact on its consolidated financial statements, as well as the impact of adoption on policies, practices, systems and financial statement disclosures. As of December 31, 2017, the Group has US$ 963,388 of future minimum operating lease commitments that are not currently recognized on its consolidated balance sheets (see note 15).

        In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The update includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. The update was aimed at reducing the cost and complexity of the accounting for share-based payments. ASU 2016-09 became effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company retrospectively adopted this update as of January 1, 2017. The adoption of ASU 2016-09 did not have a material impact on the Company's consolidated financial statements.

        In June 2016, the FASB issued ASU 2016-13, Credit Losses, Measurement of Credit Losses on Financial Instruments. This ASU provides more useful information about expected credit losses to financial statement users and changes how entities will measure credit losses on financial instruments and timing of when such losses should be recognized. This ASU is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The updates should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). The Group is in the process of evaluating the impact on its consolidated financial statements upon adoption.

        In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU requires that 1) debt extinguishment costs be classified as cash outflows for financing activities and provides additional classification guidance for the statement of cash flows, 2) the classification of cash receipts and payments that have aspects of more than one class of cash flows to be applied under generally accepted accounting principles, and 3) each separately identifiable source or use within the cash receipts and payments be classified based on their nature in financing, investing or operating activities. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 and is applied retrospectively. Early adoption is permitted including adoption in an interim period. The Group will adopt this ASU on its effective date of January 1, 2018 and does not expect any impact on its consolidated financial statements upon adoption.

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

        In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, Restricted Cash, The ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The update is effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The updates should be applied using a retrospective transition method to each period presented. The Company adopted ASU 2016-15 as of December 31, 2016, and although it changed the historical presentation on the consolidated statements of cash flows, it did not have any other material impact on the Company's consolidated financial statements.

        In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Topic 718. The ASU is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Group is in the process of evaluating the impact on its consolidated financial statements upon adoption.

3. Accounts receivable, net

        Accounts receivable, net, consists of the following:

 
  As of December 31,  
 
  2016   2017  
 
  US$
  US$
 

Accounts receivable

    2,506,398     12,274,970  

Allowance for doubtful accounts:

             

Balance at beginning of the year

         

Additions

        (1,295,149 )

Balance at end of the year

        (1,295,149 )

Accounts receivable, net

    2,506,398     10,979,821  

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Prepaid expenses and other current assets

        Prepaid expenses and other current assets consisted of the followings:

 
  As of December 31,  
 
  2016   2017  
 
  US$
  US$
 

Value added tax ("VAT") recoverable

    1,996,812     2,883,914  

Advance to suppliers

    1,097,200     972,909  

Funds deposited at third party payment platforms

    154,111     693,930  

Prepaid expenses

    489,629     570,749  

Deposits

    258,182     270,234  

Total

    3,995,934     5,391,736  

5. Other non-current assets

        As of December 31, 2016 and 2017, the Group's other non-current assets consisted of prepaid service fees for internet data center in the amount of US$ 194,966 and US$ 554,278, respectively.

6. Property, Plant and Equipment, Net

        Property and equipment, net, consisted of the followings:

 
  As of December 31,  
 
  2016   2017  
 
  US$
  US$
 

Electronic equipment

    1,846,874     3,182,880  

Office equipment and furniture

    90,601     147,487  

Motor vehicles

        82,470  

Leasehold improvements

    291,770     485,131  

Construction in progress

    66,918     78,510  

Total

    2,296,163     3,976,478  

Less: Accumulated depreciation

    (1,054,578 )   (2,032,928 )

Property, plant and equipment, net

    1,241,585     1,943,550  

        For the years ended December 31, 2016 and 2017, depreciation expenses were $555,762 and $899,018, respectively.

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Bank Borrowings

        The Company's bank borrowings consisted of the following:

 
  As of December 31,  
 
  2016   2017  
 
  US$
  US$
 

Short-term borrowings

    1,942,084     1,951,062  

Long-term borrowings, current portion

        1,242,319  

Subtotal

    1,942,084     3,193,381  

Long-term borrowings, non-current portion

    3,176,211      

    5,118,295     3,193,381  

        In July 2016, the Group entered into a credit facility agreement with a commercial bank. The total credit available under this facility is $6,000,000, of which $2,000,000 designated for borrowings with maturity up to 12 months ("short-term borrowings") and the remaining $4,000,000 designated for a maturity up to 24 months ("long-term borrowings"). The loan is collateralized by the Group's accounts receivable and intellectual property. The agreement contains financial covenants measured by operational metrics and financial ratios. As of December 31, 2017, the Group was in compliance with all debt covenants.

        The short-term borrowings under this facility bear interest at a rate per annum equal to the prevailing base lending rate for 6 months as announced by the People's Bank of China ("PBOC") plus 1.31%. The weighted average interest rate of short-term borrowings was 5.66% in the years ended December 31, 2016 and 2017.

        The long-term borrowings under this facility bear interest at a rate per annum equal to the prevailing base lending rate for one year as announced by the PBOC. plus 1.43%. The weighted average interest rate of long-term borrowings was 6.18% in the years ended December 31, 2016 and 2017, respectively.

8. Accrued Expenses and Other Current Liabilities

        Accrued expenses and other current liabilities consisted of the following:

 
  As of December 31,  
 
  2016   2017  
 
  US$
  US$
 

Accrued expenses (Note 1)

    704,846     1,466,139  

Other tax payables

    449,774     723,271  

Contract deposits from customers

    513,322     137,907  

Deferred government subsidies

    122,723     63,663  

Others

    25,251     31,333  

Total

    1,815,916     2,422,313  

        Note 1: Accrued expenses mainly consist accrued sales rebate, accrued expenses related to live social video community and other miscellaneous accrued marketing and operation expenses.

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Income Taxes Expenses

        For the years ended December 31, 2016 and 2017, income tax expense were nil and $800, respectively.

Cayman Islands

        CooTek (Cayman) Inc. is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, CooTek (Cayman) Inc. is not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholdings tax in the Cayman Islands.

Hong Kong

        Under the current Hong Kong Inland Revenue Ordinance, the Group's subsidiary domiciled in Hong Kong is subject to 16.5% Hong Kong profit tax on its taxable income generated from operations in Hong Kong. Additionally, payments of dividends by the subsidiary incorporated in Hong Kong to the company are not subject to any Hong Kong withholding tax.

PRC

        Under the Law of the People's Republic of China on Enterprise Income Tax ("EIT Law"), the Group's subsidiaries and VIEs incorporated in the PRC are subject to statutory rate of 25% with the exception of Chu Le. Chu Le is a foreign-invested enterprise established in June, 2012 located in Shanghai, China. Chu Le was subject to an income tax rate of 25% for the year ended December 31, 2016. For the year ended December 31, 2017, Chu Le was eligible for a preferential tax rate of 15% due to the obtainment of a High and New Technology Enterprise ("HNTE") certificate for a period of 3 years expiring in 2019.

        Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Group has no deferred tax liabilities. The Group's deferred tax assets were as follows:

 
  As of December 31,  
 
  2016   2017  
 
  US$
  US$
 

Deferred tax assets:

             

Net operating loss carry-forward

    12,717,132     18,939,915  

Accrued expenses

    2,642,398     3,128,537  

Advertising Fees

    3,737,735     4,456,190  

Deferred subsidies

    33,013     7,425  

Provision for doubtful accounts

        216,415  

Total deferred tax assets

    19,130,278     26,748,482  

Valuation allowance on deferred tax assets

    (19,130,278 )   (26,748,842 )

Net deferred tax assets

         

        As of December 31, 2017, the PRC Companies had tax loss carry forwards amounted to $71,691,984, of which $4,132,893, $4,674,591, $18,924,726, $20,239,950 and $23,719,824 will expire in 2018, 2019, 2020, 2021 and 2022, respectively. As of December 31, 2017, the HongKong Companies had tax loss carry forwards of $6,090,025 which can be offset in the future without anytime restriction. The

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Income Taxes Expenses (Continued)

Group operates its business through its subsidiaries and VIEs. The Group does not file consolidated tax returns, therefore, losses from individual subsidiaries or the VIEs may not be used to offset other subsidiaries' or VIEs' earnings within the Group.

        The Group considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will be more likely than not realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses and forecasts of future profitability. These assumptions require significant judgment and the forecasts of future taxable income are consistent with the plans and estimates the Group is using to manage the underlying businesses. Valuation allowances are established for deferred tax assets based on a more likely than not threshold. The Group's ability to realize deferred tax assets depends on its ability to generate sufficient taxable income within the carry forward periods provided for in the tax law. The Group has provided a full valuation allowance for the deferred tax assets as of December 31, 2016 and 2017, as management is not able to conclude that the future realization of those net operating loss carry forwards and other deferred tax assets are more likely than not.

        Changes in valuation allowance are as follows:

 
  For the years ended
December 31,
 
 
  2016   2017  
 
  US$
  US$
 

Balance at the beginning of the year

    12,003,169     19,130,278  

Movement

    7,812,869     7,257,873  

Tax loss carry forwards expired

        (398,718 )

Exchange difference effect

    (685,760 )   759,049  

Balance at the end of the year

    19,130,278     26,748,482  

        Uncertainties exist with respect to how the current income tax law in the PRC applies to the Group's overall operations, and more specifically, with regard to tax residency status. The EIT Law includes a provision specifying that legal entities organized outside of the PRC will be considered residents for Chinese Income tax purposes if the place of effective management or control is within the PRC. The implementation rules to the EIT Law provide that non-resident legal entities will be considered PRC residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting and properties, occurs within the PRC. Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, the Group does not believe that the legal entities organized outside of the PRC within the Group should be treated as residents for EIT law purposes. If the PRC tax authorities subsequently determine that the Company and its subsidiaries registered outside the PRC should be deemed resident enterprises, the Company and its subsidiaries registered outside the PRC will be subject to the PRC income taxes, at a statutory income tax rate of 25%. The Group is not subject to any other uncertain tax position.

        According to PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or withholding agent. The statute of limitations will be extended five years under special circumstances, which are not clearly defined (but an underpayment of tax liability exceeding RMB0.1 million, equivalent to US$15,304, is specifically listed as a special circumstance). In the case of a related party transaction, the statute of

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Income Taxes Expenses (Continued)

limitations is ten years. There is no statute of limitations in the case of tax evasion. From inception to the calendar year of 2017, the Group is subject to examination of the PRC tax authorities.

        In accordance with the EIT Law, dividends, which arise from profits of foreign invested enterprises ("FIEs") earned after January 1, 2008, are subject to a 10% withholding income tax. In addition, under tax treaty between the PRC and Hong Kong, if the foreign investor is incorporated in Hong Kong and qualifies as the beneficial owner, the applicable withholding tax rate is reduced to 5%, if the investor holds at least 25% in the FIE, or 10%, if the investor holds less than 25% in the FIE. A deferred tax liability should be recognized for the undistributed profits of PRC subsidiaries unless the Company has sufficient evidence to demonstrate that the undistributed dividends will be reinvested and the remittance of the dividends will be postponed indefinitely.

        Aggregate accumulated deficit of the Company's subsidiaries and VIEs located in the PRC was approximately $75,858,456 and $94,847,639 as of December 31, 2016 and 2017, respectively. Aggregate accumulated deficit of the Company's subsidiaries located in Hong Kong was approximately $7,376,532 and $5,932,444 as of December 31, 2016 and 2017, respectively. Accordingly, no deferred tax liability has been accrued for the PRC dividend withholding taxes that would be payable upon the distribution of those amounts to the Company as of December 31, 2016 and 2017.

        Reconciliations of the differences between PRC statutory income tax rate and the Group's effective income tax rate for the years ended December 31, 2016 and December 31, 2017 are as follows:

 
  For the years
ended
December 31,
 
 
  2016   2017  

Statutory income tax rate

    25 %   25 %

Valuation allowance

    (26 )%   (27 )%

Additional tax deduction

    3 %   5 %

Effect of different tax rate of subsidiary operation in other jurisdiction

    (2 )%   (3 )%

Effective tax rate

         

10. Ordinary shares

        In accordance with the Company's memorandum and articles of association, total authorized shares for both ordinary shares and preferred shares are 5,000,000,000 shares. If and when a new class of preferred shares are authorized to be issued, the authorized shares available for ordinary shares issuance will be reduced accordingly.

        In January 2017, the Company repurchased 14,158,256 shares of ordinary shares from certain founding shareholders, who are also employees of the Group, at the price of USD$ 0.2119 per share. The repurchased shares were cancelled immediately. As the shares were repurchased above fair value, the Company recognized compensation expense which amounted to US$1,548,384 for the difference between the repurchase price and the fair value of the ordinary shares at the date of the repurchase.

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Convertible Redeemable Preferred Shares

        The Company's preferred shares consist of the following:

 
  As of December 31,  
 
  2016   2017  
 
  US$
  US$
 

Series A preferred shares (US$0.00001 par value; 451,612,903 and 442,174,065 shares authorized, issued and outstanding with redemption value of US$6,300,000 and US$6,168,328 as of December 31, 2016 and 2017, respectively.)

    4,200,000     4,112,218  

Series B preferred shares (US$0.00001par value; 423,682,617 shares authorized, issued and outstanding with redemption value of US$12,257,781 as of December 31, 2016 and 2017)

   
7,288,964
   
7,288,964
 

Series B+ preferred shares (US$0.00001par value; 129,616,445 shares authorized, issued and outstanding with redemption value of US$3,750,000 as of December 31, 2016 and 2017)

   
2,500,000
   
2,500,000
 

Series B-1 preferred shares (US$0.00001 par value; 119,688,525 shares authorized, issued and outstanding with redemption value of US$6,925,540 as of December 31, 2016 and 2017)

   
7,166,628
   
7,166,628
 

Series C preferred shares (US$0.00001 par value; 651,629,045 shares authorized, issued and outstanding with redemption value of US$103,950,000 as of December 31, 2016 and 2017)

   
69,300,000
   
69,300,000
 

Series D preferred shares (US$0.00001 par value; 223,478,358 shares authorized, issued and outstanding with redemption value of US$48,493,250 and US$54,312,440 as of December 31, 2016 and 2017)

   
46,000,000
   
46,000,000
 

Series D-1 preferred shares (US$0.00001 par value; nil and 89,668,956 shares authorized, issued and outstanding with redemption value of nil and US$22,330,558 as of December 31, 2016 and 2017, respectively)

   
   
20,000,000
 

Total

   
136,455,592
   
156,367,810
 

Series A preferred shares

        In connection with the reorganization described in Note 1, in August 2012, the Company issued 344,086,021 Series A Preferred Shares. One of the outside investors exercised warrants to acquire additional 107,526,882 Series A preferred shares at a per-share purchase price of US$0.0093 for a total cash consideration of US$1 million.

        In January 2017, concurrent with the issuance of Series D-1 Preferred Shares, the Company repurchased and cancelled 9,438,838 Series A Preferred Shares at the price of US$ 0.2119 per share. The per-share fair value of the Series A Preferred Shares as determined by the Company with the assistance of independent valuation firm was below the repurchase price paid by the Company. As such, the amount of U$1,028,055 that was paid by the Company in excess of the fair value of the shares at the time of the repurchase as recognized as deemed dividend.

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Convertible Redeemable Preferred Shares (Continued)

Series B preferred shares & Series B-1 preferred shares

        In October 2012, the Company issued 423,682,617 shares of series B preferred shares ("Series B Preferred Shares") at a per-share purchase price of US$0.0193 for total cash consideration of US$8,171,853 to a group of third party investors. In conjunction with the issuance of Series B Preferred Shares, the Company also granted warrants to certain Series B preferred shareholders to purchase convertible redeemable preferred shares up to US$ 4,679,804 at a per-share exercise price of US$0.0386. The total cash consideration was allocated between Series B preferred shares and warrants based on a residual value method. The cash consideration was first allocated to warrants based on the fair value of the warrants of $882,889 and the remaining cash consideration of US$7,288,964 was recorded as the initial carrying value of Series B Preferred Shares. The warrants were exercised subsequently in July 2014. As a result, 119,688,525 Series B-1 Preferred Shares were issued for total cash proceeds of US$ 4,506,857.

Series B+ preferred shares

        In May 2013, the Company issued 129,616,445 shares of Series B+ preferred shares ("Series B+ Preferred Shares") at a per-share purchase price of US$0.0193 for total cash consideration of US$2.5 million to a group of unrelated third party investors.

Series C preferred shares

        In July 2014, the Company issued 651,629,045 shares of Series C preferred shares ("Series C Preferred Shares") at a per-share purchase price of US$0.1063 for total cash consideration of US$69.3 million to an unrelated third party investor.

Series D preferred shares

        In July 2016, the Company issued 223,478,358 shares of Series D preferred shares ("Series D Preferred Shares") at a per-share purchase price of US$0.2058 for total cash consideration of US$46 million to a group of unrelated third party investors.

Series D-1 Preferred Shares

        In January 2017, the Company issued 89,668,956 shares of Series D-1 preferred shares ("Series D-1 Preferred Shares") at a per-share purchase price of US$0.2230 for total cash consideration of US$20 million to a group of unrelated third party investors.

        The key terms of the preferred Shares are as follows:

Conversion

        Each holder of Preferred Shares shall have the right, at such holder's sole discretion, to convert all or any portion of the Preferred Shares into ordinary shares based on a one-for-one basis at any time. The initial conversion price is the issuance price of Preferred Shares, subject to adjustment in the event of (1) stock splits, share combinations, share dividends and distribution, recapitalizations and similar events, and (2) issuance of new securities at a price per share less than the conversion price in effect on the date of or immediately prior to such issuance. In that case, the conversion price shall be reduced concurrently to the subscription price of such issuance.

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Convertible Redeemable Preferred Shares (Continued)

        The Preferred Shares will be automatically converted into ordinary shares at the then applicable conversion price upon the earlier of (1) the closing of a Qualified Initial Public Offering (QIPO), which refers to a firm underwritten initial public offering resulting in (i) market capitalization of at least US$1,000,000,000, and (ii) gross proceeds to the Company of at least US$100,000,000; or (2) the vote or written consent of the holders of more than two thirds ( 2 / 3 ) of the then issued and outstanding Preferred Shares.

        The Group has determined that there was no beneficial conversion feature (BCF) attributable to the Preferred Shares, as the effective conversion price was greater than the fair value of the ordinary shares on the respective commitment dates. The Group will reevaluate whether additional BCF is required to be recorded upon the modification to the effective conversion price of the Preferred Shares, if any.

Voting Rights

        The preferred shareholders are entitled to vote with ordinary shareholders on an as-converted basis.

Dividends

        The preferred shareholders participate in dividends on an as-converted basis and must be paid prior to any payment on ordinary shares.

Redemption

Redemption date

        Upon the issuance of Series D Preferred Shares, Series A, B, B+, B-1 and C Preferred Shares are redeemable at the option of each holder in the event that (i) a QIPO does not take place by June 30, 2020, (ii) there occurs any material breach by any companies of the Group or the founding shareholders which could reasonably be expected to have a Material Adverse Effect, (iii) there is any change in the PRC legal environment regarding the corporate structure of any Group Company which could reasonably be expected to have a material adverse effect, or (iv) any holder of previously issued Preferred Shares exercises its redemption right.

        Each Series D and D-1 Preferred Share shall be redeemable at the option of each holder, in the event that (i) the Company fails to submit a formal application for QIPO at an securities exchange in the US or Hong Kong or PRC by June 30, 2019; (ii) the Company fails to complete a QIPO by June 30, 2020; (iii) any of the following events occurs ("Events of Default"):(1) there occurs any material breach of the preferred shares purchase agreement by any of the Group, founders or founder's holding companies; (2) there occurs any event that causes a material adverse effect on the Group; (3) any of the key employees ceased to devote less than 80% of his business time and attention to the business of the Group; or (4) the Group is subject to any official criminal charge, investigation or conviction; or (vi) any holder of previously issued Preferred Shares exercises its redemption right.

        In conjunction with the issuance of Series D Preferred Shares, the Company modified Series A, B, B+, B-1 and C Preferred Shares to extend the date of mandatory redemption as noted above. The Company does not consider this change as an extinguishment of Series A, B, B+, B-1 and C Preferred Shares as the impact of this change was not significant.

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Convertible Redeemable Preferred Shares (Continued)

Redemption price

        The redemption price with respect to each Series A, B, B+, B-1 and C Preferred Share shall be 150% of the issue price per Preferred Share (adjusted for any share splits, share transfer, share dividends, combinations, recapitalizations and similar transactions), plus all accumulated dividends declared and unpaid with respect to up to the date of redemption.

        The redemption price with respect to each Series D Preferred Share shall be the original issue price plus annual rate of return of 12%, excluding all the distributed dividends (if any). The redemption price with respect to each Series D-1 Preferred Share is the same as Series D, plus the term that the applicable rate of return shall be replaced with 15% if the redemption is triggered by the occurrence of the any Event of Default.

        Management of the Group evaluated that redemption was not probable and therefore did not accrete the Preferred Shares to the redemption value. The redemption value as of December 31, 2016 and 2017 would be US$181,676,571 and US$209,694,647, respectively.

Liquidation

        Upon any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, distributions to the holders of the Company shall be made in the following matters:

        Before any distribution or payment shall be made to the holders of any Series C, B-1, B+, B and A Shares and any Ordinary Shares, each holder of Series D-1 and D Preferred Shares shall be entitled to receive an amount equal to sum of (i) the issue price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions, as applicable), plus annual interest calculated at 12%. (The foregoing amount shall not exceed 155% of the issue price); (2) all dividends accrued and unpaid with respect to Series D-1 and D Preferred Share then held by the holder.

        Before any distribution or payment shall be made to the holders of Series B-1, B+, B and A Preferred Shares and Ordinary Shares, each holder of Series C Preferred Shares shall be entitled to receive an amount equal to 115% of the issue price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions, as applicable), plus all dividends accrued and unpaid with respect to Series C Preferred Share held by the holders.

        Before any distribution or payment shall be made to the holders of any Series A Preferred Shares and any Ordinary Shares, each holder of Series B-1, B+ and B Preferred Shares shall be entitled to receive an amount equal to 130% of the issue price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions, as applicable), plus all dividends accrued and unpaid with respect to Series B-1, B+, and B Preferred Share held by the holders.

        Before any distribution or payment shall be made to the holders of any Ordinary Shares, each holder of Series A Preferred Shares shall be entitled to receive an amount equal to the applicable the issue price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions, as applicable), plus all dividends accrued and unpaid with respect to the per Series A Preferred Share held by the holders.

        Total liquidation value for all preferred shares was US$152,263,795 and US$180,325,762 as of December 31, 2016 and 2017, respectively.

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Convertible Redeemable Preferred Shares (Continued)

Deemed Liquidation

        The following events shall be treated as a liquidation unless waived by the holders of at least a majority of the issued and outstanding Series A, B, B+, B-1, C, D and D-1 Preferred Shares, each voting together as a single group on an as-converted basis: (i) any consolidation, amalgamation or merger of the Company with or into any other person or other corporate reorganization (excluding any transaction effected solely for tax purposes or to change the Company's domicile), in which the members of the Company immediately prior to such transactions, own less than 50% of the Company's voting power immediately after the transactions to which the Company is a party in which in excess of 50% of the Company's voting power is transferred; (ii) the sale, exchange, transfer or other disposition of a majority of the outstanding share capital of the Company to one person(s), under circumstances in which the holders of a majority in voting power of the outstanding share capital of the Company immediately prior to such transaction beneficially own less than a majority in voting power of the outstanding share capital of the surviving entity or the acquiring Person immediately following such transaction; (iii) a sale, lease or other disposition of all or substantially all of the assets of the Company or any Group Company; or the exclusive licensing of all or substantially all of the Company's or any Group Company's intellectual property to a third party.

12. Share-Based Compensation

        In August 2012, The Company's shareholders adopted the share incentive plan ("2012 Option Plan"). Under the 2012 Option Plan, the Company's shareholders have authorized the issuance of up to 75,268,817 ordinary shares underlying all options (including incentive share options, or ISOs), restricted shares and restricted share units granted to a participant under the plan, or the awards. The 2012 Option Plan was amended in October 2012 to increase the maximum aggregate number of ordinary shares to 155,631,013 Shares. The 2012 Option Plan was amended in July 2014 to increase the maximum aggregate number of ordinary shares to 266,153,637 Shares.

        The options have a contractual term of ten years. The vesting date starts on the grant date or the commencement date of a participant's employment agreement. The options vest 20% on each of the five anniversary dates of the vesting date and upon continued employment. In the event of termination of a participant's employment, the unvested options shall be terminated immediately. The participant's right to exercise the vested options shall be terminated 2 or 3 months after the termination of the employment.

        The weighted average grant date fair value of options granted during the years ended December 31, 2016 and 2017, was $0.04 and $0.04, respectively. For the years ended December 31, 2016 and 2017, the Group recognized share-based compensation expense of $727,213 and $876,560, respectively.

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Share-Based Compensation (Continued)

        The Group uses the binomial option pricing model and the following assumptions to estimate the fair value of the options at the date of granted:

 
  For the years ended
December 31,
 
  2016   2017

Average risk-free rate of interest

  1.49% - 2.45%   2.27% - 2.45%

Expected volatility

  40.92% - 41.88%   40.47% - 41.32%

Dividend yield

  0%   0%

Contractual term

  10 years   10 years

Fair value of the underlying shares on the date of option grants

  0.08 - 0.10   0.10 - 0.16

        The risk-free rate of interest is based on the US Treasury yield curve as of valuation date. Volatility is estimated based on annualized standard deviation of daily stock price return of comparable companies for the period before valuation date and with similar span as the expected expiration term. The Group has never declared or paid any cash dividends on its capital stock, and the Group does not anticipate any dividend payments in the foreseeable future.

        A summary of the aggregate option activity and information regarding options outstanding as of December 31, 2017 is as follows:

 
  Number of
options
  Weighted
average
exercise
price
  Weighted
average
remaining
contractual
term
  Aggregate
intrinsic
value
 

Outstanding on January 1, 2016

    124,480,378   $ 0.03              

Granted

    44,618,497     0.12              

Forfeited

    (445,440 )   0.03              

Expired

    (399,360 )   0.03              

Outstanding on January 1, 2017

    168,254,075     0.05              

Granted

    10,755,650     0.18              

Forfeited

    (2,693,866 )   0.10              

Expired

    (780,092 )   0.06              

Outstanding on December 31, 2017

    175,535,767     0.06     6.71     13,507,650  

Exercisable at December 31, 2017

    101,563,231     0.03     5.97     10,031,281  

        No options were exercised for the years ended December 31, 2016 and 2017.

        As of December 31, 2017, there was $2,081,726 in total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of 2.66 years.

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Loss per share

        Net loss per share was computed by dividing net loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding for the years ended December 31, 2017 and 2016:

 
  For the years ended
December 31,
 
 
  2016   2017  
 
  US$
  US$
 

Numerator:

             

Net loss—basic and diluted

    (30,706,599 )   (23,660,913 )

Deemed dividend from repurchase of Series A Preferred Shares

        (1,028,055 )

Net loss attributable to ordinary shareholders

    (30,706,599 )   (24,688,968 )

Shares (Denominator):

             

Weighted average number of ordinary shares outstanding—basic and diluted

    912,551,946     898,781,587  

Net loss per share—basic and diluted

    (0.03 )   (0.03 )

        The Group has determined that its convertible redeemable preferred shares are participating securities as the preferred shares participate in undistributed earnings on an as-if-converted basis. The holders of the preferred shares are entitled to receive dividends on a pro rata basis, as if their shares had been converted into ordinary shares. Accordingly, the Group uses the two-class method of computing net income per share for ordinary and preferred shares according to their participation rights in undistributed earnings. However, undistributed net loss is only allocated to ordinary shareholders because holders of preferred shares are not contractually obligated to share losses.

        As a result of the Group's net loss for the two years ended December 31, 2016 and 2017, all of the Company's preferred shares and share options outstanding in the respective periods were excluded from the calculation of diluted loss per share as their inclusion would have been anti-dilutive.

 
  As of December 31,  
 
  2016   2017  

Series A preferred shares

    451,612,903     442,174,065  

Series B preferred shares

    423,682,617     423,682,617  

Series B+ preferred shares

    129,616,445     129,616,445  

Series B-1 preferred shares

    119,688,525     119,688,525  

Series C preferred shares

    651,629,045     651,629,045  

Series D preferred shares

    223,478,358     223,478,358  

Series D-1 preferred shares

        89,668,956  

Share options

    168,254,075     175,535,767  

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Loss per share (Continued)

        The unaudited pro forma net loss per share for the year ended December 31, 2017 giving effect to the conversion of preferred shares into ordinary shares as of the beginning of the year, is as follows:

 
  For the year
ended
December 31,
2017
 

Numerator:

       

Pro forma net loss attributable to ordinary shareholders—basic and diluted

    (24,688,968 )

Shares (Denominator):

       

Pro forma weighted average number of ordinary shares outstanding—basic and diluted

    2,976,521,512  

Pro forma net loss per share—basic and diluted

    (0.01 )

14. Related Party Transactions

        In November 2016, the Group lent certain shareholder RMB500,000 (equivalent to US$74,734). The loan bears an interest rate of 4.08% and is repayable in cash under a 36-month-installment repayment scheme. The loan was repaid fully in February 2018.

        In April 2017, the Group lent certain shareholder RMB2,000,000 (equivalent to US$293,285). The loan bears an interest of 4.08% and term of 1 year. Repayment of principal and interest is due at maturity. The loan was repaid fully in March 2018.

        The following table presents amounts owed from related parties as of December 31, 2016 and 2017:

 
  As of December 31,  
 
  2016   2017  
 
  US$
  US$
 

Current portion

    24,026     340,955  

Non-current portion

    46,165     24,442  

Total

    70,191     365,397  

15. Commitments

Lease Obligations

        The Group leases certain office premises under operating leases. The term of each lease agreement vary and may contain renewal options. Rental payments under operating leases are charged to operating expenses on a straight-line basis over the period of the lease based on contract terms. Rental expenses under operating leases for the years ended December 31, 2016 and 2017 were $587,120 and $847,832, respectively.

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Commitments (Continued)

        Future lease payments under operating leases as of December 31, 2017 were as follows:

Year ending December 31
  US$  

2018

    693,756  

2019

    269,632  

Total

    963,388  

        The Group did not have other significant capital commitments or significant guarantees as of December 31, 2016 and 2017, respectively.

16. Segment Information

        The Group has only one reportable segment since the Group does not distinguish revenues, costs and expenses between segments in its internal reporting, and reports costs and expenses by nature as a whole.

        The Group's chief operating decision maker, who has been identified as the Chief Executive Officer, reviews the consolidated results when making decisions about allocating resources and assessing performance of the Group as a whole. The Group does not distinguish among markets or segments for the purpose of internal reports.

        The following information about the Group's revenue is presented based on revenue streams.

 
  For the years ended
December 31,
 
 
  2016   2017  
 
  US$
  US$
 

Advertising revenue

    9,967,282     35,032,557  

Other revenue

    1,062,797     2,302,409  

Total net revenues

    11,030,079     37,334,966  

        The following table summarizes the Company's revenues generated by the geographic location of customers' headquarters.

 
  For the years ended
December 31,
 
 
  2016   2017  
 
  US$
  US$
 

USA

    5,423,026     20,246,637  

PRC

    5,135,689     15,393,590  

Others

    471,364     1,694,739  

Total

    11,030,079     37,334,966  

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COOTEK (CAYMAN) INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Segment Information (Continued)

        Information about the Group's non-current assets is presented based on the geographical location of the assets as follows:

 
  As of December 31,  
 
  2016   2017  
 
  US$
  US$
 

PRC

    1,482,716     1,757,460  

USA

        764,810  

Total

    1,482,716     2,522,270  

        The following customers accounted for 10% or more of revenue:

 
  For the years ended
December 31,
 
 
  2016   2017  
 
  USD
  %
  USD
  %
 

Company A

    4,019,900     36.44 %   6,919,426     18.53 %

Company B

    *     *     7,467,645     20.00 %

*
Customers with less than 10% in revenue in the respective year.

17. Mainland China Contribution Plan

        Full time employees of the Group in the PRC participate in a government-mandated defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. The PRC labor regulations require the Group to accrue for these benefits based on certain percentages of the employees' salaries. The total contributions for such employee benefits were US$2,370,359 and US$3,383,205 for the years ended December 31, 2016 and 2017, respectively.

18. Restricted Net Assets

        As a result of the PRC laws and regulations and the requirement that distributions by PRC entities can only be paid out of distributable profits computed in accordance with PRC GAAP, the PRC entities are restricted from transferring a portion of their net assets to the Group. Amounts restricted include paid-in capital, additional paid-in capital and the statutory reserves of the Company's PRC subsidiaries, affiliates and VIEs. As of December 31, 2017, the total of restricted net assets were US$52,502,062.

19. Subsequent Events

        In March 2018, the Group granted to certain employees 15,430,000 restricted shares with an estimated fair value of US$6.9 million. The restricted shares have a contractual term of ten years and vest 25% on each anniversary over four years from the grant date. The restricted shares vest upon the condition of continued employment.

        In May 2018, the Group acquired 7.93% equity interests in an investee company for cash of US$0.5 million.

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SCHEDULE I—ADDITIONAL FINANCIAL INFORMATION OF PARENT COMPANY
COOTEK (CAYMAN) INC.
CONDENSED BALANCE SHEETS

 
  As of December 31,  
 
  2016   2017  
 
  US$
  US$
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

    5,461,515     1,307,136  

Accounts receivable

    5,808     5,971  

Prepaid expenses and other current assets

    30,596     30,596  

Total current assets

    5,497,919     1,343,703  

Advances to subsidiaries and VIEs

    30,411,057     30,102,549  

Investment in subsidiaries and VIEs

         

TOTAL ASSETS

    35,908,976     31,446,252  

LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED SHARES AND SHAREHOLDERS' DEFICIT

             

Current liabilities:

             

Accrued expenses and other current liabilities

    10,000      

Total current liabilities

    10,000      

TOTAL LIABILITIES

    10,000      

Convertible redeemable preferred shares (redemption value of US$181,676,571 and US$209,694,647 as of December 31, 2016 and December 31, 2017, respectively)

    136,455,592     156,367,810  

SHAREHOLDERS' DEFICITS:

             

Ordinary shares

    9,126     8,984  

Additional paid-in capital

    1,153,423     876,560  

Accumulated deficit

    (101,028,568 )   (126,899,750 )

Accumulated other comprehensive income (loss)

    (690,597 )   1,092,648  

Total Shareholders' Deficits

    (100,556,616 )   (124,921,558 )

TOTAL LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED SHARES AND SHAREHOLDERS' DEFICIT

    35,908,976     31,446,252  

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SCHEDULE I—ADDITIONAL FINANCIAL INFORMATION OF PARENT COMPANY

COOTEK (CAYMAN) INC.

CONDENSED STATEMENTS OF OPERATIONS

 
  For Years ended December 31,  
 
  2016   2017  
 
  US$
  US$
 

Net revenues

    68,944     116,120  

Cost of revenue

    44,853     66,231  

Gross profit

    24,091     49,889  

Operating expenses:

             

General and administrative expenses

    520,067     2,043,737  

Research and development expenses

    445,084     544,786  

Sales and marketing expenses

    35,298     70,707  

Total operating expenses

    1,000,449     2,659,230  

Loss from operations

    (976,358 )   (2,609,341 )

Foreign exchange gains (losses)

    (3,326,826 )   2,792,646  

Income (Loss) before income taxes and equity in earnings of subsidiaries

    (4,303,184 )   183,305  

Net income (loss) before equity in earnings of subsidiaries

    (4,303,184 )   183,305  

Equity in losses of subsidiaries, VIEs and VIEs' subsidiaries

    (26,403,415 )   (23,844,218 )

Net loss attributed to CooTek (Cayman) Inc

    (30,706,599 )   (23,660,913 )

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SCHEDULE I—ADDITIONAL INFORMATION OF PARENT COMPANY

COOTEK (CAYMAN) INC

CONDENSED STATEMENTS OF CASH FLOWS

 
  For Years ended December 31,  
 
  2016   2017  
 
  US$
  US$
 

Operating activities:

             

Net loss

    (30,706,599 )   (23,660,913 )

Equity in losses of subsidiaries, VIEs and VIEs' subsidiaries

    26,403,415     23,844,218  

Adjustment to reconcile net loss to net cash provided by (used in) operating activities:

             

Share-based compensation

    727,213     876,560  

Changes in assets and liabilities:

             

Accounts receivable

    (2,033 )   (163 )

Accrued expenses and other current liabilities

    10,000     (10,000 )

Net cash (used in) provided by operating activities

    (3,568,004 )   1,049,702  

Investing activities:

             

Investment in subsidiaries

        (21,500,000 )

Advances to subsidiaries and VIEs

    (37,291,793 )   (252,465 )

Net cash used in investing activities

    (37,291,793 )   (21,752,465 )

Financing activities:

             

Proceeds from issuance of preferred shares

    46,000,000     20,000,000  

Repurchase of ordinary shares

        (1,451,616 )

Repurchase of preferred shares repurchase

        (2,000,000 )

Net cash provided by financing activities

    46,000,000     16,548,384  

Net increase (decrease) in cash, cash equivalents and restricted cash

    5,140,203     (4,154,379 )

Cash, cash equivalents and restricted cash at beginning of year

    321,312     5,461,515  

Cash, cash equivalents and restricted cash at end of year

    5,461,515     1,307,136  

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SCHEDULE I—COOTEK (CAYMAN) INC CONDENSED FINANCIAL STATEMENTS

Notes to Schedule I

1.
Schedule I has been provided pursuant to the requirements of Rule 12-04(a) and 5-04(c) of Regulation S-X, which require condensed financial information as to the financial position, changes in financial position and results of operations of a parent company as of the same dates and for the same periods for which audited consolidated financial statements have been presented when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year.

2.
The condensed financial information has been prepared using the same accounting policies as set out in the consolidated financial statements except that the equity method has been used to account for investments in its subsidiaries and VIEs and VIEs' subsidiaries. For the parent company, the Company records its investments in subsidiaries VIEs and VIEs subsidiaries under the equity method of accounting as prescribed in ASC 323, Investments—Equity Method and Joint Ventures. Such investments are presented on the Condensed Balance Sheets as "Investment in subsidiaries VIEs and VIEs' subsidiaries" and share of their earnings (losses) as "Equity in earnings (losses) of subsidiaries, VIEs and VIEs' subsidiaries" on the Condensed Statements of Operations.

3.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted. The footnote disclosures provide certain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the accompanying consolidated financial statements.

4.
As of December 31, 2016 and 2017, there were no material contingencies, significant provisions of long-term obligations, mandatory dividend or redemption requirements of redeemable stocks or guarantees of the Company.

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Table of Contents


COOTEK (CAYMAN) INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 
  As of  
 
  December 31,
2017
  June 30,
2018
  June 30,
2018
 
 
  US$
  US$
  US$
Pro forma
(Note 2)

 

ASSETS

                   

Current assets:

                   

Cash and cash equivalents

    26,720,158     27,688,814     27,688,814  

Restricted cash

    306,082          

Account receivable, net of allowance for doubtful accounts of $1,295,149 and $1,280,206 as of December 31, 2017 and June 30, 2018, respectively

    10,979,821     15,670,017     15,670,017  

Amount due from related parties

    340,955          

Prepaid expenses and other current assets

    5,391,736     4,450,894     4,450,894  

Total current assets

    43,738,752     47,809,725     47,809,725  

Property and equipment, net

    1,943,550     2,200,636     2,200,636  

Amount due from related parties-non-current

    24,442          

Long-term investments

        500,032     500,032  

Other non-current assets

    554,278     498,561     498,561  

TOTAL ASSETS

    46,261,022     51,008,954     51,008,954  

   

The accompanying notes are an integral part of these consolidated financial statements.

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COOTEK (CAYMAN) INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 
  As of  
 
  December 31,
2017
  June 30,
2018
  June 30,
2018
 
 
  US$
  US$
  US$
Pro forma
(Note 2)

 

LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED SHARES AND SHAREHOLDERS' DEFICIT

                   

Current liabilities:

                   

Accounts payable (including accounts payable of consolidated VIEs, without recourse to the Company of US$107,568 and US$231,088, respectively, as of December 31, 2017 and June 30, 2018)

    5,432,505     10,454,954     10,454,954  

Short-term bank borrowings and current portion of long-term bank borrowings (including short-term bank borrowings of consolidated VIEs, without recourse to the Company of US$790,816 and US$587,819, respectively, as of December 31, 2017 and June 30, 2018)

    3,193,381     2,102,028     2,102,028  

Accrued salary and benefits (including accrued salary and benefits of consolidated VIEs, without recourse to the Company of US$269,245 and US$300,971, respectively, as of December 31, 2017 and June 30, 2018)

    3,244,931     2,517,853     2,517,853  

Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of consolidated VIEs, without recourse to the Company of US$951,817 and US$534,900, respectively, as of December 31, 2017 and June 30, 2018)

    2,422,313     1,253,180     1,253,180  

Deferred revenue (including deferred revenue of consolidated VIEs, without recourse to the Company of US$276,812 and US$375,886, respectively, as of December 31, 2017 and June 30, 2018)

    521,640     522,555     522,555  

Total current liabilities

    14,814,770     16,850,570     16,850,570  

Deferred government subsidies (including deferred government subsidies of VIEs, without recourse to the Company of US$ nil and US$ nil, as of December 31, 2017 and June 30, 2018)

        283,378     283,378  

Total LIABILITIES

    14,814,770     17,133,948     17,133,948  

Commitments (Note 13)

                   

Convertible redeemable preferred shares (redemption value of US$209,694,647 and US$214,125,207 as of December 31, 2017 and June 30, 2018, respectively)

    156,367,810     156,367,810      

Shareholders' equity (deficit):

                   

Ordinary shares (US$0.00001 par value; 2,920,061,989 shares authorized and 898,393,690 shares issued and outstanding as of December 31, 2017 and June 30, 2018, respectively; and 2,978,331,701 shares issued and outstanding as of June 30, 2018 on a pro-forma basis)

    8,984     8,984     29,783  

Additional paid-in capital

    876,560     1,767,785     158,114,796  

Accumulated deficit

    (126,899,750 )   (123,388,321 )   (123,388,321 )

Accumulated other comprehensive income (loss)

    1,092,648     (881,252 )   (881,252 )

Total Shareholders' Equity (Deficit)

    (124,921,558 )   (122,492,804 )   33,875,006  

TOTAL LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED SHARES AND SHAREHOLDERS' EQUITY (DEFICIT)

    46,261,022     51,008,954     51,008,954  

   

The accompanying notes are an integral part of these consolidated financial statements.

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COOTEK (CAYMAN) INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
  For the Six Months Ended
June 30,
 
 
  2017   2018  
 
  US$
  US$
 

Net revenues

    9,113,266     50,277,623  

Cost of revenue (including share-based compensation of $12,127 and $23,892 for the six months ended June 30, 2017 and 2018, respectively)

    (10,172,085 )   (8,037,508 )

Gross profit (loss)

    (1,058,819 )   42,240,115  

Operating expenses:

             

General and administrative expenses (including share-based compensation of $1,662,219 and $161,263 for the six months ended June 30, 2017 and 2018, respectively)

    (4,034,049 )   (4,141,460 )

Research and development expenses (including share-based compensation of $ 274,795 and $666,679 for the six months ended June 30, 2017 and 2018, respectively)

    (5,646,825 )   (8,322,788 )

Sales and marketing expenses (including share-based compensation of $29,956 and $39,391 for the six months ended June 30, 2017 and 2018, respectively)

    (5,652,254 )   (26,345,856 )

Other operating income, net

    117,438     70,212  

Total operating expenses

    (15,215,690 )   (38,739,892 )

Income (loss) from operations

    (16,274,509 )   3,500,223  

Interest income, net

    166,087     70,475  

Foreign exchange losses, net

    (125,399 )   (59,269 )

Income (loss) before income taxes

    (16,233,821 )   3,511,429  

Income tax expense

    (800 )    

Net income (loss)

    (16,234,621 )   3,511,429  

Deemed dividend from repurchase of preferred shareholders

    (1,028,055 )    

Net income (loss) attributable to ordinary shareholders

    (17,262,676 )   3,511,429  

Net income (loss) per ordinary share:

             

Basic

    (0.02 )   0.001  

Diluted

    (0.02 )   0.001  

Weighted average shares used in calculating net loss per ordinary share:

             

Basic

    899,175,914     898,393,690  

Diluted

    899,175,914     1,045,398,678  

Pro forma net income per ordinary share (Note 11):

             

Basic

          0.001  

Diluted

          0.001  

Pro forma weighted average shares used in calculating net income per ordinary shares:

             

Basic

          2,978,331,701  

Diluted

          3,125,336,689  

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COOTEK (CAYMAN) INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

 
  For the Six Months Ended
June 30,
 
 
  2017   2018  
 
  US$
  US$
 

Net Income (loss)

    (16,234,621 )   3,511,429  

Other comprehensive income (loss)

             

Foreign currency translation adjustments

    774,286     (1,973,900 )

Comprehensive income (loss)

    (15,460,335 )   1,537,529  

   

The accompanying notes are an integral part of these consolidated financial statements.

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COOTEK (CAYMAN) INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT

 
  Ordinary shares   Additional
paid-in
capital
  Accumulated
deficit
  Accumulated
other
comprehensive
income (loss)
  Total
shareholders'
deficit
 
 
  Shares
  US$
  US$
  US$
  US$
  US$
 

Balance at January 1, 2017

    912,551,946     9,126     1,153,423     (101,028,568 )   (690,597 )   (100,556,616 )

Net income

                (16,234,621 )       (16,234,621 )

Repurchase of ordinary shares

    (14,158,256 )   (142 )       (1,451,474 )       (1,451,616 )

Repurchase of preferred shares

            (1,153,423 )   (758,795 )       (1,912,218 )

Share-based compensation

            430,713             430,713  

Foreign currency translation adjustments

                    774,286     774,286  

Balance at June 30, 2017

    898,393,690     8,984     430,713     (119,473,458 )   83,689     (118,950,072 )

 

 
  Ordinary shares   Additional
paid-in
capital
  Accumulated
deficit
  Accumulated
other
comprehensive
income (loss)
  Total
shareholders'
deficit
 
 
  Shares
  US$
  US$
  US$
  US$
  US$
 

Balance at January 1, 2018

    898,393,690     8,984     876,560     (126,899,750 )   1,092,648     (124,921,558 )

Net income

                3,511,429         3,511,429  

Share-based compensation

            891,225             891,225  

Foreign currency translation adjustments

                    (1,973,900 )   (1,973,900 )

Balance at June 30, 2018

    898,393,690     8,984     1,767,785     (123,388,321 )   (881,252 )   (122,492,804 )

   

The accompanying notes are an integral part of these consolidated financial statements.

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COOTEK (CAYMAN) INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
  For the Six Months
Ended June 30,
 
 
  2017   2018  
 
  US$
  US$
 

Cash flows from operating activities:

             

Net income (loss)

    (16,234,621 )   3,511,429  

Adjustments to reconcile net loss to net cash used in operating activities:

             

Depreciation

    373,453     565,304  

Provision for allowance of doubtful accounts

    2,665     815  

Share-based compensation

    430,713     891,225  

Changes in assets and liabilities:

             

Accounts receivable

    (2,051,404 )   (4,753,539 )

Prepaid expenses and other current assets

    (388,182 )   926,920  

Other non-current assets

    185,976     45,711  

Accounts payable

    (1,557,591 )   5,029,875  

Accrued salary and benefits

    54,253     (807,351 )

Accrued expenses and other current liabilities

    (481,764 )   (1,167,939 )

Deferred revenue

    (133,164 )   9,545  

Deferred government subsidies

        287,921  

Net cash provided by (used in) operating activities

    (19,799,666 )   4,539,916  

Cash flows from investing activities:

             

Purchases of property, plant and equipment

    (821,245 )   (826,122 )

Advances to related parties

    (293,285 )    

Repayment of advances to related parties

    12,122     378,111  

Purchase of investment

        (500,032 )

Net cash used in investing activities

    (1,102,408 )   (948,043 )

Cash flows from financing activities:

             

Repayment of bank borrowings

    (2,853,890 )   (1,101,895 )

Proceeds from issuance of preferred shares

    20,000,000      

Repurchase of ordinary shares

    (1,451,616 )    

Repurchase of preferred shares

    (2,000,000 )    

Net cash provided by (used in) financing activities

    13,694,494     (1,101,895 )

Net increase (decrease) in cash, cash equivalents, and restricted cash

    (7,207,580 )   2,489,978  

Cash, cash equivalents, and restricted cash at beginning of year

    41,344,623     27,026,240  

Effect of exchange rate changes on cash, cash equivalents and restricted cash

    543,542     (1,827,404 )

Cash, cash equivalents, and restricted cash at end of year

    34,680,585     27,688,814  

Supplemental disclosure of cash flow information:

             

Income taxes paid

    800      

Interest paid

    116,043     82,199  

Reconciliation in amounts on consolidated balance sheets:

             

Cash and cash equivalents

    34,385,356     27,688,814  

Restricted cash

    295,229      

Total cash, cash equivalents, and restricted cash

    34,680,585     27,688,814  

   

The accompanying notes are an integral part of these consolidated financial statements.

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Principal Activities

        CooTek (Cayman) Inc. (the "Company") was incorporated in the Cayman Islands on March 5, 2012. The Company, its subsidiaries and its consolidated Variable Interest Entities ("VIEs") (collectively referred to as the "Group") are a fast-growing AI and big data-driven mobile internet company serving a large global user base.

History of the Group and reorganization

        The Group's history began in August 2008 with the commencement of operations of Shanghai Han Xiang (CooTek) Information Technology Co., Ltd ("Han Xiang"), a limited liability company incorporated in the People's Republic of China ("PRC") by certain individuals. In October 2010, three outside investors acquired an aggregate of 24.24% equity interest of Han Xiang. In 2012, Han Xiang and its shareholders undertook a reorganization which was conducted to establish a Cayman holding company for the existing business to obtain investment from outside investors and in preparation of an overseas initial public offering. The Group has recognized the net assets of Han Xiang on a historical cost with no change in basis in the consolidated financial statements upon the completion of the reorganization. The shareholders' rights and obligations remained the same after the reorganization.

2. Summary of Significant Accounting Policies

(a)
Basis of Presentation

        The unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Unaudited interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim financial statements should be read in conjunction with the Group's consolidated financial statements as of and for the years ended December 31, 2016 and 2017.

(b)
Principles of Consolidation

        The condensed consolidated financial statements include the financial information of the Company, its wholly owned subsidiaries and its consolidated variable interest entities ("VIEs"). All intercompany balances and transactions have been eliminated upon consolidation.

        Applicable PRC laws and regulations currently limit foreign ownership of companies that provide internet content distribution services and any other restrictions. The Company is deemed a foreign legal person under PRC laws and accordingly subsidiaries owned by the Company are not eligible to engage in provisions of internet content or online services. The Group therefore conducts its online business through the following consolidated VIEs:

    Shanghai Han Xiang (CooTek) Information Technology Co., Ltd. ("Han Xiang")

    Shanghai Chu Bao (CooTek) Information Technology Co., Ltd. ("Chu Bao")

    Yingsun Information Technology Co., Ltd. ("Yingsun")

    Molihong Internet Technology Co., Ltd ("Molihong")

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

        The following consolidated financial statement balances and amounts of the Group's VIEs, were included in the accompanying unaudited condensed consolidated financial statements after the elimination of intercompany balances and transactions among the Company, its subsidiaries and its VIEs.

 
  As of  
 
  December 31,
2017
  June 30,
2018
 
 
  US$
  US$
 

ASSETS

             

Cash and cash equivalents

    2,485,998     4,176,666  

Restricted cash

    306,082      

Account receivable, net

    2,065,324     1,613,686  

Prepaid expense and other assets

    3,665,503     2,576,906  

Property and equipment, net

    1,951     1,631  

Total Assets

    8,524,858     8,368,889  

LIABILITIES

             

Accounts payable

    107,568     231,088  

Short-term borrowing

    790,816     587,819  

Accrued salary and benefits

    269,245     300,971  

Accrued expenses and other current liabilities

    951,817     534,900  

Deferred revenue

    276,812     375,886  

Total Liabilities

    2,396,258     2,030,664  

 

 
  For the Six Months
Ended June 30,
 
 
  2017   2018  
 
  US$
  US$
 

Total revenue

    2,946,675     5,961,316  

Operating income

    1,694,283     821,852  

Net income

    1,682,931     823,393  

Net cash provided by(used in) operating activities

    (1,046,547 )   2,241,640  

Net cash provided by investment activities

         

Net cash used in financing activities

    (185,911 )   (206,498 )

        The VIEs' assets are comprised of recognized and unrecognized revenue-producing assets. The recognized revenue producing assets mainly include purchased servers, which are presented in the account of "Property and equipment, net." The unrecognized revenue-producing assets mainly consist of the Internet Content Provider license ("ICP" license), trademarks, copyrights and registered patents, which are not recognized in the consolidated balance sheets.

        Revenues of VIEs included in the consolidated financial statements mainly include revenue of advertising services and sales of virtual items for live social video community. The VIEs contributed 32% and 12% of the Group's consolidated net revenues for six months ended June 30, 2017 and 2018, respectively. As of December 31, 2017 and June 30, 2018, the VIEs accounted for an aggregate of 18%

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

and 16% respectively, of the consolidated total assets, and 16% and 12% respectively, of the consolidated total liabilities.

        There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the Company or its subsidiaries to provide financial support to the VIEs. However, if the VIEs were ever to need financial support, the Group may, at its option and subject to statutory limits and restrictions, provide financial support to its VIE through loans to the shareholders of the VIEs.

        The Group believes that there are no assets held in the VIEs that can be used only to settle obligations of the VIEs, except for registered capital and the PRC statutory reserves. As the VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the VIEs do not have recourse to the general credit of the Company for any of the liabilities of the VIEs. Relevant PRC laws and regulations restrict the VIEs from transferring a portion of their net assets, equivalent to the balance of its statutory reserve and its share capital, to the Company in the form of loans and advances or cash dividends.

(c)
Foreign Currency Risk

        The RMB is not a freely convertible currency. The State Administration for Foreign Exchange in the PRC, under the authority of the Peoples Bank of China, controls the conversion of RMB into other currencies. The value of the RMB is subject to changes in central government policies, international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. The Group's cash and cash equivalents and restricted cash denominated in RMB amounted to RMB100,419,401 (amounted to US$ 15,368,278) and RMB62,483,843 (amounted to US$ 9,443,497) as of December 31, 2017 and June 30, 2018, respectively.

(d)
Long-term investments

        Long-term investments consist of equity investments in other privately-held companies. The Group uses the equity method to account for an equity investment over which it has significant influence but does not own a majority equity interest or otherwise control. For equity investments over which the Group does not have significant influence or control, the cost method of accounting is used.

        The Group continually reviews investment in equity investees to determine whether a decline in fair value to below the carrying value is other-than-temporary. The primary factors the Group considers in its determination are the duration and severity of the decline in fair value; the financial condition, operating performance and the prospects of the equity investee; and other company specific information such as recent rounds of financing. If the decline in fair value is deemed to be other-than-temporary, the carrying value of the equity investee is written down to fair value.

(e)
Revenue Recognition

        The Group generates substantially all of its revenue through mobile advertising, which accounted for 96% and 96% of total revenue for the six months ended June 30, 2017 and 2018, respectively. The Group also generates other revenues through live social video community and licensing of its Smart Inputs products. In accordance with the criteria set forth in ASC605, Revenue Recognition , the Group

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

recognizes revenue when the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the selling price is fixed or determinable, and (4) collectability is reasonably assured.

        We provide cash incentives in the form of sales rebates to certain advertising agencies, and account for such incentives as a reduction of revenue. We have estimated and recorded the rebates based on historical transactions and the agreed rebate rates with certain advertising agencies. For the six months ended June 30, 2017 and 2018, the rebates recorded by the Group were US$933,499 and US$205,662, respectively.

        The Group engages in certain advertising barter transactions for which the fair value was not determinable and therefore no revenues or expenses derived from these barter transactions were recognized.

        Revenue also include sales of virtual items for live social video community of US$92 and US$681,007; and licensing fees for our Smart Inputs products of US$110,506 and US$68,389 for the six months ended June 30, 2017 and 2018, respectively.

(f)
Sales and Marketing Expenses

        Sales and marketing expenses primarily consist of advertising expenses, salaries and benefits of sales and marketing personnel and fees paid to mobile device manufacturers to pre-install the Group's Smart Input products. Advertising expenses represent online advertising and promotions of the Group's products via social media and demand-side platforms. Such expenses amounted to US$2,844,354 and US$19,846,142, for the six months ended June 30, 2017 and 2018, respectively.

(g)
Concentration and risks

        Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and revenue. The Group places its cash and cash equivalents with financial institutions with high credit ratings and quality, and believes that no significant credit exists.

        The Group conducts credit evaluations of customers, and generally does not require collateral or other security from its customers. The Group establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.

        The following customers accounted for 10% or more of accounts receivable:

 
  As of  
 
  December 31, 2017   June 30, 2018  
 
  US$
  %
  US$
  %
 

Company A

    2,880,119     26.23 %   4,525,905     28.88 %

Company B

    2,404,672     21.90 %   3,555,289     22.69 %

Company C

    *     *     1,921,421     12.26 %

*
Customer with less than 10% of total accounts receivable as of the respective date.

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

(h)
Government subsidies

        Government subsidies consist of cash subsidies received by the Group's subsidiaries in the PRC from local governments. Subsidies received as incentives for conducting business in certain local districts with no performance obligation or other restriction as to the use are recognized when cash is received. Subsidies received with performance obligations are recognized when all the obligations have been fulfilled.

(i)
Pro forma information

        The pro forma balance sheet information as of June 30, 2018 assumes the conversion of the outstanding preferred shares into ordinary shares using the conversion ratio of one for one upon completion of a qualified initial public offering.

(j)
Pro forma earnings per share

        Pro forma basic earnings per share is computed by dividing net income attributable to the Group's ordinary shareholders, by the weighted average number of ordinary shares outstanding for the six months ended June 30, 2018 plus the number of ordinary shares resulting from the assumed conversion of the outstanding preferred shares into ordinary shares using the conversion ratio of one for one upon completion of a qualified initial public offering. Diluted earnings per share reflects the potential dilution, using the treasury stock method. RSUs were excluded from the calculation of pro forma diluted earnings per share as the effect would be anti-dilutive.

(k)
Recent Accounting Pronouncements

        In May 2014, the Financial Accounting Standards Board (the "FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition. The Group as an emerging growth company ("EGC") has elected to adopt the new revenue standard as of the effective date applicable to nonissuers and will implement the new revenue standard on January 1, 2019 using the modified retrospective method. The Group is in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements and currently does not expect the adoption will have significant effects on the Group's revenue recognition practices, financial positions, results of operations or cash flows. The new standard will require the Group to provide more robust disclosures than required by previous guidance, including disclosures related to disaggregation of revenue into appropriate categories, performance obligations, and the judgments made in revenue recognition determinations.

        In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU revises standards for the recognition, measurement and presentation of financial instruments, including the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. It also amended certain disclosure requirements associated with the fair value of financial instruments. As an emerging growth company, we will adopt and implement the ASU on January 1, 2019, which is the effective date applicable to private companies. We are in the process of evaluating

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

the impact of the adoption and currently do not expect the ASU will have significant impact on our consolidated financial statements.

3. Accounts receivable, net

        Accounts receivable, net, consists of the following:

 
  As of  
 
  December 31,
2017
  June 30,
2018
 
 
  US$
  US$
 

Accounts receivable

    12,274,970     16,950,223  

Allowance for doubtful accounts:

             

Balance at beginning of the year

        (1,295,149 )

Additions

    (1,295,149 )   (815 )

Write-offs

        15,613  

Foreign exchange effect

        145  

Balance at end of the year

    (1,295,149 )   (1,280,206 )

Accounts receivable, net

    10,979,821     15,670,017  

4. Prepaid expenses and other current assets

        Prepaid expenses and other current assets consisted of the followings:

 
  As of  
 
  December 31,
2017
  June 30,
2018
 
 
  US$
  US$
 

Value added tax ("VAT") recoverable

    2,883,914     2,323,811  

Advance to suppliers

    972,909     766,880  

Funds deposited at third party payment platforms

    693,930     144,521  

Prepaid expenses

    570,749     882,110  

Deposits

    270,234     333,572  

Total

    5,391,736     4,450,894  

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Property, Plant and Equipment, Net

        Property and equipment, net, consisted of the following:

 
  As of  
 
  December 31,
2017
  June 30,
2018
 
 
  US$
  US$
 

Electronic equipment

    3,182,880     3,838,062  

Office equipment and furniture

    147,487     160,892  

Motor vehicles

    82,470     82,470  

Leasehold improvements

    485,131     585,469  

Construction in progress

    78,510     80,778  

Total

    3,976,478     4,747,671  

Less: Accumulated depreciation

    (2,032,928 )   (2,547,035 )

Property, plant and equipment, net

    1,943,550     2,200,636  

        For the six months ended June 30, 2017 and 2018, depreciation expenses were $373,453 and $565,304, respectively.

6. Long-term investments

        In May 2018, the Group acquired 7.93% equity interests in a privately hold company for cash consideration of US$0.5 million, which is accounted for under the cost method.

7. Bank Borrowings

        The Company's bank borrowings consisted of the following:

 
  As of  
 
  December 31,
2017
  June 30,
2018
 
 
  US$
  US$
 

Short-term borrowings

    1,951,062     1,926,764  

Long-term borrowings, current portion

    1,242,319     175,264  

Total

    3,193,381     2,102,028  

        In July 2016, the Group entered into a credit facility agreement with a commercial bank. The total credit available under this facility is $6,000,000, of which $2,000,000 designated for borrowings with maturity up to 12 months from the date drawn down ("short-term borrowings") and the remaining $4,000,000 designated for a maturity up to 24 months ("long-term borrowings"). The loan is collateralized by the Group's accounts receivable and intellectual property. The agreement contains financial covenants measured by operational metrics and financial ratios. As of June 30, 2018, the Group was in compliance with all debt covenants.

        The short-term borrowings under this facility bear interest at a rate per annum equal to the prevailing base lending rate for 6 months as announced by the People's Bank of China ("PBOC") plus 1.31%. The weighted average interest rate of short-term borrowings was 5.66% in the six months ended June 30, 2018.

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Bank Borrowings (Continued)

        The long-term borrowings under this facility bear interest at a rate per annum equal to the prevailing base lending rate for one year as announced by the PBOC plus 1.43%. The weighted average interest rate of long-term borrowings was 6.18% in the six months ended June 30, 2018.

8. Accrued Expenses and Other Current Liabilities

        Accrued expenses and other current liabilities consisted of the following:

 
  As of  
 
  December 31,
2017
  June 30,
2018
 
 
  US$
  US$
 

Accrued expenses (Note 1)

    1,466,139     489,782  

Other tax payables

    723,271     413,222  

Contract deposits from customers

    137,907     124,257  

Deferred government subsidies

    63,663     42,318  

Others

    31,333     183,601  

Total

    2,422,313     1,253,180  

        Note 1: Accrued expenses mainly consist of accrued sales rebate, accrued expenses related to live social video community and other miscellaneous accrued marketing and operation expenses.

9. Income Taxes Expenses

        For the six months ended June 30, 2017 and 2018, income tax expense were $800 and nil, respectively.

        The effective tax rate is based on expected income and statutory tax rates. For interim financial reporting, the Group estimates the annual tax rate based on projected taxable income for the full year and records a quarterly income tax provision in accordance with the guidance on accounting for income taxes in an interim period. As the year progresses, the Group refines the estimates of the year's taxable income as new information becomes available. This continual estimation process often results in a change to the expected effective tax rate for the year. When this occurs, the Group adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected annual tax rate.

        The Group's effective tax rates were nil for the six months ended June 30, 2017 and 2018, respectively.

10. Share-Based Compensation

Options to Employees

        For the six months ended June 30, 2017 and 2018, the Group recognized share-based compensation expense of $430,713 and $369,570, respectively. No options were granted or exercised for the six months ended June 30, 2018.

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Share-Based Compensation (Continued)

        As of June 30, 2018, there was $1,516,345 in total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of 2.2 years.

Restricted Share Units

        In March 2018, the Group granted to certain employees 15,430,000 Restricted Share Units ("RSUs") pursuant to the 2012 Option Plan. The RSUs have a contractual term of ten years and vest 25% on each of the yearly four anniversary dates of the grant date. The vesting of these RSU is conditioned on continued employment. The exercise price of these shares is nil per share.

        The per share fair value of RSUs granted in March 2018 was determined to be $0.45 based on a valuation performed by the Group with the assistance of a third party valuer. Compensation expense based on fair value is amortized over the requisite service period of award using the straight line vesting attribution method.

        A summary of the RSU activity for the six months ended June 30, 2018 is as follows:

 
  Number of
shares
  Weighted
average
grant date
fair value
 

Unvested on January 1, 2018

         

Granted

    15,430,000     0.45  

Vested

         

Unvested on June 30, 2018

    15,430,000     0.45  

        The share-based compensation expense related to RSUs of $521,655 was recognized by the Group for the six months ended June 30, 2018.

        As of June 30, 2018, there was $6,373,243 in total unrecognized compensation cost related to non-vested RSUs, which is expected to be recognized over a period of 3.7 years.

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Earnings (net loss) per share

        Earnings (net loss) per share was computed by dividing net income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding for the six months ended June 30, 2017 and 2018:

 
  For the six months ended
June 30,
 
 
  2017   2018  
 
  US$
  US$
 

Numerator:

             

Net income (loss)

    (16,234,621 )   3,511,429  

Deemed dividend from repurchase of Series A Preferred Shares

    (1,028,055 )    

Net income (loss) attributable to Cootek (Cayman) Inc. 

    (17,262,676 )   3,511,429  

Less: Amounts allocated to convertible redeemable preferred shares for participating rights to dividends

        2,452,230  

Net income (loss) attributable to ordinary shareholders—basic and diluted

    (17,262,676 )   1,059,199  

Shares (Denominator):

             

Weighted average number of ordinary shares outstanding—basic

    899,175,914     898,393,690  

Plus: share options

        147,004,988  

Weighted average number of ordinary shares outstanding—diluted

    899,175,914     1,045,398,678  

Basic net income (loss) per share

    (0.02 )   0.001  

Diluted net income (loss) per share

    (0.02 )   0.001  

        The Group has determined that its convertible redeemable preferred shares are participating securities as these preferred shares participate in undistributed earnings on an as-if-converted basis. The holders of the preferred shares are entitled to receive dividends on a pro rata basis, as if their shares had been converted into ordinary shares. Accordingly, the Group uses the two-class method of computing net income per share for ordinary and preferred shares according to their participation rights in undistributed earnings. However, undistributed net loss is only allocated to ordinary shareholders because holders of preferred shares are not contractually obligated to share losses. Diluted earnings per share are computed using the more dilutive of (a) the two-class method or (b) the if-converted method.

        Diluted earnings per share for the six months ended June 30, 2018 is computed using the two-class method as it is more dilutive than the if-converted method.

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Earnings (net loss) per share (Continued)

        As of June 30, 2017 and 2018, diluted net income per share does not include the following instruments as their inclusion would be antidilutive:

 
  As of June 30,  
 
  2017   2018  

Series A preferred shares

    442,174,065     442,174,065  

Series B preferred shares

    423,682,617     423,682,617  

Series B+ preferred shares

    129,616,445     129,616,445  

Series B-1 preferred shares

    119,688,525     119,688,525  

Series C preferred shares

    651,629,045     651,629,045  

Series D preferred shares

    223,478,358     223,478,358  

Series D-1 preferred shares

    89,668,956     89,668,956  

Share options

    175,260,865      

RSUs

        15,430,000  

        The unaudited pro forma net income per share for the six months ended June 30, 2018 giving effect to the conversion of preferred shares into ordinary shares as of the beginning of the period, is as follows:

 
  For the
six months ended
June 30, 2018
 
 
  US$
 

Numerator:

       

Pro forma net income attributable to ordinary shareholders—basic and diluted

    3,511,429  

Shares (Denominator):

       

Pro forma weighted average number of ordinary shares outstanding—basic

    2,978,331,701  

Plus: share options

    147,004,988  

Pro forma weighted average number of ordinary shares outstanding—diluted

    3,125,336,689  

Pro forma basic net income per share

    0.001  

Pro forma diluted net income per share

    0.001  

12. Related Party Transactions

        In November 2016, the Group lent certain shareholder RMB500,000 (equivalent to US$74,734). The loan bears an interest rate of 4.08% and is repayable in cash under a 36-month-installment repayment scheme. The loan was repaid fully in February 2018.

        In April 2017, the Group lent certain shareholder RMB2,000,000 (equivalent to US$293,285). The loan bears an interest of 4.08% and term of 1 year. Repayment of principal and interest is due at maturity. The loan was repaid fully in March 2018.

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Commitments

Lease Obligations

        The Group leases certain office premises under operating leases. The term of each lease agreement vary and may contain renewal options. Rental payments under operating leases are charged to operating expenses on a straight-line basis over the period of the lease based on contract terms. Rental expenses under operating leases for the six months ended June 30, 2017 and 2018 were $393,005 and $526,148, respectively.

        Future lease payments under operating leases as of June 30, 2018 were as follows:

 
  US$  

Remainder of 2018

    508,668  

2019

    502,405  

Total

    1,011,073  

        The Group did not have other significant capital commitments or significant guarantees as of June 30, 2018.

14. Segment Information

        The Group has only one reportable segment since the Group does not distinguish revenues, costs and expenses between segments in its internal reporting, and reports costs and expenses by nature as a whole.

        The Group's chief operating decision maker, who has been identified as the Chief Executive Officer, reviews the consolidated results when making decisions about allocating resources and assessing performance of the Group as a whole. The Group does not distinguish among markets or segments for the purpose of internal reports.

        The following information about the Group's revenue is presented based on revenue streams.

 
  For the six months ended
June 30,
 
 
  2017   2018  
 
  US$
  US$
 

Advertising revenue

    8,762,535     48,468,287  

Other revenue

    350,731     1,809,336  

Total net revenues

    9,113,266     50,277,623  

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COOTEK (CAYMAN) INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Segment Information (Continued)

        The following table summarizes the Company's revenues generated by the geographic location of customers' headquarters.

 
  For the six months ended
June 30,
 
 
  2017   2018  
 
  US$
  US$
 

USA

    3,620,706     35,917,384  

PRC

    5,042,073     12,969,220  

Others

    450,487     1,391,019  

Total

    9,113,266     50,277,623  

        Information about the Group's non-current assets is presented based on the geographical location of the assets as follows:

 
  As of  
 
  December 31,
2017
  June 30,
2018
 
 
  US$
  US$
 

PRC

    1,757,460     2,002,973  

USA

    764,810     1,196,256  

Total

    2,522,270     3,199,229  

        The following customers accounted for 10% or more of revenue:

 
  For the six months ended June 30,  
 
  2017   2018  
 
  USD
  %
  USD
  %
 

Company A

    *     *     23,634,570     47.01 %

Company B

    *     *     7,072,735     14.07 %

Company D

    2,700,735     29.64 %   *     *  

*
Customers with less than 10% in revenue in the respective period.

15. Mainland China Contribution Plan

        Full time employees of the Group in the PRC participate in a government-mandated defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. The PRC labor regulations require the Group to accrue for these benefits based on certain percentages of the employees' salaries. The total contributions for such employee benefits were US$1,461,094 and US$2,085,414 for the six months ended June 30, 2017 and 2018, respectively.

16. Subsequent Events

        The Company has evaluated subsequent events through July 23, 2018, the date these unaudited condensed consolidated financial statements were issued, and determined that there were no subsequent events or transactions that require recognition or disclosures in the financial statements.

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GRAPHIC


Table of Contents

 

LOGO


Table of Contents


PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 6.    INDEMNIFICATION OF DIRECTORS AND OFFICERS.

        Cayman Islands law does not limit the extent to which a company's 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.

        The seventh amended and restated articles of association that we expect to adopt which shall become effective upon the completion of this offering provide for indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such only if they acted honestly and in good faith with a view to the best interests of our company and, in the case of criminal proceedings, only if they had no reasonable cause to believe that their conduct was unlawful.

        Pursuant to the indemnification agreements the form of which is filed as Exhibit 10.3 to this registration statement, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director or officer.

        The underwriting agreement, the form of which will be filed as Exhibit 1.1 to this registration statement, will also provide for indemnification by the underwriters of us and our officers and directors for certain liabilities, including liabilities arising under the Securities Act, but only to the extent that such liabilities are caused by information relating to the underwriters furnished to us in writing expressly for use in this registration statement and certain other disclosure documents.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Item 7.    RECENT SALES OF UNREGISTERED SECURITIES.

        During the past three years, we have issued the following securities. We believe that each of the following issuances was exempt from registration under the Securities Act pursuant to Section 4(2) of the Securities Act regarding transactions not involving a public offering or in reliance on Regulation S under the Securities Act regarding sales by an issuer in offshore transactions. No underwriters were involved in these issuances of securities.

Purchaser
  Date of Sale
or Issuance
  Number of
Securities
  Consideration

Chance Talent Management Limited

    July 14, 2016     97,164,504   US$20.0 million

New Alliance CC Limited

    July 14, 2016     48,582,252   US$10.0 million

Qiming Venture Partners II, L.P. 

    July 14, 2016     8,816,163   US$1.8 million

Qiming Venture Partners II-C, L.P. 

    July 14, 2016     771,991   US$158,904

Qiming Managing Directors Fund II, L.P. 

    July 14, 2016     128,296   US$26,408

SIG China Investments Master Fund III, LLLP

    July 14, 2016     9,716,450   US$2.0 million

Sequoia Capital China GF Holdco III-A, Ltd. 

    July 14, 2016     9,716,450   US$2.0 million

Tranquility Communications Limited

    August 12, 2016     48,582,252   US$10.0 million

HG Qiandao Limited

    January 10, 2017     89,688,956   US$20.0 million

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Item 8.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)
Exhibits

        See Exhibit Index beginning on page II-3 of this registration statement.

        The agreements included as exhibits to this registration statement contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosure that was made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of "materiality" that are different from "materiality" under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

        We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosure of material information regarding material contractual provisions is required to make the statements in this registration statement not misleading.

(b)
Financial Statement Schedules

        Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or the Notes thereto.

Item 9.    UNDERTAKINGS.

        The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 6, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

        The undersigned registrant hereby undertakes that:

    (1)
    For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

    (2)
    For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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CooTek (Cayman) Inc.

Exhibit Index

Exhibit
Number
  Description of Document
  1.1 * Form of Underwriting Agreement
        
  3.1   Sixth Amended and Restated Memorandum and Articles of Association of the Registrant, as currently in effect
        
  3.2   Form of Seventh Amended and Restated Memorandum and Articles of Association of the Registrant (effective upon the completion of this offering)
        
  4.1 * Registrant's Specimen American Depositary Receipt (included in Exhibit 4.3)
        
  4.2 * Registrant's Specimen Certificate for Ordinary Shares
        
  4.3 * Form of Deposit Agreement, among the Registrant, the depositary and holder of the American Depositary Receipts
        
  4.4   Fifth Amended and Restated Shareholders Agreement between the Registrant and other parties thereto dated January 10, 2017
        
  5.1   Opinion of Maples and Calder (Hong Kong) LLP regarding the validity of the ordinary shares being registered and certain Cayman Islands tax matters
        
  8.1   Opinion of Maples and Calder (Hong Kong) LLP regarding certain Cayman Islands tax matters (included in Exhibit 5.1)
        
  8.2   Opinion of Junhe LLP regarding certain PRC tax matters (included in Exhibit 99.2)
        
  10.1   2012 Stock Incentive Plan
        
  10.2   2018 Share Incentive Plan
        
  10.3   Form of Indemnification Agreement between the Registrant and its directors and executive officers
        
  10.4   Form of Employment Agreement between the Registrant and its executive officers
        
  10.5   Exclusive Business Cooperation Agreement between Shanghai Chule (CooTek) Information Technology Co., Ltd. and Shanghai Chubao (CooTek) Information Technology Co., Ltd dated August 6, 2012
        
  10.6   Amended and Restated Exclusive Purchase Option Agreements among Shanghai Chule (CooTek) Information Technology Co., Ltd. and each shareholder of Chubao (CooTek) Information Technology Co., Ltd dated October 30, 2012
        
  10.7   Amended and Restated Equity Pledge Agreements among Shanghai Chule (CooTek) Information Technology Co., Ltd. and each shareholder of Chubao (CooTek) Information Technology Co.,  Ltd dated October 30, 2012
        
  10.8   Powers of Attorney granted by each shareholder of Chubao (CooTek) Information Technology Co., Ltd dated October 30, 2012
        
  10.9   Loan Agreements between Shanghai Chule (CooTek) Information Technology Co., Ltd. and each shareholder of Shanghai Chubao (CooTek) Information Technology Co., Ltd dated August 6, 2012
 
   

II-3


Table of Contents

Exhibit
Number
  Description of Document
  10.10   The form spouse consent letter signed by each spouse of the shareholders of Shanghai Chubao (CooTek) Information Technology Co., Ltd.
        
  10.11   Series D-1 Preferred Share Purchase Agreement between the Registrant and other parties dated January 10, 2017
        
  10.12   The form of audience network terms between Facebook, Inc. and Facebook Ireland Limited and us
        
  10.13   The form of Google DoubleClick Platform Services Terms and Conditions between Google Inc. and us
        
  10.14   The form of DFP Small Business Online Standard Terms & Conditions between Google Inc. and us
        
  10.15   The form of Google AdSense Online Terms of Service between Google Inc. and us
        
  21.1   Subsidiaries of the Registrant
        
  23.1   Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm
        
  23.2   Consent of Maples and Calder (Hong Kong) LLP (included in Exhibit 5.1)
        
  23.3   Consent of Junhe LLP (included in Exhibit 99.2)
        
  24.1   Powers of Attorney (included on signature page)
        
  99.1   Code of Business Conduct and Ethics of the Registrant
        
  99.2   Opinion of Junhe LLP regarding certain PRC law matters

*
To be filed by amendment.

II-4


Table of Contents

SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Shanghai, China, on August 16, 2018.

  CooTek (Cayman) Inc.

 

By:

 

/s/ KARL KAN ZHANG


      Name:   Karl Kan Zhang

      Title:   Chairman of the Board of Directors and Chief Architect


POWER OF ATTORNEY

        Each person whose signature appears below constitutes and appoints each of Karl Kan Zhang, Michael Jialiang Wang, and Susan Qiaoling Li as attorneys-in-fact with full power of substitution for him or her in any and all capacities to do any and all acts and all things and to execute any and all instruments which said attorney and agent may deem necessary or desirable to enable the registrant to comply with the Securities Act of 1933, as amended (the "Securities Act"), and any rules, regulations and requirements of the Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of ordinary shares of the registrant (the "Shares"), including, without limitation, the power and authority to sign the name of each of the undersigned in the capacities indicated below to the Registration Statement on Form F-1 (the "Registration Statement") to be filed with the Securities and Exchange Commission with respect to such Shares, to any and all amendments or supplements to such Registration Statement, whether such amendments or supplements are filed before or after the effective date of such Registration Statement, to any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act, and to any and all instruments or documents filed as part of or in connection with such Registration Statement or any and all amendments thereto, whether such amendments are filed before or after the effective date of such Registration Statement; and each of the undersigned hereby ratifies and confirms all that such attorney and agent shall do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature
 
Title
 
Date

 

 

 

 

 
/s/ KARL KAN ZHANG

Karl Kan Zhang
  Chairman of the Board of Directors and Chief Architect (Principal Executive Officer)   August 16, 2018

/s/ SUSAN QIAOLING LI

Susan Qiaoling Li

 

Director and President

 

August 16, 2018

II-5


Table of Contents

Signature
 
Title
 
Date

 

 

 

 

 
/s/ MICHAEL JIALIANG WANG

Michael Jialiang Wang
  Director and Chief Executive Officer   August 16, 2018

/s/ JIM JIAN WANG

Jim Jian Wang

 

Director and Chief Technology Officer

 

August 16, 2018

/s/ DUANE ZIPING KUANG

Duane Ziping Kuang

 

Director

 

August 16, 2018

/s/ GLEN QIAN SUN

Glen Qian Sun

 

Director

 

August 16, 2018

/s/ JEAN LIQIN ZHANG

Jean Liqin Zhang

 

Chief Financial Officer (Principal Financial and Accounting Officer)

 

August 16, 2018

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Table of Contents


SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES

        Pursuant to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of CooTek (Cayman) Inc. has signed this registration statement or amendment thereto in Newark, Delaware on August 16, 2018.

    Authorized U.S. Representative

 

 

By:

 

/s/ DONALD J. PUGLISI

        Name:   Donald J. Puglisi
        Title:   Managing Director

II-7




Exhibit 3.1

 

Execution Copy

 

SIXTH AMENDED AND RESTATED

 

MEMORANDUM AND ARTICLES OF ASSOCIATION

 

OF

 

COOTEK (CAYMAN) INC.

 

Adopted by Special Resolutions of Members of the Company passed on

 

January 10, 2017

 

INCORPORATED IN THE CAYMAN ISLANDS

 

 

Filed: 11-Jan-2017 16:13 EST

 

Auth Code: D01274105685

 

www.verify.gov.ky File#: 266806

 



 

THE COMPANIES LAW (AS AMENDED)

 

OF THE CAYMAN ISLANDS

 

COMPANY LIMITED BY SHARES

 

SIXTH AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION

 

OF

 

COOTEK (CAYMAN) INC.

 

(adopted by the Special Resolution passed on January 10, 2017)

 

1.                                       The name of the Company is CooTek (Cayman) Inc..

 

2.                                       The Registered Office of the Company shall be at the offices of Corporate Filing Services Ltd., P. O. Box 613, 4 th  Floor Harbour Centre, George Town, Grand Cayman KY1-1107, Cayman Islands or at such other place in the Cayman Islands as the Directors may from time to time decide.

 

3.                                       The objects for which the Company is established are unrestricted and shall include the following:

 

(a)                                  To act and to perform all the functions of a holding company in all of its branches and to co-ordinate the policy and administration of any subsidiary company or companies wherever incorporated or carrying on business or of any group of companies of which the Company or any subsidiary company is a member or which are in any manner controlled directly or indirectly by the Company.

 

(b)                                  (i)                                      To carry on the business of an investment company and to act as promoters and entrepreneurs and to carry on business as financiers, capitalists, concessionaires, merchants, brokers, traders, dealers, agents, importers and exporters and to undertake and carry on and execute all kinds of investment, financial, commercial, mercantile, trading and other operations.

 

(ii)                                   To carry on whether as principals, agents or otherwise howsoever the business of realtors, developers, consultants, estate agents or managers, builders, contractors, engineers, manufacturers, dealers in or vendors of all types of property including services.

 

(c)                                   To exercise and enforce all rights and powers conferred by or incidental to the ownership of any shares, stock, obligations or other securities including all such powers of veto or control as may be conferred by virtue of the holding by the Company of some special proportion of the issued or nominal amount thereof, to provide managerial and other executive, supervisory and consultant services for or in relation to any company in which the Company is interested upon such terms as may be thought fit.

 

(d)                                  To purchase or otherwise acquire, sell, exchange, surrender, lease, mortgage, charge, convert, turn to account, dispose of and deal with real and personal property and rights of all kinds and, in particular, mortgages, debentures, produce,

 

1



 

concessions, options, contracts, patents, annuities, licenses, stocks, shares, bonds, policies, book debts, business concerns, undertakings, claims, privileges and causes in action of all kinds.

 

(e)                                   To subscribe for, conditionally or unconditionally, to underwrite, issue on commission or otherwise, take, hold, deal in and convert stocks, shares and securities of all kinds and to enter into partnership or into any arrangement for sharing profits, reciprocal concessions or cooperation with any person or company and to promote and aid in promoting, to constitute, form or organize any company, syndicate or partnership of any kind, for the purpose of acquiring and undertaking any property and liabilities of the Company or of advancing, directly or indirectly, the objects of the Company or for any other purpose which the Company may think expedient.

 

(f)                                    To stand surety for or to guarantee, support or secure the performance of all or any of the obligations of any person, firm or company whether or not related or affiliated to the Company in any manner and whether by personal covenant or by mortgage, charge or lien upon the whole or any part of the undertaking, property and assets of the Company, both present and future, including its uncalled capital or by any such method and whether or not the Company shall receive valuable consideration therefor.

 

(g)                                   To engage in or carry on any other lawful trade, business or enterprise which may at any time appear to the Directors of the Company capable of being conveniently carried on in conjunction with any of the aforementioned businesses or activities or which may appear to the Directors of the Company likely to be profitable to the Company.

 

In the interpretation of this Sixth Amended and Restated Memorandum of Association in general and of this Clause 3 in particular, no object, business or power specified or mentioned shall be limited or restricted by reference to or inference from any other object, business or power, or the name of the Company, or by the juxtaposition of two or more objects, businesses or powers and that, in the event of any ambiguity in this clause or elsewhere in this Sixth Amended and Restated Memorandum of Association, the same shall be resolved by such interpretation and construction as will widen and enlarge and not restrict the objects, businesses and powers of and exercisable by the Company.

 

4.                                       Except as prohibited or limited by the Companies Law (as amended), as amended, supplemented, reissued or restated from time to time, the Company shall have full power and authority to carry out any object and shall have and be capable of from time to time and at all times exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate in doing in any part of the world whether as principal, agent, contractor or otherwise whatever may be considered by it necessary for the attainment of its objects and whatever else may be considered by it as incidental or conducive thereto or consequential thereon, including the power to make any alterations or amendments to this Sixth Amended and Restated Memorandum of Association and the Sixth Amended and Restated Articles of Association of the Company considered necessary or convenient in the manner set out in the Sixth Amended and Restated Articles of Association of the Company, and the power to do any of the following acts or things, viz:

 

2



 

to pay all expenses of and incidental to the promotion, formation and incorporation of the Company; to register the Company to do business in any other jurisdiction; to sell, lease or dispose of any property of the Company; to draw, make, accept, endorse, discount, execute and issue promissory notes, debentures, bills of exchange, bills of lading, warrants, options and other negotiable or transferable instruments; to lend money or other assets and to act as guarantors; to borrow or raise money on the security of the undertaking or on all or any of the assets of the Company including uncalled capital or without security; to invest monies of the Company in such manner as the Directors determine; to promote other companies; to sell the undertaking of the Company for cash or any other consideration; to distribute assets in specie to Members of the Company; to make charitable or benevolent donations; to pay pensions or gratuities or provide other benefits in cash or kind to Directors, officers, employees, past or present, and their families; to purchase Directors and officers liability insurance and to carry on any trade or business and generally to do all acts and things which, in the opinion of the Company or the Directors, may be conveniently, profitably or usefully acquired and dealt with, carried on, executed or done by the Company in connection with the business aforesaid PROVIDED THAT the Company shall only carry on the businesses for which a license is required under the laws of the Cayman Islands when so licensed under the terms of such laws.

 

5.                                       The liability of each Member is limited to the amount from time to time unpaid on such Member’s shares.

 

6.                                       The share capital of the Company is US$50,000.00 divided into 5,000,000,000 shares of a nominal or par value of US$0.00001 each, comprising of: (a) 2,920,061,989 Ordinary Shares of a nominal or par value of US$0.00001 each, (b) 442,174,065 Series A preferred shares of a nominal or par value of US$0.00001 each, (c) 553,299,062 Series B preferred shares of a nominal or par value of US$0.00001 each, (d) 119,688,525 Series B-1 preferred shares of a nominal or par value of US$0.00001 each, (e) 651,629,045 Series C preferred shares of a nominal or par value of US$0.00001 each, (f) 223,478,358 Series D preferred shares of a nominal or par value of US$0.00001 each, and (g) 89,668,956 Series D-1 preferred shares of a nominal or par value of US$0.00001 each, each with power for the Company insofar as is permitted by law, to redeem or purchase any of its shares and to increase or reduce the said capital subject to the provisions of the Companies Law (as amended) and the Sixth Amended and Restated Articles of Association and to issue any part of its capital, whether original, redeemed or increased with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions and so that unless the conditions of issue shall otherwise expressly declare every issue of shares whether declared to be preference or otherwise shall be subject to the powers hereinbefore contained.

 

7.                                       If the Company is registered as exempted, its operations will be carried on subject to the provisions of Article 174 of the Companies Law (as amended) and, subject to the provisions of the Companies Law (as amended) and the Sixth Amended and Restated Articles of Association, it shall have the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands.

 

3



 

THE COMPANIES LAW (AS AMENDED)

 

OF THE CAYMAN ISLANDS

 

COMPANY LIMITED BY SHARES

 

SIXTH AMENDED AND RESTATED ARTICLES OF ASSOCIATION

 

OF

 

COOTEK (CAYMAN) INC.

 

(adopted by the Special Resolution passed on January 10, 2017)

 

Title

 

Article No.

General Matters

 

1 — 3

Certificates of Shares

 

4 — 5

Issue of Shares

 

6 — 7

Transfer of Shares

 

8 — 10

Restrictions on Transfers of Ordinary Shares

 

10A-10B

Redeemable Shares

 

11

Variation of Rights of Shares

 

12 — 13

Commission on Sale of Shares

 

14

Conversion of Preferred Shares

 

15

Adjustments to Applicable Conversion Price

 

16

Notices of Record Date

 

17

Redemption

 

18

Voting Rights; Protective Provisions

 

19

Non-Recognition of Trusts

 

20

Lien on Shares

 

21 — 24

Call on Shares

 

25 — 29

Forfeiture of Shares

 

30 — 33

Registration of Empowering Instruments

 

34

Transmission of Shares

 

35 — 37

Amendment of Memorandum of Association, Alteration of Capital & Change of Location of Registered Office

 

38

Closing Register of Members or Fixing Record Date

 

39 — 41

General Meeting

 

42 — 43

Notice of General Meetings

 

44 — 45

Proceedings at General Meetings

 

46 — 54

Votes of Members

 

55 — 60

Proxies

 

61 — 67

Directors

 

68 — 76

Alternate Directors

 

77

Powers and Duties of Directors

 

78 — 82

Management

 

83

Managing Directors

 

84 85

Proceedings of Directors

 

86 95

Vacation of Office of Director

 

96

Appointment and Removal of Directors

 

97 98

Presumption of Assent

 

99

Seal

 

100

 

1



 

Title

 

Article No.

Officers

 

101

Dividends, Distributions and Reserve

 

102 — 109

Capitalization

 

110

Books of Account

 

111 — 113

Audit

 

114 — 120

Notices

 

121 — 125

Winding Up

 

126

Liquidation Preference

 

127

Indemnity

 

128

Financial Year

 

129

Amendments of Articles

 

130

Transfer by Way of Continuation

 

131

No Public Document

 

132

 

2



 

GENERAL MATTERS

 

1.                                       In these Articles, Table A in the First Schedule to the Statute does not apply and, unless there is something in the subject or context inconsistent therewith,

 

Actual Issue Price

 

means,

 

 

 

 

 

(i)             with respect to each Series D-1 Preferred Share, US$0.2230 (the direct and indirect total investment to the Group Companies by the Series D-1 Investors/the total number of the Series D-1 Preferred Shares US$20,000,000/89,668,956), subject to adjustments made for share splits, share subdivision, share combination and the like;

 

 

 

 

 

(ii)         with respect to each Series D Preferred Share, US$0.2058 (the direct and indirect total investment to the Group Companies by the Series D Investors/the total number of the Series D Preferred Shares US$46,000,000/223,478,358), subject to adjustments made for share splits, share subdivision, share combination and the like;

 

 

 

 

 

(iii)      with respect to each Series C Preferred Share, US$0.1063 (the direct and indirect total investment to the Group Companies by the Series C Investors/the total number of the Series C Preferred Shares US$69,300,000/651,629,045), subject to adjustments made for share splits, share subdivision, share combination and the like;

 

 

 

 

 

(iv)      with respect to each Series B-1 Preferred Share, US$ 0.0386, subject to adjustments made for share splits, share subdivision, share combination and the like;

 

 

 

 

 

(v)         with respect to each Series B Preferred Share, US$0.0193 (the direct and indirect total investment to the Group Companies by the Series B Investors/the total number of the Series B Preferred Shares, i.e., US$10,671,853/553,299,062), subject to adjustments made for share splits, share subdivision, share combination and the like;

 

 

 

 

 

(vi)      with respect to each Series A Preferred Share, US$0.0093 (the direct and indirect total investment to the Group Companies by the Series A Investors/the total number of the Series A Preferred Shares, i.e., US$4,200,000/

 

3



 

 

 

451,612,903), subject to adjustments made for share splits, share subdivision, share combination and the like.

 

 

 

Affiliate

 

means, with respect to a Person, any other Person (in the case of Orange Capital Management, such “other Person” shall also include any Orange Publicis Venture Fund managed by its management company Iris Capital) that, directly or indirectly, Controls, is Controlled by or is under common Control with such Person.

 

 

 

Applicable Conversion Price

 

has the meaning ascribed to it in Article 15.

 

 

 

Articles

 

means these Sixth Amended and Restated Articles of Association as from time to time altered by a Special Resolution and in accordance with Article 19 and the Statute.

 

 

 

Auditors

 

means the auditor retained by the Company that is one of an internationally reputable accounting firms reasonably agreed by the Founders, the Series A Preferred Shareholders, the Series B-1 Preferred Shareholders, the Series B Preferred Shareholders, the Series C Preferred Shareholders, the Series D Preferred Shareholders and the Series D-1 Preferred Shareholders.

 

 

 

Big 4

 

PricewaterhouseCoopers, Deloitte, Ernst & Young and KPMG.

 

 

 

Board of Directors or

 

means the board of directors of the Company.

Board

 

 

 

 

 

Business Day

 

means any day of the year on which national banking institutions in Hong Kong, the PRC and the United States of America are open to the public for conducting business and are not required or authorized to close.

 

 

 

CCBI

 

CHANCE TALENT MANAGEMENT LIMITED, a limited liability company duly incorporated and validly existing under the Laws of the British Virgin Islands.

 

 

 

Company

 

means CooTek (Cayman) Inc..

 

 

 

Control

 

of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, which power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to

 

4



 

 

 

direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person; the terms “Controlling” and “Controlled” have meanings correlative to the foregoing.

 

 

 

Conversion Price

 

has the meaning ascribed to it in Article 15.

 

 

 

Debenture

 

means debenture stock, mortgages, bonds and any other such securities of the Company whether constituting a charge on the assets of the Company or not.

 

 

 

Deemed Liquidation Event

 

has the meaning ascribed to it in Article 127(f).

 

 

 

Deferred Payment of Purchase Price

 

means that upon the Initial Closing as defined in the Series D-1 Preferred Shares Purchase Agreement, the Series D-1 Preferred Shares issued to the Series D-1 Investor are unpaid and Series D-1 Investor shall pay the Purchase Price (as defined in the Series D Preferred Shares Purchase Agreement) after the Initial Closing but in no event after the later date of (i) the commencement of IPO application as determined by the Board of the Company or (ii) one year after the execution of the Domestic Loan Agreement.

 

 

 

Director(s)

 

means the member(s) of the Board of Directors of the Company for the time being.

 

 

 

Domestic Loan

 

upon the Initial Closing, the Investor wishes to designate one of its Affiliates to provide a loan to WFOE, and WFOE wishes to accept and borrow such loan from the Affiliates designated by the Investor, in a principal equal to an amount of US$20,000,000 or its equivalent RMB pursuant to the terms and subject to the conditions of the Domestic Loan Agreement entered into by and among the Investor’s Affiliate, the WFOE and other parties thereto.

 

 

 

Domestic Loan Agreement

 

means the agreement entered into by and among the Investor’s Affiliate, the WFOE and other parties thereto regarding the provision of the Domestic Loan.

 

 

 

Drag-Along Notice

 

has the meaning ascribed to it in Article 10B(d).

 

 

 

Drag-Along Sale

 

has the meaning ascribed to it in Article 10B(a).

 

 

 

Drag-Along Sale Date

 

has the meaning ascribed to it in Article 10B(d).

 

 

 

Drag-Along Shareholder

 

has the meaning ascribed to it in Article 10B(a).

 

5



 

Dragged Shareholders

 

as the meaning ascribed to it in Article 10B(a).

 

 

 

Events of Default

 

means any of the following events occurs: (i) there occurs any material breach of the Transaction Documents by any of the Group, Founders or Founder Hold Cos; (ii) there occurs any event that causes or would reasonably be expected to have a Material Adverse Effect (as defined in the Series D-1 Preferred Shares Purchase Agreement) on the Group; (iii) any of the Key Employees (as defined in the Series D-1 Preferred Shares Purchase Agreement) ceased to devote all or substantially all his business time and attention to the business of the Group (for avoidance of doubts, the time devotion less than 80% of his business time shall be deemed as a breach of this clause); or (iv) any of the Group Company is subject to any official criminal charge, investigation or conviction.

 

 

 

Founders

 

means Zhang Kan, Wang Jialiang, Li Qiaoling and Wang Jian, each of whom is a citizen of the PRC.

 

 

 

Founder Hold Co

 

means each of following companies incorporated under the law of the British Virgin Islands: Kan’s Global CoolStuff Investment Inc., LQL Global Innovation Investment Inc., Jian’s Global CoolStuff Investment Inc., and Jialiang’s Global Creativity Investment Inc. (collectively, the “ Founder Hold Cos ).

 

 

 

Governmental Authority

 

means any nation or government or any province or state or any other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any governmental authority, agency, department, board, commission or instrumentality of the PRC or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.

 

 

 

Group Company

 

means the Company, the Founder Hold Cos, the HK Subsidiary, the Offshore Subsidiaries, the PRC Subsidiaries and any of their Subsidiaries, Affiliates, and branches (if any), and each Person (other than a natural person) that is, directly or indirectly, controlled by the Company, the HK Subsidiary or the PRC Subsidiaries.

 

 

 

Haiyan’s Holdco

 

Haiyan’s Global Creativity Investment Inc., a company duly incorporated and validly existing under the Laws of the British Virgin Islands.

 

6


 

HK Subsidiary

 

means CooTek HongKong Limited, a company incorporated under the law of Hong Kong Special Administration Region, PRC.

 

 

 

Hong Kong

 

means the Hong Kong Special Administrative Region of the People’s Republic of China.

 

 

 

Hong Kong Stock Exchange

 

means The Stock Exchange of Hong Kong Limited.

 

 

 

Investor Warrants

 

means the warrants issued by the Company to the applicable Series B Investors or their respective permitted transferee on October 31, 2012.

 

 

 

IPO

 

means the first firmly underwritten registered public offering (i) by the Company of its Ordinary Shares or any member of Group Companies pursuant to a Registration Statement that is filed with and declared effective by either the Commission under the Securities Act in United States, or (ii) listing of all the equity interest or shares of any member of Group Companies on the Hong Kong Stock Exchange or United States stock exchange or PRC stock exchange approved by the Board of the Company.

 

 

 

Internal Rate of Return

 

means in respect of any portion of the Shares held by a holder of Preferred Shares, the annual rate based on a 365-day period used to, at any relevant reference point in time, discount the cash flows in respect of such portion of the Preferred Shares (such cash flow to include the subscription consideration and cash received by the holder of Preferred Shares as a result of any redemption of such Shares) to the issue date such that the present value of such aggregate cash flows equals to zero. In particular, the Internal Rate of Return will be calculated with reference to the period from the issue date to the later of: (i) the relevant Redemption Date and (ii) the date on which all such cash flows in respect of the Shares are made in full; and the calculation of the Internal Rate of Return shall be net of any transaction costs and expenses and any applicable stamp duties and taxes.

 

 

 

Law(s)

 

means any constitutional provision, statute or other law, rule, regulation, official policy or interpretation of any Governmental Authority and any injunction, judgment, order, ruling, assessment or writ issued by any Governmental Authority.

 

 

 

Liquidation Event

 

has the meaning ascribed to it in Article 127.

 

 

 

Liquidation Preference

 

has the meaning ascribed to it in Article 127(d).

 

 

 

Majority Preferred Holders

 

means the holders of a majority of the voting power

 

7



 

 

 

of the issued and outstanding Series A Preferred Shares, the holders of a majority of the voting power of the issued and outstanding Series B Preferred Shares, the holders of a majority of the voting power of the issued and outstanding Series B-1 Preferred Shares, the holders of a majority of the voting power of the issued and outstanding Series C Preferred Shares, the holders of a majority of the voting power of the issued and outstanding Series D and Series D-1 Preferred Shares (each voting as a single class).

 

 

 

Management Directors

 

has the meaning ascribed to it in Article 68(a).

 

 

 

Member

 

means a duly registered holder from time to time of the shares in the capital of the Company.

 

 

 

Memorandum

 

means the Sixth Amended and Restated Memorandum of Association of the Company, as further amended and restated by a Special Resolution from time to time in accordance with Article 19 and the Statute.

 

 

 

Month

 

means calendar month.

 

 

 

New Alliance

 

New Alliance CC Limited, a limited liability company duly incorporated and validly existing under the Laws of the British Virgin Islands.

 

 

 

Observer

 

has the meaning ascribed to it in Article 68(b).

 

 

 

Offshore Subsidiaries

 

means TouchPal HK Co., Limited and TouchPal, Inc., collectively.

 

 

 

Ordinary Resolution

 

means a Members resolution expressed to be an ordinary resolution and passed either (i) as a written resolution signed by Members holding not less than ninety percent (90%) of all the issued and outstanding shares of the Company, or (ii) at a meeting by Members holding not less than fifty percent (50%) of all Shares then outstanding, calculated on a fully converted basis, subject to Article 19 (which Members, being entitled to do so, vote in person or by proxy at a general meeting of which notice specifying the intention to propose the resolution as an ordinary resolution has been duly given).

 

 

 

Ordinary Shareholders

 

means the registered holders of the Ordinary Shares as of the applicable point of time.

 

 

 

Ordinary Shares

 

means the ordinary shares in the capital of the Company, par value of US$0.00001 per share.

 

 

 

Ordinary Equivalents

 

means warrants, options and rights exercisable for Ordinary Shares or securities convertible into or

 

8



 

 

 

exchangeable for Ordinary Shares, including, without limitation, the Preferred Shares.

 

 

 

Person

 

means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, trust, estate or other enterprise or entity.

 

 

 

PRC

 

means the People’s Republic of China, excluding the Hong Kong, the Macau Special Administrative Region and the Islands of Taiwan solely for the purpose of this Memorandum and Articles.

 

 

 

PRC Subsidiaries

 

means Shanghai Chu Le (CooTek) Information Technology Co., Ltd.( 上海触 乐信息科技有限公司 )   (the “ WFOE ”), Shanghai Han Xiang (CooTek) Information Technology Co., Ltd. ( 上海汉翔信息技术有限公司 ) and Shanghai Chu Bao (CooTek) Information Technology Co., Ltd. ( 上海触宝信息技术有限公司 ) collectively.

 

 

 

Preferred Shares

 

mean the Series A Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series C Preferred Shares, Series D Preferred Shares, Series D-1 Preferred Shares and any other voting convertible redeemable participating preferred share issued by the Company.

 

 

 

Qualified IPO

 

means an IPO approved by the Company and satisfactory to the Majority Preferred Holders resulting in (i) market capitalization of at least US$1,000,000,000, and (ii) gross proceeds to the Company of at least US$100,000,000.

 

 

 

Redemption Closing

 

has the meaning ascribed to it in Article 18(e).

 

 

 

Redemption Price

 

means the redemption price as stipulated in Article 18(e) .

 

 

 

Redemption Triggered Debt

 

has the meaning ascribed to it in Article 18(f).

 

 

 

Registered office

 

means the registered office for the time being of the Company.

 

 

 

Seal

 

means the common seal of the Company and includes every duplicate seal.

 

 

 

Secretary

 

includes an Assistant Secretary and any person appointed to perform the duties of Secretary of the Company.

 

 

 

Securities Act

 

means the United States Securities Act of 1933, as amended.

 

9



 

Series A Director

 

has the meaning ascribed to it in Article 68(a).

 

 

 

Series A Investor(s)

 

Qiming Venture Partners II, L.P., an exempted limited partnership duly incorporated and validly existing under the Laws of Cayman Islands ( “ Qiming-1 ”); Qiming Venture Partners II-C, L.P., an exempted limited partnership duly incorporated and validly existing under the Laws of Cayman Islands (“ Qiming-2 ); Qiming Managing Directors Fund II, L.P., an exempted limited partnership duly incorporated and validly existing under the Laws of Cayman Islands (“ Qiming-3 ”, together with Qiming-1, Qiming-2, and their respective transferee(s), “ Qiming ”); Orange Capital Management, a limited liability company duly incorporated and validly existing under the law of France (“ Orange ”); Qualcomm International, Inc., a company duly incorporated and validly existing under the laws of California of United States of America (“ Qualcomm ”, together with Qiming and Orange individually a “ Series A Investor ” and collectively the “ Series A Investors ”).

 

 

 

Series A Liquidation Preference

 

has the meaning ascribed to it in Article 127(d).

 

 

 

Series A Original Issue Date

 

means the date of the first sale and issuance of Series A Preferred Shares.

 

 

 

Series A Preferred Shares

 

means the convertible and redeemable series A preferred shares in the capital of the Company with par value of US$0.00001 per share having the rights set out in these Articles.

 

 

 

Series A Preferred Shares Subscription Agreement

 

means the Series A Preferred Shares Subscription Agreement dated August 6, 2012 by and among the Company, the Founders, the Founder Hold Cos, the HK Subsidiary, the PRC Subsidiaries, the Series A Preferred Shareholders and other certain parties concerning the issuance and sale of the Series A Preferred Shares.

 

 

 

Series A Preferred Shareholder(s)

 

means the registered holders of any Series A Preferred Shares as of applicable point of time.

 

 

 

Series A Redemption Closing

 

means the date on which the Series A Preferred Shares shall be redeemed as stipulated in Article 18(e).

 

 

 

Series A Redemption Notice

 

has the meaning ascribed to it in Article 18(e).

 

 

 

Series A Redemption Price

 

means the redemption price as stipulated in Article 18(e).

 

10



 

Series B Director

 

has the meaning ascribed to it in Article 68(a).

 

 

 

Series B Investor(s)

 

Qiming, Qualcomm, Sycamore Capital Holdings Limited, a limited liability company duly incorporated and validly existing under the Laws of the British Virgin Islands ( Sycamore Capital ), SIG China Investments Master Fund III, LLLP, a limited liability limited partnership duly incorporated and validly existing under the Laws of the State of Delaware of the United States of America (“ SIG ”), and Alibaba Investment Limited, a company duly incorporated and validly existing under the Laws of the British Virgin Islands ( AIL , together with Qiming, Qualcomm, Sycamore Capital, SIG and their respective transferee(s), individually a “ Series B Investor and collectively the “ Series B Investors ).

 

 

 

Series B-1 Investor (s) 

 

Qiming, Qualcomm and SIG.

 

 

 

Series B Liquidation Preference

 

has the meaning ascribed to it in Article 127(c).

 

 

 

Series B Original Issue Date

 

means the date of the first sale and issuance of Series B Preferred Shares.

 

 

 

Series B Preferred Shares

 

means the convertible and redeemable series B preferred shares in the capital of the Company with par value of US$0.00001 per share having the rights set out in these Articles.

 

 

 

Series B-1 Preferred Shares

 

means the convertible and redeemable series B-1 preferred shares in the capital of the Company with par value of US$0.00001 per share having the rights set out in these Articles.

 

 

 

Series B Preferred Shares Purchase Agreement

 

means the Shares Purchase Agreement dated May 3, 2013 by and among the Company, the Founders, the Founder Hold Cos, the HK Subsidiary, the PRC Subsidiaries, AIL and other certain parties thereto concerning the issuance and sale of the Series B Preferred Shares to AIL.

 

 

 

Series B Preferred Shares Subscription Agreement

 

means the Series B Preferred Shares Subscription Agreement dated October 31, 2012 by and among the Company, the Founders, the Founder Hold Cos, the HK Subsidiary, the PRC Subsidiaries and other certain parties concerning the issuance and sale of the Series B Preferred Shares to the Series B Investors (other than AIL).

 

 

 

Series B Preferred Shareholder(s)

 

means the registered holders of any Series B Preferred Shares as of applicable point of time.

 

11



 

Series B-1 Preferred Shareholder(s)

 

means the registered holders of any Series B-1 Preferred Shares as of applicable point of time.

 

 

 

Series B Redemption Closing

 

means the date on which the Series B Preferred Shares shall be redeemed as stipulated in Article 18(d)(i).

 

 

 

Series B-1 Redemption Closing

 

means the date on which the Series B-1 Preferred Shares shall be redeemed as stipulated in Article 18(c)(i).

 

 

 

Series B Redemption Notice

 

has the meaning ascribed to it in Article 18(d)(i).

 

 

 

Series B-1 Redemption Notice

 

has the meaning ascribed to it in Article 18(c)(i).

 

 

 

Series B Redemption Price

 

means the redemption price as stipulated in Article 18(d)(i).

 

 

 

Series B-1 Redemption Price

 

means the redemption price as stipulated in Article 18(c)(i).

 

 

 

Series C Director

 

has the meaning ascribed to it in Article 68(a).

 

 

 

Series C Investor(s)

 

Sequoia Capital China GF Holdco III-A, Ltd., a limited liability company duly incorporated and validly existing under the Laws of the Cayman Islands, SIG, Qiming, and their transferee(s), individually a “ Series C Investor ” and collectively the “ Series C Investors ”).

 

 

 

Series C Liquidation Preference

 

has the meaning ascribed to it in Article 127(b).

 

 

 

Series C Original Issue Date

 

means the date of the first sale and issuance of Series C Preferred Shares.

 

 

 

Series C Preferred Shares

 

means the convertible and redeemable series C preferred shares in the capital of the Company with par value of US$0.00001 per share having the rights set out in these Articles.

 

 

 

Series C Preferred Shares Purchase Agreement

 

means the Shares Purchase Agreement dated July 17, 2014 by and among the Company, the Founders, the Founder Hold Cos, the HK Subsidiary, the PRC Subsidiaries and other certain parties concerning the issuance and sale of the Series C Preferred Shares to the Series C Investors

 

 

 

Series C Preferred Shareholder(s)

 

means the registered holders of any Series C Preferred Shares as of applicable point of time.

 

 

 

Series C Redemption Closing

 

means the date on which the Series C Preferred Shares shall be redeemed as stipulated in Article 18(b)(i).

 

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Series C Redemption Notice

 

has the meaning ascribed to it in Article 18(b)(i).

 

 

 

Series C Redemption Price

 

means the redemption price as stipulated in Article 18(b)(i).

 

 

 

Series D Investor(s)

 

CCBI, New Alliance, Tranquility Communications, Sequoia Capital China GF Holdco III-A, Ltd., SIG, Qiming, and their transferee(s), to the extent each of them is a holder of Series D Preferred Shares, individually a “ Series D Investor and collectively the “ Series D Investors ).

 

 

 

Series D Liquidation Preference

 

has the meaning ascribed to it in Article 127(a).

 

 

 

Series D Original Issue Date

 

means the date of the first sale and issuance of Series D Preferred Shares.

 

 

 

Series D Preferred Shares

 

means the convertible and redeemable series D preferred shares in the capital of the Company with par value of US$0.00001 per share having the rights set out in these Articles.

 

 

 

Series D Preferred Shares Purchase Agreement

 

means the Shares Purchase Agreement dated July 14, 2016 by and among the Company, the Founders, the Founder Hold Cos, the HK Subsidiary, the Offshore Subsidiaries, the PRC Subsidiaries and other certain parties concerning the issuance and sale of the Series D Preferred Shares to the Series D Investors

 

 

 

Series D Preferred Shareholder(s)

 

means the registered holders of any Series D Preferred Shares as of applicable point of time.

 

 

 

Series D Redemption Closing

 

means the date on which the Series D Preferred Shares shall be redeemed as stipulated in Article 18(a)(i).

 

 

 

Series D Redemption Notice

 

has the meaning ascribed to it in Article 18(a)(i).

 

 

 

Series D Redemption Price

 

means the redemption price as stipulated in Article 18(a)(i).

 

 

 

Series D-1 Investor(s)

 

HG Qiandao Limited, and their transferee(s), to the extent each of them is a holder of Series D-1 Preferred Shares, individually a “Series D-1 Investor” and collectively the “Series D-1 Investors”).

 

 

 

Series D-1 Liquidation Preference

 

has the meaning ascribed to it in Article 127(a).

 

 

 

Series D-1 Original Issue Date

 

means the date of the first sale and issuance of Series D-1 Preferred Shares.

 

 

 

Series D-1 Preferred Shares

 

means the convertible and redeemable series D-1

 

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preferred shares in the capital of the Company with par value of US$0.00001 per share having the rights set out in these Articles.

 

 

 

Series D and Series D-1 Preferred Shares

 

means collectively the Series D Preferred Shares and Series D-1 Preferred Shares.

 

 

 

Series D-1 Preferred Shares Purchase Agreement

 

means the Preferred Shares Purchase Agreement dated January 10, 2017 by and among the Company, the Founders, the Founder Hold Cos, the HK Subsidiary, the Offshore Subsidiaries, the PRC Subsidiaries and other certain parties concerning the issuance and sale of the Series D-1 Preferred Shares to the Series D-1 Investor.

 

 

 

Series D-1 Preferred Shareholder(s)

 

means the registered holders of any Series D-1 Preferred Shares as of applicable point of time.

 

 

 

Series D and Series D-1 Preferred Shareholder(s)

 

means the registered holders of any Series D Preferred Shares and Series D-1 Preferred Shares as of applicable point of time.

 

 

 

Series D-1 Redemption Closing

 

means the date on which the Series D-1 Preferred Shares shall be redeemed as stipulated in Article 18(a)(i).

 

 

 

Series D-1 Redemption Notice

 

has the meaning ascribed to it in Article 18(a)(i).

 

 

 

Series D-1 Redemption Price

 

means the redemption price as stipulated in Article 18(a)(i).

 

 

 

Tranquility Communications

 

TRANQUILITY COMMUNICATIONS LIMITED  a company duly incorporated and validly existing under the Laws of Republic of Seychelles.

 

 

 

Shareholders’ Agreement

 

means that certain Fifth Amended and Restated Shareholders’ Agreement by and among the Company, the Founders, the Founder Hold Cos, the HK Subsidiary, the Offshore Subsidiaries, the PRC Subsidiaries, the Series A Preferred Shareholders, the Series B Preferred Shareholders, the Series C Preferred Shareholders, the Series D Preferred Shareholders, the Series D-1 Preferred Shareholders and other certain parties dated January 10, 2017.

 

 

 

Shares

 

mean all Preferred Shares and all Ordinary Shares now owned or subsequently acquired by any Member.

 

 

 

Share Premium Account

 

means the account of the Company which the Company is required by the Statute to maintain, to which all premiums over nominal or par value received by the Company in respect of issues of shares from time to time are credited.

 

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Special Resolution

 

means, subject to Article 19 ,(i) a resolution passed by Members who hold, in the aggregate, at least two-thirds (2/3) of the issued and outstanding Shares and who, being entitled to do so, vote in person or, where proxies are allowed, by proxy, or, in the case of corporations, by their duly authorized representatives, at a general meeting of which notice specifying the intention to propose the resolution as a Special Resolution has been duly given, or (ii) an unanimous resolution in writing, and the effective date of the resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed.

 

 

 

 

 

Statute

 

means the Companies Law (as amended) of the Cayman Islands, as amended, and every statutory modification or re-enactment thereof for the time being in force.

 

 

 

 

 

Subsidiary

 

means, with respect to any specified Person, any Person of which the specified Person, directly or indirectly, owns more than fifty percent (50%) of the issued and outstanding authorized capital, share capital, voting interests or registered capital.

 

 

 

 

 

written and “ in writing

 

include all modes of representing or reproducing words in permanent legible visible form.

 

 

 

 

 

Zhu Haiyan

 

Zhu Haiyan   a citizen of the PRC with her ID card number of 110102197107271149.

 

 

Words importing the singular number include the plural number and vice versa.

 

Words importing the masculine gender include the feminine gender.

 

Words importing persons include corporations.

 

2.             The business of the Company may be commenced as soon after incorporation as the Directors shall see fit, notwithstanding that only part of the shares may have been allotted.

 

3.             The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company, including the expenses of registration.

 

3A.                              Schedule A hereto shall form part of these Articles. If at any time there shall be any conflict between the provision of Schedule A and the provision contained in the remainder of these Articles, then the provisions of Schedule A shall prevail. Defined terms which are defined in Schedule A to these Articles shall bear the meaning ascribed thereto.

 

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CERTIFICATES FOR SHARES

 

4.             Certificates representing shares of the Company shall be in such form as shall be determined by the Directors. Such certificates shall be signed by one or more Directors or other person authorized by the Directors and may be under Seal. All certificates for shares shall be consecutively numbered or otherwise identified and shall specify the shares to which they relate. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered in the register of Members of the Company. All certificates surrendered to the Company for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled. The Directors may authorize certificates to be issued with the seal and authorized signature(s) affixed by some method or system of mechanical process.

 

For the avoidance of doubt, prior to the consummation of the Deferred Payment of Purchase Price, the certificate(s) representing Series D-1 Preferred Shares issued to the Series D-1 Preferred Shareholder(s) should be identified as “Unpaid Shares”. Upon the consummation of the Deferred Payment of Purchase Price, the certificate(s) representing Series D-1 Preferred Shares issued to the Series D-1 Preferred Shareholder(s) should be renewed accordingly.

 

5.             Notwithstanding Article 4 of these Articles, if a share certificate be defaced, lost or destroyed, it may be renewed on payment of a fee of one dollar (US$l.00) or such lesser sum and on such terms (if any) as to evidence and indemnity and the payment of the expenses incurred by the Company in investigating evidence, as the Directors may prescribe.

 

ISSUE OF SHARES

 

6.             Subject to the relevant provisions, if any, in the Memorandum and the Articles (including Schedule A) and to any direction that may be given by the Company in general meeting and without prejudice to any special rights previously conferred on the holders of existing shares, the Directors may allot, issue, grant options over or otherwise dispose of shares of the Company (including fractions of a share) with or without preference, deferred or other special rights or restrictions, whether with regard to dividend, voting, return of capital or otherwise and to such persons, at such times and on such other terms as they think proper. The Company shall not issue shares in bearer form.

 

7.             The Company shall maintain a register of its Members and every person whose name is entered as a Member in the register of Members shall be entitled without payment to receive within two (2) months after allotment or lodgment of transfer (or within such other period as the conditions of issue shall provide) one (1) certificate for all his shares or several certificates each for one or more of his shares upon payment of fifty cents (US$0.50) for every certificate after the first or such less sum as the Directors shall from time to time determine provided that in respect of a share or shares held jointly by several persons the Company shall not be bound to issue more than one certificate and delivery of a certificate for a share to one of the several joint holders shall be sufficient delivery to all such holders.

 

For the avoidance of doubt, prior to the consummation of the Deferred Payment of Purchase Price, the register of Members of the Company should explicitly identify the Series D-1 Preferred Shares issued to Series D-1 Preferred Shareholder(s) as “Unpaid Shares”. Upon the consummation of the Deferred Payment of Purchase Price, the register of Members of the Company should be renewed accordingly.

 

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TRANSFER OF SHARES

 

8.                                       Notwithstanding any provisions to the contrary in these Articles, a Member who holds Shares may not sell, transfer, pledge, hypothecate, encumber or otherwise dispose of its Shares to any Person, whether directly or indirectly, except in compliance with Schedule A hereto. The instrument of transfer of any Share shall be in writing and shall be executed by or on behalf of the transferor and the transferor shall be deemed to remain the holder of a Share until the name of the transferee is entered in the register in respect thereof.

 

9.                                       The Directors shall register any transfer of Shares except such transfer is subject to restrictions set out in these Articles or where holders proposing or effecting the transfers of the Shares are subject to binding written agreements with the Company which restrict the transfer of the Shares held by such holders and such holders have not complied with the terms of such agreements or the restrictions have not been waived in accordance with their terms. If the Directors refuse to register a transfer they shall notify the transferee within five (5) Business Days of such refusal, providing a detailed explanation of the reason therefor. Notwithstanding the foregoing, if a transfer complies with the holder’s transfer obligations and restrictions set forth in agreements with the Company, the Directors shall register such transfer.

 

10.                                The registration of transfers may be suspended at such time and for such periods as the Directors may from time to time determine, provided always that such registration shall not be suspended for more than thirty (30) days in any year.

 

RESTRICTIONS ON TRANSFERS OF SHARES

 

10A.                                                                                                                       Notwithstanding any provisions to the contrary in these Articles, a Member who holds Shares may not sell, transfer, pledge, hypothecate, encumber or otherwise dispose of its Shares to any Person, whether directly or indirectly, except in compliance with Schedule A hereto.

 

10B.                                                                                                                       Drag-Along Rights .

 

(a)                                  Drag-Along Rights. If the holder(s) holding at least 77% of the Series A Preferred Shares, the holder(s) holding two thirds (2/3) of the then issued and outstanding Series B Preferred Shares, the holder(s) holding two thirds (2/3) of the then issued and outstanding Series B-1 Preferred Shares, the holder(s) holding a majority of the then outstanding Series C Preferred Shares , the holder(s) holding two thirds (2/3) of the then issued and outstanding Series D and Series D-1 Preferred Shares (collectively, the Drag-Along Shareholder ), at any time after June 30, 2020 where the Company fails to complete a Qualified IPO or the shareholders of the Company (other than the holders of the Preferred Shares) do not agree to the IPO (either by action or omission), approve a sale or transfer of all or part of the assets or Equity Securities (as defined in Schedule A of these Articles) of the Company to a third party based on a pre-money valuation of the Company equal to or more than US$900,000,000 (each, a Drag-Along Sale ), then, in any such event, upon written notice from the Drag-Along Shareholder requesting them to do so, each of the other shareholders of the Company (the Dragged Shareholders ) shall vote, or give its written consent with respect to, all the Equity Securities held by them in favor of such proposed Drag-Along Sale

 

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and in opposition of any proposal that could reasonably be expected to delay or impair the consummation of any such proposed Drag-Along Sale, provided that the Dragged Shareholders who do not agree on the Drag-Along Sale shall be obligated to purchase, upon the request by any of the Series A Preferred Shareholders, the Series B Preferred Shareholders, the Series B-1 Preferred Shares, the Series C Preferred Shareholders and the Series D and Series D-1 Preferred Shareholders, all of the equity interest held by such Series A Preferred Shareholder, Series B Preferred Shareholder, the Series B-1 Preferred Shareholder, the Series C Preferred Shareholder, the Series D Preferred Shareholder or the Series D-1 Preferred Shareholder at the same price as the aforesaid third party have offered, and if such dissenting Dragged Shareholder(s) cannot purchase the equity interest to be sold by the said Series A Preferred Shareholder or Series B Preferred Shareholder or the Series B-1 Preferred Shareholder or Series C Preferred Shareholder or Series D Preferred Shareholder or Series D-1 Preferred Shareholder immediately, he/ she/it shall be deemed to have agreed to the Drag-Along Sale and shall take all necessary actions to make the director appointed by he/she/it (if applicable) to adopt the board resolution approving the Drag-Along Sale. Notwithstanding any provision to the contrary, the share transfer restrictions in these Articles shall not apply to any transfers made pursuant to this Article 10B.

 

(b)                                  Drag-Along Sale to a Competitor . If the purchaser of a proposed Drag-Along Sale is any Competitor (as defined in the Shareholders’ Agreement), AIL shall be entitled to a right of first refusal, at its sole discretion, to acquire all of such assets or Equity Securities of the Company being sold on equivalent terms and conditions as the proposed sale to the Competitor; provided that AIL shall consummate any such acquisition within three (3) months from the date that AIL receives the Drag-Along Notice (as defined below).

 

(c)                                   Representation and Undertaking .

 

(i)                                           Any such sale or disposition by the Dragged Shareholders shall be on the terms and conditions as the proposed Drag-Along Sale by the Drag-Along Shareholder. Such Dragged Shareholders shall be required to make customary and usual representations and warranties in connection with the Drag-Along Sale, including, without limitation, as to their ownership and authority to sell, free of all liens, claims and encumbrances of any kind, the shares proposed to be transferred or sold by such persons or entities; and any violation or breach of or default under (with or without the giving of notice or the lapse of time or both) any Law or regulation applicable to such Dragged Shareholders or any material contract to which such Dragged Shareholders is a party or by which they are bound and shall, without limitation as to time, indemnify and hold harmless to the full extent permitted by Law, the purchasers against all obligations, cost, damages, expenses, losses, judgments, assessments, or other liabilities including, without limitation, any

 

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special, indirect, consequential or punitive damages, any court costs, costs of preparation, attorney’s fees or expenses, or any accountant’s or expert witness’ fees arising out of, in connection with or related to any breach or alleged breach of any representation or warranty made by, or agreements, understandings or covenants of such Dragged Shareholders as the case may be, under the terms of the agreements relating to such Drag-Along Sale.

 

(ii)                                        Each of the Dragged Shareholders undertakes to obtain all consents, permits, approvals, orders, authorizations or registrations, qualifications, designations, declarations or filings with any Governmental Authority or any third party, which are required to be obtained or made in connection with the Drag-Along Sale, and to pay its pro rata expenses incurred in connection with the Drag-Along Sale.

 

(d)                                  Drag-Along Notice. Prior to making any Drag-Along Sale in which the Drag-Along Shareholder wishes to exercise its rights under this Article 10B, the Drag-Along Shareholder shall provide the Company and the Dragged Shareholders with written notice (the Drag-Along Notice ) not less than thirty (30) days prior to the proposed date of the Drag-Along Sale (the Drag-Along Sale Date ) . The Drag-Along Notice shall set forth: (a) the name and address of the purchasers; (b) the proposed amount and form of consideration to be paid, and the terms and conditions of payment offered by each of the purchasers; (c) the Drag-Along Sale Date; (d) the number of shares held of record by the Drag-Along Shareholder on the date of the Drag-Along Notice which form the subject to be transferred, sold or otherwise disposed of by the Drag-Along Shareholder; and (e) the number of shares of the Dragged Shareholders to be included in the Drag-Along Sale.

 

(e)                                   Transfer Certificate. On the Drag-Along Sale Date, each of Drag-Along Shareholder and the Dragged Shareholders shall each deliver or cause to be delivered an instrument of transfer and a certificate or certificates evidencing its Equity Securities to be included in the Drag-Along Sale, duly endorsed for transfer with signatures guaranteed, to such third party purchasers in the manner and at the address indicated in the Drag-Along Notice.

 

(f)                                    Payment. If the Drag-Along Shareholder or the Dragged Shareholders receive the purchase price for their shares or such purchase price is made available to them as part of a Drag-Along Sale and, in either case they fail to deliver certificates evidencing their shares as described in this Article 10B, they shall for all purposes be deemed no longer to be a shareholder of the Company (with the record books of the Company updated to reflect such status), shall have no voting rights, shall not be entitled to any dividends or other distributions with respect to any shares held by them, shall have no other rights or privileges as a shareholder of the Company. In addition, the Company shall stop any subsequent transfer of any such shares held by such shareholders.

 

19



 

Notwithstanding any other articles herein, if a Drag-Along Sale occurs prior to the consummation of the Deferred Payment of Purchase Price, unless otherwise agreed by the Company and the Series D-1 Investor, the purchase price made available to the Series D-1 Investor, either as the Drag-Along Shareholder or the Dragged Shareholder, for such Drag-Along Sale (the “Drag-Along Payment”) shall be distributed in the following manner: (A) WFOE shall repay the Domestic Loan to the Investor’s Affiliate pursuant to this Agreement and the Domestic Loan Agreement; (B) the amount equal to the Drag-Along Payment minus the Purchase Price (equal to the principal amount of the Domestic Loan) shall be paid to the Series D-1 Investor; and (C) the amount equal to the Purchase Price as part of the Drag-Along Payment shall be paid to the Company or any other party designated by the Company..

 

REDEEMABLE SHARES

 

11.                                (a)                                  Subject to the provisions of the Statute, these Articles, and the Memorandum, shares may be issued on the terms that they are, or at the option of the Company or the holder are, to be redeemed on such terms and in such manner as the Company, before the issue of the shares, may by a Special Resolution determine.

 

(b)                                  Subject to the provisions of the Statute, these Articles, and the Memorandum, the Company may purchase its own shares (including fractions of a share), including any redeemable shares, provided that, except in the case of a purchase in accordance with Article 127, the manner of purchase has first been authorized by the Company in general meeting by Special Resolution and may make payment therefor in any manner authorized by the Statute, including out of its capital.

 

VARIATION OF RIGHTS OF SHARES

 

12.                                Subject to Article 19, if at any time the share capital of the Company is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound up and except where these Articles or the Statute impose any stricter quorum, voting or procedural requirements in regard to the variation of rights attached to a specific class, be varied with the consent in writing of the holders representing at least two-thirds (2/3) 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.

 

The provisions of these Articles relating to general meetings shall apply to every such general meeting of the holders of one class of shares except that the necessary quorum shall be one (1) person holding or representing by proxy at least one third (1/3) of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll.

 

13.                                The rights conferred upon the holders of the shares of any class issued with preference or other rights shall not be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

 

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COMMISSION ON SALE OF SHARES

 

14.                                [Intentionally Omitted]

 

CONVERSION OF PREFERRED SHARES

 

15.                                The holders of the Preferred Shares have the conversion rights described below with respect to the conversion of the Preferred Shares into Ordinary Shares. The number of Ordinary Shares to which a holder shall be entitled upon conversion of any Preferred Share shall be the quotient of the applicable Actual Issue Price divided by the then-effective Conversion Price. The Conversion Price shall initially equal the applicable Actual Issue Price, and each shall be adjusted from time to time as provided in Article 16 below, no less than par value (the Applicable Conversion Price and each a Conversion Price ) . For the avoidance of doubt, the initial conversion ratio for Preferred Shares to Ordinary Shares shall be 1:1, unless the Applicable Conversion Price is adjusted from time to time pursuant to the Article 16 below.

 

(a)                                  Optional Conversion. Subject to and in compliance with the provisions of this Article 15(a)  and subject to complying with the requirements of the Statute, any Preferred Share may, at the option of the holder thereof, be converted at any time into fully-paid and non-assessable Ordinary Shares based on the then-effective Applicable Conversion Price.

 

(b)                                  Automatic Conversion. Without any action being required by the holder of such share and whether or not the certificates representing such share are surrendered to the Company or its transfer agent, each Series A Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series D-1 Preferred Shares, as the case may be, shall automatically be converted, based on the then-effective Applicable Conversion Price into Ordinary Shares upon the earlier of (i) the closing of a Qualified IPO (with respect to all Preferred Shares), (ii) the vote or written consent of the holders of more than two thirds (2/3) of the then issued and outstanding Series A Preferred Shares or Series B Preferred Shares or Series B-1 Preferred Shares (with respect to Series A Preferred Shares or Series B Preferred Shares or Series B-1 Preferred Shares only), (iii) the vote or written consent of the holders of a majority of the then issued and outstanding Series C Preferred Shares (with respect to Series C Preferred Shares only), or (iv) the vote or written consent of the holders of more than two thirds (2/3) of the then issued and outstanding Series D and Series D-1 Preferred Shares (with respect to Series D Preferred Shares only) as the case may be.

 

(c)                                   Mechanics of Conversion. No fractional Ordinary Share shall be issued upon conversion of the Preferred Shares. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall pay cash equal to such fraction multiplied by the then-effective Applicable Conversion Price, or shall be rounded up to one whole Ordinary Share for each fractional share to which the holder would otherwise be entitled for issuance. Before any holder of Preferred Shares shall be entitled to convert the same into full Ordinary Shares and to receive certificates therefor, the holder shall surrender the certificate or certificates for the applicable Preferred Shares, duly endorsed, at the principal office of the Company or of any transfer agent for the Preferred Shares to be converted and shall give written notice to the Company at such office that the holder elects to convert the same. The Company shall promptly issue and deliver at such office to such holder of the Preferred Shares a certificate or certificates for, a copy of the Company’s register of Member showing such holder of the Preferred Shares as a holder of the number of Ordinary Shares to which the holder shall be entitled as aforesaid certified by the Company’s share registrar and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional Ordinary Shares. The Preferred Shares converted into Ordinary Shares shall be cancelled and shall not be reissued. Such conversion shall be deemed to have been made immediately prior to the close of business on the

 

21



 

date of such surrender of the certificate or certificates for the Preferred Shares to be converted, and the person or persons entitled to receive the Ordinary Shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Ordinary Shares on such date. For the avoidance of doubt, no conversion shall prejudice the right of a holder of Preferred Shares to receive dividends and other distributions declared but not paid as at the date of conversion on the Preferred Shares being converted.

 

The Company may give effect to any conversion pursuant to the Articles by one or more of the following methods:

 

(i)                                      If the total nominal par value of the Preferred Shares being converted is equal to the total nominal par value of the Ordinary Shares into which such Preferred Shares convert such that each Preferred Share is convertible into one (1) Ordinary Share and both the Preferred Share and the Ordinary Share have the same par value, the Company may, by resolution of the Board, redesignate the Preferred Shares to Ordinary Shares. On re-designation, each Preferred Share to be converted shall become an Ordinary Share with the rights, privileges, terms and obligations of the class of Ordinary Shares and the converted Ordinary Shares shall thenceforth form part of the class of the Ordinary Shares (and shall cease to form part of the class of Preferred Shares for all purposes).

 

(ii)                                   The Board may by resolution resolve to redeem the Preferred Shares for the purpose of this Article (and, for accounting and other purposes, may determine the value therefor) and in consideration therefor issue fully-paid Ordinary Shares in relevant number.

 

(iii)                                The Board may by resolution adopt any other method permitted by Statute including capitalizing reserves to pay up new Ordinary Shares, or by making a fresh issue of Ordinary Shares, except that if conversion is capable of being effected in the manner described in paragraph (i) above, the conversion shall be effected in that manner in preference to any other method permitted by law or the Articles.

 

(d)                                  Availability of Shares Issuable Upon Conversion. The Company shall at all times keep available out of its authorized but unissued Ordinary Shares, free of liens of any kind, solely for the purpose of effecting the conversion of the Preferred Shares, such number of its Ordinary Shares as shall from time to time be sufficient to effect the conversion of all issued and outstanding Preferred Shares, and if at any time the number of authorized but unissued Ordinary Shares shall not be sufficient to effect the conversion of all then issued and outstanding Preferred Shares, in addition to such other remedies as shall be available to the holder of such Preferred Shares, the Company shall take such corporate action as may, in accordance with the Articles and the Statute, be necessary to increase its authorized but unissued Ordinary Shares to such number of shares as shall be sufficient for such purposes.

 

(e)                                   Cessation of Certain Rights on Conversion. Subject to Article 15(c), on the date of conversion of any Preferred Shares to Ordinary Shares, the holder of the Preferred Shares to be converted shall cease to be entitled to any rights in respect of such Preferred Shares and accordingly his name shall be removed from the register of Members as the holder of such Preferred Shares and shall correspondingly be inserted onto the register of Members as the holder of the number of Ordinary Shares into which such Preferred Shares convert.

 

(f)                                    Ordinary Shares Resulting from Conversion. The Ordinary Shares resulting from the conversion of the Preferred Shares:

 

(i)                                  shall be credited as fully paid and non-assessable;

 

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(ii)                               shall rank pari passu in all respects and form one class with the Ordinary Shares then issued; and

 

(iii)                            shall entitle the holder to all dividends payable on the Ordinary Shares by reference to a record date after the date of conversion.

 

ADJUSTMENTS TO APPLICABLE CONVERSION PRICE

 

16.                                (a)                                  Special Definitions . For purposes of this Article 16, the following definitions shall apply:

 

(i)                                   Options means rights, options or warrants to subscribe for, purchase or otherwise acquire either Ordinary Shares or Convertible Securities.

 

(ii)                                Convertible Securities shall mean any notes, debentures, Preferred Shares or other securities or rights which are ultimately convertible into or exchangeable for Ordinary Shares.

 

(iii)                             Additional Ordinary Shares (each an Additional Ordinary Share ) shall mean all Ordinary Shares (including reissued shares) issued (or, pursuant to Article 16(c), deemed to be issued) by the Company, other than:

 

(A)                                Preferred Shares issued pursuant to the Series A Preferred Shares Subscription Agreement, the Series B Preferred Shares Subscription Agreement, the Series B-1 Preferred Shares Purchase Agreement, the Series C Preferred Shares Purchase Agreement, the Series D Preferred Shares Purchase Agreement, the Series D-1 Preferred Shares Purchase Agreement or the Investor Warrants.

 

(B)                                Ordinary Shares issued upon conversion of Preferred Shares;

 

(C)                                Ordinary Shares issued or issuable to officers, directors, employees and consultants of the Company pursuant to any equity plan or incentive arrangement approved by the Board (including the affirmative vote of the Series A Director, the Series B Director and the Series C Director);

 

(D)                                those issued as a dividend or distribution on Preferred Shares or any event for which adjustment is made pursuant to Article 16(e), 16(f)  or 16(g)  hereof; and

 

(E)                                 those issued upon exercise or conversion of outstanding Options issued and outstanding as of the Series B Original Issue Date.

 

(b)                                  No Adjustment of Applicable Conversion Price. No adjustment in any Applicable Conversion Price shall be made in respect of the issuance of Additional Ordinary Shares unless the consideration for any Additional Ordinary Share issued or deemed to be issued by the Company is less than such Applicable Conversion Price in effect on the date of any immediately prior to such issue.

 

(c)                                   Deemed Issue of Additional Ordinary Shares. In the event the Company issues any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number (as set forth in the instrument relating thereto without regard to any

 

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provisions contained therein for a subsequent adjustment of such number that would result in an adjustment pursuant to sub-paragraph (ii) below) of Ordinary Shares issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Ordinary Shares issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided, that no adjustment of Applicable Conversion Price and no deemed issuance of Additional Ordinary Shares unless the consideration per share (determined pursuant to Article 16(d)  hereof) of such Additional Ordinary Shares would be less than the Applicable Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided, further that in any such case in which Additional Ordinary Shares are deemed to be issued:

 

(i)                              no further adjustment in the Applicable Conversion Price shall be made upon the subsequent issue of Convertible Securities or Ordinary Shares upon the exercise of such Options or conversion or exchange of such Convertible Securities;

 

(ii)                           if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Company, or increase or decrease in the number of Ordinary Shares issuable, upon the exercise, conversion or exchange thereof, the Applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;

 

(iii)                        upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:

 

(A)                                in the case of Convertible Securities or Options for Ordinary Shares, the only Additional Ordinary Shares issued were Ordinary Shares, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Company upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Company upon such conversion or exchange; and

 

(B)                                in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Company for the Additional Ordinary Shares deemed to have been then issued was the consideration actually received by the Company for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Company upon the issue of the Convertible Securities with respect to which such Options were actually exercised;

 

(iv)                       no re-adjustment pursuant to sub-paragraph (ii) or (iii) above shall have the effect of increasing the Applicable Conversion Price to an amount which exceeds the lower of (i) the Applicable Conversion Price on the original adjustment date, or (ii) the Applicable Conversion Price that would have resulted from any issuance of Additional Ordinary Shares between the original adjustment date and such re-adjustment date; and

 

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(v)                          in the case of any Options which expire by their terms not more than thirty (30) days after the date of issue thereof, no adjustment of the Applicable Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the manner provided in sub-paragraph (iii) above.

 

(vi)                       Adjustment of Applicable Conversion Price Upon Issuance of Additional Ordinary Shares. In the event that the Company shall issue Additional Ordinary Shares for a consideration per share received by the Company (net of any selling concessions, discounts or commissions) that is less than the Applicable Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, the Applicable Conversion Price shall be reduced, concurrently with such issue, to a price (rounding down to the nearest cent) determined by multiplying such Applicable Conversion Price by a fraction, the numerator of which shall be the number of Ordinary Shares (as converted) outstanding immediately prior to such issue plus the number of shares which the aggregate consideration received by the Company for the total number of Additional Ordinary Shares so issued would purchase at such Applicable Conversion Price, and the denominator of which shall be the number of Ordinary Shares (as converted) outstanding immediately prior to such issue plus the number of such Additional Ordinary Shares so issued (the NCP” ). Notwithstanding the foregoing, the Applicable Conversion Price of Preferred Shares shall not be reduced at such time if the amount of such reduction would be less than US$0.01, but any such amount shall be carried forward, and a reduction will be made with respect to such amount at the time of, and together with, any subsequent reduction which, together with such amount and any other amounts so carried forward, equal US$0.01 or more in the aggregate. For the purposes of this Article 16, all Ordinary Shares directly or indirectly issuable upon conversion of all outstanding Preferred Shares shall be deemed to be issued and outstanding.

 

(vii)                    Adjustment of Applicable Conversion Price and Transfer Arrangement Upon Issuance of Additional Ordinary Shares in the Next Round of Financing Following the Series D-1 Closing.

 

(A)                                In the event that the Company shall issue or shall be deemed to issue Additional Ordinary Shares in the next round of financing following the Initial Closing as defined in the Series D-1 Preferred Shares Purchase Agreement (the Series D-1 Closing” ) for a consideration per share received by the Company (net of any selling concessions, discounts or commissions) that is less than the Applicable Conversion Price, the Applicable Conversion Price shall be adjusted to the NCP in accordance with the above Article 16(c)(vi). For the avoidance of doubt, if the conversion occurs prior to the consummation of the Deferred Payment of Purchase Price, any Ordinary Shares converted from Series D-1 Preferred Shares should be identified as “Unpaid Shares” on the share certificates and the register of Members of the Company until the consummation of the Deferred Payment of Purchase Price.

 

In addition to the adjustment of the Applicable Conversion Price to the NCP, each Founder Hold Co and Haiyan’s Holdco, shall transfer such number of the Ordinary Shares to the holders of Series D Preferred Shares on a pro rata basis and/or the holders of Series D-1 Preferred Shares as calculated separately below:

 

Total number of the Ordinary Shares to be transferred to the holders of Series D Preferred Shares or the holders of Series D-1 Preferred Shares = IM/ (OS/1.12 N ) – IM/NCP

 

Where:

 

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IM = For the holders of Series D Preferred Shares, the total consideration received by the issuance or sale of the Series D Preferred Shares; for the holders of Series D-1 Preferred Shares, prior to the consummation of the Deferred Payment of Purchase Price, the principal amount of the Domestic Loan received by the WFOE, and upon the consummation of the Deferred Payment of Purchase Price, the total consideration received by the issuance or sale of the Series D-1 Preferred Shares

 

OS = the issue price per share for the issuance or sale of the Additional Ordinary Shares

 

N = For the holders of Series D Preferred Shares, the number of the days passed since the issuance date of Series D Preferred Shares till the date when the issuance of Additional Ordinary Shares is closed, divided by 365; for the holders of Series D-1 Preferred Shares, the number of the days passed since the issuance date of Series D-1 Preferred Shares till the date when the issuance of Additional Ordinary Shares is closed, divided by 365.

 

For the avoidance of doubt, prior to the consummation of the Deferred Payment of Purchase Price, any Ordinary Shares to be transferred to the holders of Series D-1 Preferred Shares should be identified as “Unpaid Shares” on the share certificates and the register of Members of the Company. Upon the consummation of the Deferred Payment of Purchase Price, the certificate representing such shares and register of Members should be renewed accordingly.

 

(B)                                In the event that the Company shall issue or shall be deemed to issue Additional Ordinary Shares in the next round of financing following the Series D-1 Closing for a consideration per share received by the Company (net of any selling concessions, discounts or commissions) that is less than 1.12 N  times of the Applicable Conversion Price in effect on the date immediately prior to such issue, but is equal to or greater than the Applicable Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, the Applicable Conversion Price for the Series D Preferred Shares and/or the Series D-1 Preferred Shares shall remain unchanged but each Founder Hold Co and Haiyan’s Holdco shall transfer such number of the Ordinary Shares to the holders of Series D Preferred Shares on a pro rata basis and/or the holders of Series D-1 Preferred Shares as calculated separately below:

 

Total number of the Ordinary Shares to be transferred to the holders of Series D Preferred Shares or the holders of Series D-1 Preferred Shares = IM/ (OS/1.12 N ) – ON

 

Where:

 

IM = For the holders of Series D Preferred Shares, the total consideration received by the issuance or sale of the Series D Preferred Shares; for the holders of Series D-1 Preferred Shares, prior to the consummation of the Deferred Payment of Purchase Price, the principal amount of the Domestic Loan received by the

 

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WFOE, and upon the consummation of the Deferred Payment of Purchase Price, the total consideration received by the issuance or sale of the Series D-1 Preferred Shares

 

OS = the issue price per share for the issuance or sale of the Additional Ordinary Shares

 

N = For the holders of Series D Preferred Shares, the number of the days passed since the issuance date of Series D Preferred Shares till the date when the issuance of Additional Ordinary Shares is closed, divided by 365; for the holders of Series D-1 Preferred Shares, the number of the days passed since the issuance date of Series D-1 Preferred Shares till the date when the issuance of Additional Ordinary Shares is closed, divided by 365

 

ON = For the holders of Series D Preferred Shares, the total number of Series D Preferred Shares held by Series D Investors; for the holders of Series D-1 Preferred Shares, the total number of Series D-1 Preferred Shares held the holders of Series D-1 Preferred Shares

 

For the avoidance of doubt, prior to the consummation of the Deferred Payment of Purchase Price, any Ordinary Shares to be transferred to the holders of Series D-1 Preferred Shares should be identified as “Unpaid Shares” on the share certificates and the register of Members of the Company. Upon the consummation of the Deferred Payment of Purchase Price, the certificate representing such shares and register of Members should be renewed accordingly.

 

(C)                                For the avoidance of doubt, the number of Ordinary Shares to be transferred by each Founder Hold Co and Haiyan’s Holdco will be distributed to and among the Series D Investors on a pro rata basis, and/or to the Series D-1 Investors and any other shareholders of the Company shall be deemed to have waived any and all the preferred rights (including but not limited to the rights of first refusal and co-sale rights) in relation to such Ordinary Shares to be transferred under this Article16(c)(vii).

 

(D)                                Furthermore, for the avoidance of doubt, the adjustment under this Article 16(c)(vi i) shall only apply to the Company’s next round of financing following the Series D-1 Closing with respect to the Series D Investors and the Series D-1 Investors, and any issuance of Additional Ordinary Shares or deemed issuance of the Additional Ordinary Shares other than in the next round of financing following the Series D-1 Closing will not trigger the adjustment under Article 16(c)(vii)  in any circumstances.

 

(d)                                  Determination of Consideration. For purposes of this Article 16, the consideration received by the Company for the issue of any Additional Ordinary Shares shall be computed as follows:

 

(i)                              Cash and Property. Except as provided in sub-paragraph (ii) below, such consideration shall:

 

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(A)                                insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company, excluding amounts paid or payable for accrued interest or accrued dividends;

 

(B)                                insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Directors; provided, however, that no value shall be attributed to any services performed by any employee, officer or director of the Company; and

 

(C)                                in the event Additional Ordinary Shares are issued together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received with respect to such Additional Ordinary Shares, computed as provided in sub-paragraphs (A) and (B) above, as determined in good faith by the Directors.

 

(ii)                           Options and Convertible Securities. The consideration per share received by the Company for Additional Ordinary Shares deemed to have been issued pursuant to Article 16(c), relating to Options and Convertible Securities, shall be determined by dividing

 

(A)                                the total amount, if any, received or receivable by the Company (net of any selling concessions, discounts or commissions) as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by

 

(B)                                the maximum number of Ordinary Shares (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

 

(e)                                   Adjustments for Shares Dividends, Subdivisions, Combinations or Consolidations of Ordinary Shares. In the event the outstanding Ordinary Shares shall be subdivided (by share dividend, share split, or otherwise), into a greater number of Ordinary Shares, the Conversion Price then in effect shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding Ordinary Shares shall be combined or consolidated, by reclassification or otherwise, into a lesser number of Ordinary Shares, the Conversion Price then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased.

 

(f)                                    Adjustments for Other Distributions. In the event the Company makes, or files a record date for the determination of holders of Ordinary Shares entitled to receive any distribution payable in securities or assets of the Company other than Ordinary Shares, then and in each such event, provision shall be made so that the holders of Preferred Shares shall receive upon conversion thereof, in addition to the number of Ordinary Shares receivable thereupon, the amount of securities or assets of the Company which they would have received had their Preferred Shares been converted into Ordinary Shares on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities or assets receivable by them as aforesaid during such period, subject to all other adjustment called for during such period under this Article 16 with respect to the rights of the holders of the Preferred Shares.

 

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(g)                                   Adjustments for Reclassification, Exchange and Substitution. If the Ordinary Shares issuable upon conversion of the Preferred Shares shall be changed into the same or a different number of shares of any other class or classes of shares, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then and in each such event, the holder of each applicable Preferred Share shall have the right thereafter to convert such share into the kind and amount of shares and other securities and property receivable upon such reorganization or reclassification or other change by holders of the number of Ordinary Shares that would have been subject to receipt by the holders upon conversion of the applicable Preferred Shares immediately before that change, all subject to further adjustment as provided herein.

 

(h)                                  No Impairment. The Company shall not, by amendment of these Articles or its Memorandum or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but shall at all times in good faith assist in the carrying out of all the provisions of Article 16 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Preferred Shares hereunder against impairment.

 

(i)                                      Certificate as to Adjustments. Upon the occurrence of each adjustment or re-adjustment of the Conversion Price pursuant to this Article 16, the Company shall, at its expense, promptly compute such adjustment or re-adjustment in accordance with the terms hereof and furnish to each holder of Preferred Shares a certificate setting forth such adjustment or re-adjustment and showing in detail the facts upon which such adjustment or re-adjustment is based. The Company shall, upon the written request at any time of any holder of Preferred Shares, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and re-adjustments, (ii) the Applicable Conversion Prices at the time in effect, and (iii) the number of Ordinary Shares and the amount, if any, of other property which at the time would be received upon the conversion of each Preferred Shares.

 

(j)                                     Miscellaneous .

 

(i)                           All calculations under this Article 16 shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be. Upon conversion of such number of Preferred Shares, the resultant aggregate number of Ordinary Shares to be issued to each holder of Preferred Shares if not a whole number (but part or fraction of a Ordinary Share), shall be rounded up to the nearest multiple of one (1) Ordinary Share such that the resultant aggregate number of Ordinary Shares to be issued to such holder of Preferred Shares shall be a whole number.

 

(ii)                        Each of the holders representing more than two thirds (2/3) of the Series A Preferred Shares, the holders representing more than two thirds (2/3) of the Series B Preferred Shares and the Series B-1 Preferred Shares, the holders representing a majority of the Series C Preferred Shares, and the holders representing a majority of the Series D and Series D-1 Preferred Shares shall have the right to challenge any determination by the Directors of fair value pursuant to this Article 16, in which case such determination of fair value shall be made by an independent appraiser selected jointly by the Directors and the challenging parties, the cost of such appraisal to be borne equally by the Company and the challenging parties.

 

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NOTICES OF RECORD DATE

 

17.                                In the event that the Company shall propose at any time:

 

(a)                                  to declare any dividend or distribution upon its Ordinary Shares, whether in cash, property, shares or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus;

 

(b)                                  to offer for subscription to the holders of any class or series of its shares on a pro-rata basis, any additional shares of shares of any class or series or other rights;

 

(c)                                   to effect any reclassification or recapitalization of its Ordinary Shares outstanding involving a change in the Ordinary Shares; or

 

(d)                                  to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up,

 

then, in connection with each such event, the Company shall send to the holders of the Preferred Shares:

 

(i)                              at least twenty (20) days’ prior written notice specifying the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Ordinary Shares shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (c) and (d) above; and

 

(ii)                           in the case of the matters referred to in (c) and (d) above, at least twenty (20) days’ prior written notice specifying the date when the same shall take place (and specifying the date on which the holders of Ordinary Shares shall be entitled to exchange their Ordinary Shares for securities or other property deliverable upon the occurrence of such event).

 

Each such written notice shall be delivered personally or given by first class mail, postage prepaid, addressed to the holders of the Preferred Shares at the address for each such holder as shown on the books of the Company.

 

REDEMPTION

 

18.                                The following right of redemption shall terminate upon IPO:

 

(a)                                  Redemption of Series D Preferred Shares and fully paid Series D-1 Preferred Shares.

 

(i)                              In the event that (i) the daily active users of TouchPal Contact( 触宝电话 )    fails to reach 100,000,000 or the daily active users of Touchpal Keyboard( 触宝输入法 )  fails to reach 30,000,000 by December 31, 2016 according to the audit report prepared by one of the Big 4 accounting firms; (ii) the Company fails to submit a formal application for a Qualified IPO at an securities exchange in the US or Hong Kong or PRC by June 30, 2019; (iii) the Company fails to complete a Qualified IPO by June 30, 2020; (iv) any of the Events of Default occurs; or (v) any redemption required by holder of Series C Preferred Shares pursuant to this Article 18 (b) , any redemption required by holder of Series B-1 Preferred Shares pursuant to this Article 18 (c) , any redemption required by holder of Series B Preferred Shares pursuant to this Article 18 (d)  or any redemption required by holder of Series A Preferred Shares pursuant to this Article 18 (e) , each Series D Preferred Share and/or Series D-1 Preferred Share then issued, fully paid and outstanding shall be redeemable at the option of each holder of the Series D

 

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Preferred Shares and/or Series D-1 Preferred Shares, out of funds legally available therefor, in accordance with this Article 18 . Following receipt of the request for redemption from such holders, the Company or any third party designated by the Company shall, within fifteen (15) Business Days, give written notice (with respect to the notice to the holders of the Series D Preferred Shares, the Series D Redemption Notice , with respect to the notice to the holders of the Series D-1 Preferred Shares, the Series D-1 Redemption Notice ) to each holder of record of a Series D Preferred Share and/or each holder of record of as a Series D-1 Preferred Share, at the address last shown on the records of the Company for such holder(s). Such notice shall indicate that the holders of the Series D Preferred Shares and/or the holders of the Series D-1 Preferred Shares have elected redemption of such Series D Preferred Shares or Series D-1 Preferred Shares pursuant to the provisions of this Article 18 , shall specify the redemption date, and shall submit their respective share certificates to the Company on or before the scheduled redemption date. The redemption price with respect to each Series D Preferred Share (the Series D Redemption Price ) shall be the Actual Issue Price and an annual interest calculated at an Internal Rate of Return of twelve percent (12%) based on the applicable Actual Issue Price per Series D Preferred Share, where applicable, (adjusted for any share splits, share transfer, share dividends, combinations, recapitalizations and similar transactions), excluding all the distributed dividends (if any) with respect thereto up to the date of redemption from the date of issuance of such Preferred Share and up to and including the date of receipt by the holder thereof of the full Series D Redemption Price. The redemption price with respect to each Series D-1 Preferred Share (the Series D-1 Redemption Price ) shall be the Actual Issue Price and an annual interest calculated at an Internal Rate of Return of twelve percent (12%) based on the applicable Actual Issue Price per Series D-1 Preferred Share, where applicable, (adjusted for any share splits, share transfer, share dividends, combinations, recapitalizations and similar transactions), excluding all the distributed dividends (if any) with respect thereto up to the date of redemption from the date of issuance of such Preferred Share and up to and including the date of receipt by the holder thereof of the full Series D-1 Redemption Price. Without prejudice to the foregoing, the applicable Internal Rate of Return shall be replaced with a fifteen percent (15%) if the redemption is triggered by the occurrence of the any Event of Default. The closing of the redemption (the Series D Redemption Closing ) of any Series D Preferred Shares and/or the closing of the redemption (the Series D-1 Redemption Closing ) of any Series D-1 Preferred Shares pursuant to this Article 18(a)  will take place within forty-five (45) Days of the date of the Series D Redemption Notice and/or Series D-1 Redemption Notice at the offices of the Company, or such earlier date or other place as the holders of a majority of the Series D Preferred Shares and/or the holders of a majority of the Series D Preferred Shares and the Company may mutually agree in writing. At the Series D Redemption Closing and/or the Series D-1 Redemption Closing, subject to applicable Law, the Company will, from any source of assets or funds legally available therefore, redeem the Series D Preferred Shares and/or Series D-1 Preferred Shares held by the holder who elected the redemption by paying in cash therefore the Series D Redemption Price and/or Series D-1 Redemption Price against surrender by such holder at the Company’s principal office of the certificate representing such share. From and after the Series D Redemption Closing and/or the Series D-1 Redemption Closing, if the Company makes the Series D Redemption Price or Series D-1 Redemption Price available to a holder of a Series D Preferred Share or a holder of a Series D-1 Preferred Share or the party otherwise agreed herein, all rights of the holder of such Series D Preferred Share or such Series D-1 Preferred Share (except the right to receive the Series D Redemption Price and/or Series D-1 Redemption Price therefore) will cease with respect to such Series D Preferred Share or Series D-1 Preferred Share, and such Series D Preferred Share or Series D-1 Preferred Share will be cancelled and will not thereafter be transferred on the books of the Company or be deemed outstanding for any purpose whatsoever.

 

(ii)                           The redemption rights of the Series D-1 Preferred Shares or Series D Preferred Shares shall rank in priority to the redemption rights of the Series C Preferred Shares,

 

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the Series B-1 Preferred Shares, the Series B Preferred Shares, the Series A Preferred Shares and any other series or class of the Company’s shares that have been authorized. If the Company receives any notice from any holder of shares (other than Series D Preferred Shares and Series D-1 Preferred Shares) requesting any redemption, the Company shall notify each holder of Series D Preferred Shares and Series D-1 Preferred Shares immediately, and the holders of Series D Preferred Shares and Series D-1 Preferred Shares shall be entitled to require the Company to redeem all or part of the issued and outstanding Series D Preferred Shares and Series D-1 Preferred Shares at the applicable Redemption Price for such Preferred Shares, in preference to any redemption to any other holder of shares , out of funds legally available therefor, in accordance with Article 18. For the avoidance of doubt, redemption rights of the Series D-1 Preferred Shares and Series D Preferred Shares shall be deemed to rank pari passu in all respects in accordance with this Article 18.

 

(b)                                  Redemption of Series C Preferred Shares.

 

(i)                              In the event that (i) a Qualified IPO does not take place by June 30, 2020, (ii) there occurs any material breach by any of the Group Companies or the Founders which would reasonably be expected to have a Material Adverse Effect (as defined in the Series D-1 Preferred Shares Purchase Agreement, (iii) there is any change in the PRC legal environment regarding the corporate structure of any Group Company which would reasonably be expected to have a Material Adverse Effect, or (iv) any holder of Series B-1 Preferred Shares, Series B Preferred Shares or Series A Preferred Shares exercises its redemption right under this Article 18 , each Series C Preferred Share then issued and outstanding shall be redeemable at the option of each holder of the Series C Preferred Shares, out of funds legally available therefor, in accordance with Article 18 . Following receipt of the request for redemption from such holders, the Company shall, within fifteen (15) Business Days, give written notice (the Series C Redemption Notice ) to each holder of record of a Series C Preferred Share, at the address last shown on the records of the Company for such holder(s). Such notice shall indicate that the holders of the Series C Preferred Shares have elected redemption of all of such Series C Preferred Shares pursuant to the provisions of this Article 18 , shall specify the redemption date, and shall direct the holders of such shares to submit their share certificates to the Company on or before the scheduled redemption date. The redemption price with respect to each Series C Preferred Share (the Series C Redemption Price ) shall be one hundred and fifty percent (150%) of the applicable Actual Issue Price per Series C Preferred Share (adjusted for any share splits, share transfer, share dividends, combinations, recapitalizations and similar transactions), plus all accumulated dividends declared and unpaid with respect thereto up to the date of redemption (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions). The closing of the redemption (the Series C Redemption Closing ) of any Series C Preferred Shares pursuant to this Article 18(b)  will take place within ninety (90) days of the date of the Series C Redemption Notice at the offices of the Company, or such earlier date or other place as the holders of a majority of the Series C Preferred Shares and the Company may mutually agree in writing. At the Series C Redemption Closing, subject to applicable Law, the Company will, from any source of assets or funds legally available therefore, redeem the Series C Preferred Shares held by the holder who elected the redemption by paying in cash therefore the Series C Redemption Price against surrender by such holder at the Company’s principal office of the certificate representing such share. From and after the Series C Redemption Closing, if the Company makes the Series C Redemption Price available to a holder of a Series C Preferred Share, all rights of the holder of such Series C Preferred Share (except the right to receive the Series C Redemption Price therefore) will cease with respect to such Series C Preferred Share, and such Series C Preferred Share will be cancelled and will not thereafter be transferred on the books of the Company or be deemed outstanding for any purpose whatsoever.

 

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(ii)                           The redemption rights of the Series C Preferred Shares shall rank in priority to the redemption rights of the Series B-1 Preferred Shares, the Series B Preferred Shares, the Series A Preferred Shares and any other series or class of the Company’s shares that have been authorized. If the Company receives any notice from any holder of shares (other than Series C Preferred Shares) requesting any redemption, the Company shall notify each holder of Series C Preferred Shares immediately, and the holders of Series C Preferred Shares shall be entitled to require the Company to redeem all or part of the issued and outstanding Series C Preferred Shares at the Series C Redemption Price, in preference to any redemption to any other holder of shares, out of funds legally available therefor, in accordance with Article 18.

 

(c)                                   Redemption of Series B-1 Preferred Shares .

 

(i)                              In the event that (i) a Qualified IPO does not take place by June 30, 2020, (ii) there occurs any material breach by any of the Group Companies or the Founders which could reasonably be expected to have a Material Adverse Effect, (iii) there is any change in the PRC legal environment regarding the corporate structure of any Group Company which could reasonably be expected to have a Material Adverse Effect, or (iv) any holder of Series B Preferred Shares or Series A Preferred Shares exercises its redemption right under this Article 18 , each Series B-1 Preferred Share then issued and outstanding shall be redeemable at the option of each holder of the Series B-1 Preferred Shares, out of funds legally available therefor, in accordance with Article 18. Following receipt of the request for redemption from such holders, the Company shall, within fifteen (15) Business Days, give written notice (the Series B-1 Redemption Notice ) to each holder of record of a Series B-1 Preferred Share, at the address last shown on the records of the Company for such holder(s). Such notice shall indicate that the holders of the Series B-1 Preferred Shares have elected redemption of all of such Series B-1 Preferred Shares pursuant to the provisions of this Article 18, shall specify the redemption date, and shall direct the holders of such shares to submit their share certificates to the Company on or before the scheduled redemption date. The redemption price with respect to each Series B-1 Preferred Share (the Series B-1 Redemption Price ) shall be one hundred and fifty percent (150%) of the applicable Actual Issue Price per Series B-1 Preferred Share (adjusted for any share splits, share transfer, share dividends, combinations, recapitalizations and similar transactions), plus all accumulated dividends declared and unpaid with respect thereto up to the date of redemption (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions). The closing of the redemption (the Series B-1 Redemption Closing ) of any Series B-1 Preferred Shares pursuant to this Article 18(c)  will take place within ninety (90) days of the date of the Series B-1 Redemption Notice at the offices of the Company, or such earlier date or other place as the holders of a majority of the Series B-1 Preferred Shares and the Company may mutually agree in writing. At the Series B-1 Redemption Closing, subject to applicable Law, the Company will, from any source of assets or funds legally available therefore, redeem the Series B-1 Preferred Shares held by the holder who elected the redemption by paying in cash therefore the Series B-1 Redemption Price against surrender by such holder at the Company’s principal office of the certificate representing such share. From and after the Series B-1 Redemption Closing, if the Company makes the Series B Redemption Price available to a holder of a Series B-1 Preferred Share, all rights of the holder of such Series B-1 Preferred Share (except the right to receive the Series B Redemption Price therefore) will cease with respect to such Series B-1 Preferred Share, and such Series B-1 Preferred Share will be cancelled and will not thereafter be transferred on the books of the Company or be deemed outstanding for any purpose whatsoever.

 

(ii)                           The redemption rights of the Series B-1 Preferred Shares shall rank in priority to the redemption rights of the Series B Preferred Shares, the Series A Preferred Shares and any other series or class of the Company’s shares that have been authorized. If the Company receives any notice from any holder of shares (other than Series B-1 Preferred Shares)

 

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requesting any redemption, the Company shall notify each holder of Series B Preferred Shares immediately, and the holders of Series B-1 Preferred Shares shall be entitled to require the Company to redeem all or part of the issued and outstanding Series B-1 Preferred Shares at the Series B-1 Redemption Price, in preference to any redemption to any other holder of shares, out of funds legally available therefor, in accordance with Article 18.

 

(d)                                  Redemption of Series B Preferred Shares .

 

(i)                              In the event that (i) a Qualified IPO does not take place by June 30, 2020, (ii) there occurs any material breach by any of the Group Companies or the Founders which could reasonably be expected to have a Material Adverse Effect, (iii) there is any change in the PRC legal environment regarding the corporate structure of any Group Company which could reasonably be expected to have a Material Adverse Effect, or (iv) any holder of Series A Preferred Shares exercises its redemption right under this Article 18 , each Series B Preferred Share then issued and outstanding shall be redeemable at the option of each holder of the Series B Preferred Shares, out of funds legally available therefor, in accordance with Article 18. Following receipt of the request for redemption from such holders, the Company shall, within fifteen (15) Business Days, give written notice (the Series B Redemption Notice ) to each holder of record of a Series B Preferred Share, at the address last shown on the records of the Company for such holder(s). Such notice shall indicate that the holders of the Series B Preferred Shares have elected redemption of all of such Series B Preferred Shares pursuant to the provisions of this Article 18, shall specify the redemption date, and shall direct the holders of such shares to submit their share certificates to the Company on or before the scheduled redemption date. The redemption price with respect to each Series B Preferred Share (the Series B Redemption Price ) shall be one hundred and fifty percent (150%) of the applicable Actual Issue Price per Series B Preferred Share (adjusted for any share splits, share transfer, share dividends, combinations, recapitalizations and similar transactions), plus all accumulated dividends declared and unpaid with respect thereto up to the date of redemption (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions). The closing of the redemption (the Series B Redemption Closing ) of any Series B Preferred Shares pursuant to this Article 18(d)  will take place within ninety (90) days of the date of the Series B Redemption Notice at the offices of the Company, or such earlier date or other place as the holders of a majority of the Series B Preferred Shares and the Company may mutually agree in writing. At the Series B Redemption Closing, subject to applicable Law, the Company will, from any source of assets or funds legally available therefore, redeem the Series B Preferred Shares held by the holder who elected the redemption by paying in cash therefore the Series B Redemption Price against surrender by such holder at the Company’s principal office of the certificate representing such share. From and after the Series B Redemption Closing, if the Company makes the Series B Redemption Price available to a holder of a Series B Preferred Share, all rights of the holder of such Series B Preferred Share (except the right to receive the Series B Redemption Price therefore) will cease with respect to such Series B Preferred Share, and such Series B Preferred Share will be cancelled and will not thereafter be transferred on the books of the Company or be deemed outstanding for any purpose whatsoever.

 

(ii)                           The redemption rights of the Series B Preferred Shares shall rank in priority to the redemption rights of the Series A Preferred Shares and any other series or class of the Company’s shares that have been authorized. If the Company receives any notice from any holder of shares (other than Series B Preferred Shares) requesting any redemption, the Company shall notify each holder of Series B Preferred Shares immediately, and the holders of Series B Preferred Shares shall be entitled to require the Company to redeem all or part of the issued and outstanding Series B Preferred Shares at the Series B Redemption Price, in preference to any redemption to any other holder of shares, out of funds legally available therefor, in accordance with Article 18.

 

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(e)                                   Redemption of Series A Preferred Shares. Subject to Article 18(a), (b) (c) and (d), at any time after June 30, 2020, the Company does not close a Qualified IPO, each Series A Preferred Share then issued and outstanding shall be redeemable at the option of each holder of the Series A Preferred Shares, out of funds legally available therefor, in accordance with the following terms. Subject to Article 18(a), (b), (c) and (d), at any time after August 6, 2012 but before June 30, 2020, if all or substantially all of the assets of any Group Company are sold, or any Group Company is acquired or consolidated in which the shareholders of any Group Company immediately after such acquisition or consolidation hold shares representing less than a majority of the voting power of the outstanding share capital of the surviving business entity, each Series A Preferred Share then issued and outstanding shall be redeemable at the option of each holder of the Series A Preferred Shares who does not agree to such acquisition or consolidation, out of funds legally available therefor, in accordance with the following terms. Following receipt of the request for redemption from such holders, the Company shall within fifteen (15) Business Days give written notice (the Series A Redemption Notice ) to each holder of record of a Series A Preferred Share, at the address last shown on the records of the Company for such holder(s). Such notice shall indicate that the holders of the Series A Preferred Shares have elected redemption of all of such Series A Preferred Shares pursuant to the provisions of this Article 18, shall specify the redemption date, and shall direct the holders of such shares to submit their share certificates to the Company on or before the scheduled redemption date. The redemption price with respect to each Series A Preferred Share (the Series A Redemption Price , together with Series C Redemption Price, Series B-1 Redemption Price and Series B Redemption Price, the Redemption Price ) shall be one hundred and fifty percent (150%) of the applicable Actual Issue Price per Series A Preferred Share (adjusted for any share splits, share transfer, share dividends, combinations, recapitalizations and similar transactions), plus all accumulated dividends declared and unpaid with respect thereto up to the date of redemption (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions). The closing of the redemption (the Series A Redemption Closing , together with Series C Redemption Closing, Series B-1 Redemption Closing and Series B Redemption Closing, the Redemption Closing ) of any Series A Preferred Shares pursuant to this Article 18(e)  will take place within ninety (90) days of the date of the Series A Redemption Notice at the offices of the Company, or such earlier date or other place as the holders of a majority of the Series A Preferred Shares and the Company may mutually agree in writing. At the Series A Redemption Closing, subject to applicable law, the Company will, from any source of assets or funds legally available therefore, redeem the Series A Preferred Shares held by the holder who elected the redemption by paying in cash therefore the Series A Redemption Price against surrender by such holder at the Company’s principal office of the certificate representing such share. From and after the Series A Redemption Closing, if the Company makes the Series A Redemption Price available to a holder of a Series A Preferred Share, all rights of the holder of such Series A Preferred Share (except the right to receive the Series A Redemption Price therefore) will cease with respect to such Series A Preferred Share, and such Series A Preferred Share will be cancelled and will not thereafter be transferred on the books of the Company or be deemed outstanding for any purpose whatsoever.

 

(f)                                    Insufficient Funds. Subject to Article 18(a), if the Company’s assets or funds which are legally available on the date that any redemption payment under this Article 18 is due are insufficient to pay in full all redemption payments to be paid at the applicable Redemption Closing, at the sole discretion of the holders of the Series D-1 Preferred Shares, the Series D Preferred Shares, the Series C Preferred Shares, the Series B Preferred Shares, the Series B-1 Preferred Shares or the Series A Preferred Shares, as the case may be, the holders of the Series D-1 Preferred Shares, the Series D Preferred Shares, the Series C Preferred Shares, the Series B Preferred Shares, the Series B-1 Preferred Shares or the Series A Preferred Shares, as the case may be, may choose either (A) (i) those assets or funds which are legally available shall be used to the extent permitted by applicable Law to pay all redemption payments of Series D-1

 

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Preferred Shares and Series D Preferred Shares, on a pro rata basis, due on such date before making any redemption payments of Series C Preferred Shares, Series B-1 Preferred Shares, Series B Preferred Shares and Series A Preferred Shares; if any assets or funds left after making the foregoing redemption, the assets and funds available shall be used to the extent permitted by applicable Law to pay all redemption payments of Series C Preferred Shares due on such date before making any redemption payments of Series B-1 Preferred Shares, Series B Preferred Shares and Series A Preferred Shares; if any assets or funds left after making the foregoing redemption, the assets and funds available shall be used to the extent permitted by applicable Law to pay all redemption payments of Series B-1 Preferred Shares due on such date before making any redemption payments of Series B Preferred Shares and Series A Preferred Shares; if any assets or funds left after making the foregoing redemption, the assets and funds available shall be used to the extent permitted by applicable Law to pay all redemption payments of Series B Preferred Shares due on such date before making any redemption payments of Series A Preferred Shares and (ii) the Company shall execute and deliver to each holder a promissory note (the Redemption Triggered Debt ) for the full amount of the redemption payment due but not paid to such holder pursuant to sub-paragraph (i) above; provided, that such promissory note shall be due and payable no later than twelve (12) months of the applicable Redemption Closing, and the Founders shall be jointly and severally liable for such Redemption Triggered Debt, provided that the note to the holders of the Series D-1 Preferred Shares and the holders of the Series D Preferred Shares shall rank senior to the note to the holders of the Series C Preferred Shares, the holders of the Series B-1 Preferred Shares, the holders of the Series B Preferred Shares and Series A Preferred Shares, the note to the holders of the Series C Preferred Shares shall rank senior to the note to the holders of the Series B-1 Preferred Shares, the holders of the Series B Preferred Shares and Series A Preferred Shares, and the note to the holders of the Series B-1 Preferred Shares shall rank senior to the note to the holders of the Series B Preferred Shares and Series A Preferred Shares, the note to the holders of the Series B Preferred Shares shall rank senior to the note to the holders of the Series A Preferred Shares; or (B) the Company and the Members of the Company shall take all necessary actions to cause the Company to be liquidated immediately and the holders of the Preferred Shares to be redeemed shall be entitled to be paid, with respect to each Preferred Shares then outstanding and held by it, the higher of (i) the applicable Liquidation Preference and (ii) the applicable Redemption Price outstanding, provided that the Series D-1 Preferred Shares and the Series D Preferred Shares shall also rank senior to the Series C Preferred Shares, the Series B-1 Preferred Shares, the Series B Preferred Shares and Series A Preferred Shares, the Series C Preferred Shares shall also rank senior to the Series B-1 Preferred Shares, the Series B Preferred Shares and Series A Preferred Shares, the Series B-1 Preferred Shares shall also rank senior to the Series B Preferred Shares and Series A Preferred Shares, and the Series B Preferred Shares shall also rank senior to the Series A Preferred Shares with respect to the payment of such amount.

 

(g)                                   Other Limited Redemption. If the Company is otherwise prohibited by applicable Law from redeeming all Preferred Shares to be redeemed at the applicable Redemption Closing, those assets or funds which are legally available shall be used to the extent permitted by applicable Law to pay all redemption payments due on such date ratably in proportion to the full amounts to which the holders to which such redemption payments are due would otherwise be respectively entitled thereon following the priority of redemption as set out in Article 18(a), (b) (c), (d) and (e) . Thereafter, all assets or funds of the Company that become legally available for the redemption of shares shall immediately be used to pay the redemption payment which the Company did not pay on the date that such redemption payments were due.

 

(h)                                  Un-redeemed Shares. Without limiting any rights of the holders of Preferred Shares which are set forth in these Articles, or are otherwise available under law, the balance of any shares subject to redemption hereunder with respect to which the Company has

 

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become obligated to pay the redemption payment or the amount due under the Redemption Triggered Debt but which it has not paid in full shall continue to have all the powers, designations, preferences and relative participating, optional, and other special rights (including, without limitation, rights to accrue dividends) which such shares had prior to such date, until the redemption payment has been paid in full with respect to such shares.

 

VOTING RIGHTS; PROTECTIVE PROVISIONS

 

19.                                (1)                                  General Rights. Subject to the provisions of these Articles, at all general meetings of the Company: (a) the holder of each Ordinary Share issued and outstanding shall have one vote in respect of each Ordinary Share held, and (b) the holder of each Preferred Shares shall be entitled to such number of votes as equals the whole number of Ordinary Shares into which such holder’s collective Preferred Shares are convertible immediately after the close of business on the record date of the determination of the Company’s shareholders entitled to vote or, if no such record date is established, at the date such vote is taken or any written consent of the Company’s shareholders is first solicited. Subject to provisions to the contrary elsewhere in these Articles, or as required by the Statue, the holders of Preferred Shares shall vote together with the holders of Ordinary Shares, and not as a separate class or series, on all matters put before the Members.

 

(2)                                  Preferred Shareholder Protective Provisions .

 

(a)                                  In addition to any other vote or consent required elsewhere in the Shareholders’ Agreement and these Articles or by the applicable law, for so long as the Series D-1 Preferred Shares, the Series D Preferred Shares, the Series C Preferred Shares or the Series B-1 Preferred Shares or the Series B Preferred Shares or Series A Preferred Shares (as the case may be) remain issued and outstanding, in addition to any requirements set forth in these Articles or by the applicable Laws, the Company and each member of the Group Companies shall not, and the Company and the Founders shall cause each member of the Group Companies and the Founder Hold Cos not to (by way of shareholders resolutions, board resolutions or other means), without (i) the prior approval of the Series A Preferred Shareholders who hold at least a majority of the then issued and outstanding Series A Preferred Shares, (ii) the prior approval of the Series B Preferred Shareholders and Series B-1 Preferred Shareholders who hold at least a majority of the then issued and outstanding Series B Preferred Shares, (iii) the prior approval of the Series B-1 Investors who hold at least a majority of the then issued and outstanding Series B-1 Preferred Shares; (iv) the prior approval of the Series C Preferred Shareholders who hold at least a majority of the then issued and outstanding Series C Preferred Shares; and (v) the prior approval of the Series D and Series D-1 Investors who hold at least a majority of the then issued and outstanding Series D and Series D-1 Preferred Shares, take any action that would (for the purpose of this Article 19(2), the term for the Company below shall also include the members of the Group Companies) :

 

(i)                            alter, amend or change the rights, preferences or privileges of, or the restrictions provided for the benefit of, the Preferred Shares, whether such amendment or change is absolute or in relation to other classes of shares, including without limitation, the authorization of creation or issuance (by reclassification, subsequent financing or otherwise) of any new class or series of shares that have rights, preferences or privileges senior to or on a parity with the Preferred Shares;

 

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(ii)                            create or authorize the creation of or issue (by reclassification or otherwise) any new class or series of shares or any other security convertible into or exercisable for any equity security having rights, preferences or privileges senior to or on parity with the Preferred Shares, or increase the authorized number of the Preferred Shares;

 

(iii)                            result in any new issuance of any equity securities of the Company and/or any of its Subsidiaries to the Founders or to any third party, excluding (1) any issuance of Ordinary Shares upon conversion of the Preferred Shares, and (2) the issuance of Ordinary Shares (or options or warrants therefor) under employee equity incentive plans approved by the Board;

 

(iv)                          result in the payment or declaration of any dividend on any Shares of the Company;

 

(v)                           purchase or redeem or pay any dividend on any shares prior to the Preferred Shares, excluding the shares repurchased from former employees or consultants in connection with the cessation of their employment/services, at the lower of fair market value or cost;

 

(vi)                         create or authorize the creation of any debt security that is not already included in a Board-approved budget (other than equipment leases or bank lines of credit) unless such debt security has received the prior approval of the Board of Directors (including the approval of the Series A Director, the Series B Director and the Series C Director) and

 

(vii)                            increase or decrease the size of the Board of Directors.

 

(b)                                  Notwithstanding any other provision in these Articles, the following act of Company requires to be taken by Special Resolution of the shareholders in accordance with the Statute, and the approval of the holder(s) of Series A Preferred Shares who hold at least a majority of the then issued and outstanding Series A Preferred Shares and vote against the resolution, holder(s) of Series B Preferred Shares who hold at least a majority of the then issued and outstanding Series B Preferred Shares and vote against the resolution, holder(s) of Series B-1 Preferred Shares who hold at least a majority of the then issued and outstanding Series B-1 Preferred Shares and vote against the resolution, holder(s) of Series C Preferred Shares who hold at least a majority of the then issued and outstanding Series C Preferred Shares and vote against the resolution, holder(s) of Series D and Series D-1 Preferred Shares who hold at least a majority of the then issued and outstanding Series D and Series D-1 Preferred Shares and vote against the resolution, as the case may be, such Member or group of Members shall have the number of votes equal to (i) the votes of all shareholders who vote in favor of the resolution, plus (ii) one:

 

(i)                             amend or waive any provision of these Articles in a manner that would alter, amend or change the rights, preferences or privileges of, or the restrictions provided for the benefit of, the Preferred Shares;

 

(ii)                               increase, reduce or cancel the registered capital of the Company and/or any of its Subsidiaries or carrying a right of subscription in respect of equity interest or issue any options rights or warrants or which may require the change of shareholding in the future or do any act which has

 

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the effect of diluting or reducing the effective shareholding of the holder(s) of the Series A Preferred Shares, the Series B Preferred Shares, the Series B-1 Preferred Shares, the Series C Preferred Shares, the Series D Preferred Shares or the Series D-1 Preferred Shares in the Company;

 

(iii)                               pass any resolution for the liquidation, dissolution or winding up of the Company and/or any of its Subsidiaries or undertake any merger, reconstruction or liquidation exercise concerning the Company and/or any Subsidiary or apply for the appointment of a receiver, manager or judicial manager or like officer, or effect any Deemed Liquidation Event.

 

(c)                                   Without the consent of the Board of Directors, including the Series A Director, the Series B Director and the Series C Director, the Company and/or any of its Subsidiaries shall not effect or validate any of the following actions (either directly or by amendment, merger, consolidation, or otherwise):

 

(i)                          cease to conduct or carry on the business of the Company and/or any of its Subsidiaries substantially as now conducted, change any part of its business activities, or conduct or carry on any new business;

 

(ii)                          sell or dispose of the whole or a substantial part of the undertaking goodwill or the assets of the Company and/or any of its Subsidiaries;

 

(iii)                           borrow any money or obtain any financial facilities except pursuant to trade facilities obtained from banks or other financial institutions in the ordinary course of business;

 

(iv)                           make any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity which exceeds US$500,000 each, unless it is wholly owned by the Company;

 

(v)                            make any loan or advance to any individual Person, including any employee or director of the Group Companies, which exceeds US$500,000, except those advances or similar expenditures in the ordinary course of business or under the terms of an employee stock or option plan approved by the Board of Directors;

 

(vi)                          incorporate Subsidiaries, and branches, make investment in exceeding of US$200,000 within twelve (12) consecutive months, purchase fixed assets or build real estates, and acquire all or part of the equity interest of other companies by the Company and/or any of its Subsidiaries;

 

(vii)                          appoint, fire, change the compensation of, or settle the terms of appointment of any president (general manager), vice president (deputy general manager), chief financial officer (financial controller and/or financial manager) or any other senior managers ranked as the vice president level or above (including but not limited to the chief executive officer, chief operating officer, chief financial officer, chief technology officer and chief marketing officer), including approving any option plan;

 

(viii)                         approve or make adjustments or modifications to terms of transactions involving the interest of any director or shareholder of the Company and/or any of its Subsidiaries, including but not limited to the making of

 

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any loans or advances, whether directly or indirectly, or the provision of any guarantee, indemnity or security for or in connection with any indebtedness of liabilities of any director or shareholder of the Company and/or any of its Subsidiaries;

 

(ix)                         guarantee any indebtedness which exceeds US$500,000 each except for trade accounts of the Company or any of its Subsidiaries arising in the ordinary course of business;

 

(x)                            incur any aggregate indebtedness in excess of US$500,000 each that is not already included in a Board-approved budget, other than trade credit incurred in the ordinary course of business;

 

(xi)                         enter into or be a party to any transaction or series of transactions between each Group Company and any shareholder, director, senior manager or employee of each Group Company or any Affiliate of any Group Company or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any Group Company, or between each Group Company and any shareholder, director, senior manager or employees of the Affiliate in an amount more than US$50,000 within twelve (12) consecutive months, except transactions made in the ordinary course of business and pursuant to reasonable requirements of the Company’s business and upon fair and reasonable terms that are approved by a majority of the Board of Directors;

 

(xii)                           approve the annual operation plan and budget of the Company and/or any of its Subsidiaries or any material change of such annual operation plan, budget or the business scope of the Company and/or any of its Subsidiaries;

 

(xiii)                           establish the employee equity incentive plans for the management and/or employees of the Company and/or any of its Subsidiaries;

 

(xiv)                        make any investment other than investments in prime commercial paper, money market funds, certificates of deposit in any international bank having a net worth in excess of US$100,000,000 or obligations issued or guaranteed by the United States of America or other sovereign government, in each case having a maturity not in excess of two years;

 

(xv)                        sell, transfer, license, pledge or encumber technology or intellectual property, other than the licenses granted in the ordinary course of business; and

 

(xvi)                       any matters that shall be unanimously approved by all the Board of the Company according to applicable Laws.

 

NON-RECOGNITION OF TRUSTS

 

20.                                No person shall be recognized by the Company as holding any share upon any trust and the Company shall not be bound by or be compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future, or partial interest in any share, or any interest in any fractional part of a share, or (except only as is otherwise provided by these

 

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Articles or the Statute) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder.

 

LIEN ON SHARES

 

21.                                The Company shall have a first and paramount lien and charge on all shares (whether fully paid-up or not) registered in the name of a Member (whether solely or jointly with others) for all debts, liabilities or engagements to or with the Company (whether presently payable or not) by such Member or his estate, either alone or jointly with any other person, whether a Member or not, but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The registration of a transfer of any such share shall operate as a waiver of the Company’s lien (if any) thereon. The Company’s lien (if any) on a share shall extend to all dividends or other monies payable in respect thereof.

 

22.                                The Company may sell, in such manner as the Directors think fit, any shares on which the Company has a lien, but no sale shall be made unless a sum in respect of which the lien exists is presently payable, nor until the expiration of fourteen (14) days after a notice in writing stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder or holders for the time being of the share, or the person, of which the Company has notice, entitled thereto by reason of his death or bankruptcy.

 

23.                                To give effect to any such sale, the Directors may authorize a person to transfer the shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the shares comprised in any such transfer, and he shall not be bound by the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.

 

24.                                The proceeds of such sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable and the residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale.

 

CALL ON SHARES

 

25.                                (a)                                  The Directors may from time to time make calls upon the Members in respect of any monies unpaid on their shares (whether on account of the nominal value of the shares or by way of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed terms, provided that no call shall be payable at less than one (1) month from the date fixed for the payment of the last preceding call, and each Member shall (subject to receiving at least fourteen (14) days’ notice specifying the time or times of payment) pay to the Company at the specified time or times the amount called on the shares. A call may be revoked or postponed as the Directors may determine. A call may be made payable by installments.

 

(b)                                  A call shall be deemed to have been made at the time when the resolution of the Directors authorizing such call was passed.

 

(c)                                   The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof.

 

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26.                                If a sum called in respect of a share is not paid before or on a day appointed for payment thereof, the persons from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate not exceeding ten percent (10%) per annum as the Directors may reasonably determine, but the Directors shall be at liberty to waive payment of such interest either wholly or in part.

 

27.                                Any sum which by the terms of issue of a share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium or otherwise, shall for the purposes of these Articles be deemed to be a call duly made, notified and payable on the date on which by the terms of issue the same becomes payable, and in the case of non-payment, all the relevant provisions of these Articles as to payment of interest forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.

 

28.                                The Directors may, on the issue of shares, differentiate between the holders as to the amount of calls or interest to be paid and the time of payment.

 

29.                                (a)                                  The Directors may, if they think fit, receive from any Member willing to advance all or any part of the monies uncalled and unpaid upon any shares held by him, and may (until the amount would otherwise become payable) pay interest at such rate as may be agreed upon between the Directors and the Member paying such amount in advance.

 

(b)                                  No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable.

 

FORFEITURE OF SHARES

 

30.                                (a)                                  If a Member fails to pay any call or installment of a call or to make any payment required by the terms of issue on the day appointed for payment thereof, the Directors may, at any time thereafter during such time as any part of the call, installment or payment remains unpaid, give notice requiring payment of any part of the call, installment or payment that is unpaid, together with any interest which may have accrued and all expenses that have been incurred by the Company by reason of such non-payment. Such notice shall name a day (not earlier than the expiration of fourteen (14) days from the date of giving of the notice) on or before which the payment required by the notice is to be made, and shall state that, in the event of non-payment at or before the time appointed the shares in respect of which such notice was given will be liable to be forfeited.

 

(b)                                  If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited share and not actually paid before the forfeiture. For the avoidance of doubt, if the Series D-1 Preferred Shareholder fails to consummate the Deferred Payment of Purchase Price in accordance with Series D-1 Preferred Shares Purchase Agreement or the circumstance under Article 11.2(3) of Domestic Loan Agreement occurs, the Series D-1 Preferred Shares being purchased but unpaid by the Series D-1 Preferred Shareholder shall be forfeited by the Company in accordance with Article 30, 31, 32, and 33 .

 

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(c)                                   A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition, the forfeiture may be cancelled on such terms as the Directors see fit.

 

31.                                A person whose shares have been forfeited shall cease to be a Member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares together with interest thereon, but his liability shall cease if and when the Company have received payment in full of all monies whenever payable in respect of the shares.

 

32.                                A certificate in writing under the hand of one (1) Director or the Secretary of the Company that a share in the Company has been duly forfeited on a date stated in the declaration shall be conclusive evidence of the fact stated therein as against all persons claiming to be entitled to the share. The Company may receive the consideration given for the share on any sale or disposition thereof and may execute a transfer of the share in favor of the person to whom the share is sold or disposed of and he shall thereupon be registered as the holder of the share and shall not be bound by the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share.

 

33.                                The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium as if the same had been payable by virtue of a call duly made and notified.

 

REGISTRATION OF EMPOWERING INSTRUMENTS

 

34.                                The Company shall be entitled to charge a fee not exceeding US$l.00 on the registration of every probate, letter of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument.

 

TRANSMISSION OF SHARES

 

35.                                In case of the death of a Member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was the sole holder, shall be the only persons recognized by the Company as having any title to his interest in the shares, but nothing herein contained shall release the estate of any such deceased holder from any liability in respect of any shares which had been held by him solely or jointly with other persons.

 

36.                                (a)                                  Any person becoming entitled to a share in consequence of the death or bankruptcy or liquidation or dissolution of a Member (or in any other way than by transfer) may, upon such evidence being produced as may from time to time be required by the Directors and subject as hereinafter provided, elect either to be registered himself as holder of the share or to make such transfer of the share to such other person nominated by him as the deceased or bankrupt person could have made and to have such person registered as the transferee thereof, but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by that Member before his death or bankruptcy, as the case may be.

 

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(b)                                  If the person so becoming entitled shall elect to be registered himself as holder, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects.

 

37.                                A person becoming entitled to a share by reason of the death or bankruptcy or liquidation or dissolution of the holder (or in any other case than by transfer) shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a Member in respect of the share, be entitled to exercise any right conferred by membership in relation to meetings of the Company; provided, however, that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the share, and if the notice is not complied with within ninety (90) days, the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the share until the requirements of the notice have been complied with.

 

AMENDMENT OF MEMORANDUM OF ASSOCIATION,

ALTERATION OF CAPITAL & CHANGE OF LOCATION OF REGISTERED OFFICE

 

38.                                (a)                                  Subject to and in so far as permitted by the provisions of the Statute and these Articles in particular Article 19, the Company may, from time to time, by a Special Resolution alter or amend its Memorandum and Articles with respect to any objects, powers or other matters specified therein provided always that the Company may, by an Ordinary Resolution:

 

(i)                                  increase the share capital by such sum to be divided into shares of such amount or without nominal or par value as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine;

 

(ii)                                   consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;

 

(iii)                                   by subdivision of its existing shares or any of them divide the whole or any part of its share capital into shares of smaller amount than is fixed by the Memorandum and Articles or into shares without nominal or par value; and

 

(iv)                               cancel any shares that at the date of the passing of the resolution have not been taken or agreed to be taken by any person.

 

(b)                                  All new shares created hereunder shall be subject to the same provisions with reference to the payment of calls, liens, transfer, transmission, forfeiture and otherwise as the shares in the original share capital.

 

(c)                                   Without prejudice to Article 11 hereof and subject to the provisions of the Statute and Article 19, the Company may, by a Special Resolution, reduce its share capital and any capital redemption reserve fund.

 

(d)                                  Subject to the provisions of the Statute, the Company may, by a resolution of the Directors, change the location of its registered office.

 

CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE

 

39.                                For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment thereof, or Members entitled to receive payment of any

 

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dividend, or in order to make a determination of Members for any other proper purpose, the Directors may provide that the register of Members shall be closed for transfers for a stated period but not exceeding ten (10) days in any case. If the register of Members shall be so closed for the purpose of determining Members entitled to notice of or to vote at a meeting of Members, such register shall be so closed for at least ten (10) days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the register of Members.

 

40.                                In lieu of or apart from closing the register of Members, the Directors may fix in advance a date as the record date for any such determination of Members entitled to notice of or to vote at a meeting of the Members and for the purpose of determining the Members entitled to receive payment of any dividend, the Directors may, at or within ninety (90) days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination.

 

41.                                If the register of Members is not so closed and no record date is fixed for the determination of Members entitled to notice of or to vote at a meeting of Members or Members entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this Article, such determination shall apply to any adjournment thereof.

 

GENERAL MEETING

 

42.                                (a)                                  Subject to Article 42(c)  hereof, the Company shall within one (1) year of its incorporation and in each year of its existence thereafter hold a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting of each year shall be held at such time and place as the Directors shall appoint.

 

(b)                                  At these meetings, the report of the Directors (if any) shall be presented.

 

(c)                                   If the Company is exempted as defined in the Statute, it may but shall not be obliged to hold an annual general meeting.

 

43.                                (a)                                  The Directors may whenever they think fit, and they shall on the requisition of Members of the Company holding at the date of the deposit of the requisition not less than one tenth (1/10) of the paid-up capital of the Company as at the date of the deposit carries the right of voting at general meetings of the Company, proceed to convene a general meeting of the Company.

 

(b)                                  The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office of the Company and may consist of several documents in like form each signed by one or more requisitionists.

 

(c)                                   If the Directors do not, within twenty-one (21) days from the date of the deposit of the requisition, duly proceed to convene a general meeting, the requisitionists, or any of them representing more than fifty percent (50%) of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three (3) months after the expiration of the said twenty-one (21) days.

 

(d)                                  A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as the general meetings convened by Directors.

 

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NOTICE OF GENERAL MEETINGS

 

44.                                At least twenty (20) days’ notice shall be given for an annual general meeting or any other general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner as may be prescribed by the Company provided that a general meeting of the Company shall, whether or not the notice specified in this Article has been given and whether or not the provisions of Article 43 have been complied with, be deemed to have been duly convened if it is so agreed:

 

(a)                                  in the case of a general meeting called as an annual general meeting by all the Members entitled to attend and vote thereat or their proxies; and

 

(b)                                  in the case of any other general meeting by a majority in number of the Members having a right to attend and vote at the meeting, being a majority together holding not less than seventy-five percent (75%) in nominal value or in the case of shares without nominal or par value seventy-five percent (75%) of the shares in issue, or their proxies.

 

45.                                The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a meeting by any person entitled to receive notice shall not invalidate the proceedings of that meeting.

 

PROCEEDINGS AT GENERAL MEETINGS

 

46.                                (a)                                  No business shall be transacted at any general meeting unless a quorum of Members is present at the time when the meeting proceeds to business; Members holding at least a majority of the Ordinary Shares (other than Ordinary Shares issued upon the conversion of any Preferred Shares), the Members holding at least a majority of Series A Preferred Shares, the Members holding at least a majority of Series B Preferred Shares and Series B-1 Preferred Shares and the Members holding at least a majority of Series C Preferred Shares, present in person or by proxy shall be a quorum provided always that if the Company has one (1) Member of record, the quorum shall be that one (1) Member present in person or by proxy.

 

(b)                                  A person may participate at a general meeting by telephone conference or other communications equipment by means of which all the persons participating in the meeting can communicate with each other. Participation by a person in a general meeting in this manner is treated as presence in person at that meeting.

 

47.                                Subject to Article 19, a Special Resolution in writing (in one or more counterparts) signed by all the Members which for the time are entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly authorized representatives) or an Ordinary Resolution in writing (in one or more counterparts) signed by the Members holding not less than ninety percent (90%) of all the issued and outstanding shares of the Company , shall each be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held.

 

48.                                If within thirty (30) minutes from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Members, shall be dissolved and in any other case, it shall stand adjourned to the same day in the next week at the same time and place or to such other time or such other place as the Directors may determine and if at the

 

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adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the Members present shall be a quorum.

 

49.          The Chairman, if any, of the Board of Directors shall preside as Chairman at every general meeting of the Company, or if there is no such Chairman, or if he shall not be present within fifteen (15) minutes after the time appointed for the holding of the meeting, or is unwilling to act, the Directors present shall elect one (1) of their number to be Chairman of the meeting.

 

50.          If at any general meeting no Director is willing to act as Chairman or if no Director is present within fifteen (15) minutes after the time appointed for holding the meeting, the Members present shall choose one of their number to be Chairman of the meeting.

 

51.          The Chairman may, with the consent of any general meeting duly constituted hereunder, and shall if so directed by the meeting, adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a general meeting is adjourned for thirty (30) days or more, notice of the adjourned meeting shall be given as in the case of an original meeting; save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned general meeting.

 

52.          At any general meeting, a resolution put to the vote of the meeting shall be decided on a poll.

 

53.          Each poll shall be taken in such manner as the Chairman directs and the result of the poll shall be deemed to be the resolution of the general meeting.

 

54.          The Chairman of the general meeting shall not be entitled to a second or casting vote under any circumstance.

 

VOTES OF MEMBERS

 

55.          Except as otherwise required by Law or as set forth herein and subject to Article 19, the holder of each Ordinary Share issued and outstanding shall have one (1) vote for each Ordinary Share held by such holder, and the holder of each Preferred Shares shall be entitled to the number of votes equal to the number of Ordinary Shares into which such Preferred Shares could be converted at the record date for determination of the Member’s entitlement to voting on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of Members is solicited, such votes to be counted together with all other shares of the Company having general voting power and not counted separately as a class. Holders of the Ordinary Shares and Preferred Shares shall be entitled to notice of all Members’ meeting in accordance with these Articles, and except as otherwise set forth in these Articles, shall vote together and not as separate classes.

 

56.          In the case of joint holders of record, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose, seniority shall be determined by the order in which the names stand in the register of Members.

 

57.          A Member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, receiver, curator bonis, or other person in the nature of a committee, receiver or

 

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curator bonis appointed by that court, and any such committee, receiver, curator bonis or other persons may vote by proxy.

 

58.          No Member shall be entitled to vote at any general meeting unless he is registered as a Member of the Company on the record date for such meeting.

 

59.          No objection shall be raised to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected to is given or tendered and every vote not disallowed at such general meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the general meeting whose decision shall be final and conclusive.

 

60.          Votes may be given either personally or by proxy.

 

PROXIES

 

61.          The instrument appointing a proxy shall be in writing and shall be executed under the hand of the appointor or of his attorney duly authorized in writing, or, if the appointor is a corporation, under the hand of an officer or attorney duly authorized in its behalf. A proxy need not be a Member of the Company.

 

62.          The instrument appointing a proxy shall be deposited at the registered office of the Company or at such other place as is specified for that purpose in the notice convening the meeting no later than the time for holding the meeting, or adjourned meeting, provided that the Chairman of the Meeting may at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited upon receipt of facsimile or electronic mail confirmation from the appointor that the instrument of proxy duly signed is in the course of transmission to the Company.

 

63.          The instrument appointing a proxy may be in any usual or common form and may be expressed to be for a particular meeting or any adjournment thereof or generally until revoked. An instrument appointing a proxy shall be deemed to include the power to demand or join or concur in demanding a poll.

 

64.          A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the share in respect of which the proxy is given, provided that no intimation in writing of such death, insanity, revocation or transfer as aforesaid shall have been received by the Company at the registered office before the commencement of the general meeting, or adjourned meeting at which it is sought to use the proxy.

 

65.          Any corporation which is a Member of record of the Company may in accordance with its articles of association or in the absence of such provision by resolution of its Directors or other governing body authorize such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members of the Company, and the person so authorized shall be entitled to exercise the same powers on behalf of the corporation which he represents as the corporation could exercise if it were an individual Member of record of the Company.

 

66.          Shares of its own capital belonging to the Company or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time.

 

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67.          Any Member may irrevocably appoint a proxy and in such case (i) such proxy shall be irrevocable in accordance with the terms of the instrument of appointment; (ii) the Member may not vote at any meeting at which the holder of such proxy votes; and (iii) the Company shall be obliged to recognize the holder of such proxy until such time as the Company is notified in writing that the proxy has been revoked in accordance with its terms.

 

DIRECTORS

 

68.                                (a)                                  Directors. There shall be a Board of Directors consisting of seven (7) persons; provided, however, that, subject to the consent of the holders of the Series A Preferred Shares, the holders of the Series B Preferred Shares and the Series B-1 Preferred Shares and the holders of the Series C Preferred Shares under Article 19 , the Company may from time to time by an Ordinary Resolution increase or reduce the limit in the number of Directors. For so long as there is any Series A Preferred Share outstanding, the holder who holds the highest percentage of the Series A Preferred Shares shall be entitled to designate/remove one (1) Director (the Series A Director ”). SIG shall be entitled to designate/remove one (1) Director (the Series B Director ”). For so long as there is any Series C Preferred Share outstanding, the holder who holds the highest percentage of the Series C Preferred Shares shall be entitled to designate/remove one (1) Director (the Series C Director ”). The holders of the Ordinary Shares (other than Ordinary Shares issued upon the conversion of Preferred Shares) shall be entitled to elect/remove by a majority vote four (4) Directors (collectively the Management Directors ”), one of whom shall be the then current Chief Executive Officer of the Company. Any appointment of a Director under this Article 68(a) shall be made by the applicable shareholder(s) upon the delivery of a notice of such appointment to the Company.

 

(b)           Observer(s). For so long as there is any Preferred Share outstanding, each holder of the Preferred Shares shall be entitled to, by notice to the Company, appoint/remove an observer to the Board of Directors and each committee thereof to attend board or board committee meetings of the Company and each of the other Group Company in a non-voting observer capacity (each, an Observer ”). The Company shall provide such Observers copies of all notices and materials at the same time and in the same manner as the same are provided to the Directors.

 

69.          The remuneration to be paid to the Directors shall be such remuneration as the Directors shall determine. Such remuneration shall be deemed to accrue from day to day. The Directors shall also be entitled to be paid their reasonable traveling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive a fixed allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such method and partly the other.

 

70.          Subject to the prior written approval of the Members by Special Resolution, the Directors may by resolution award special remuneration to any Director of the Company undertaking any special work or services for, or undertaking any special mission on behalf of the Company other than his ordinary routine work as a Director. Any fees paid to a Director who is also counsel or solicitor to the Company, or otherwise serves it in a professional capacity, shall be in addition to his remuneration as a Director.

 

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71.          A Director or alternate Director may hold any other office or place of profit in the Company (other than the office of Auditor) in conjunction with his office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine.

 

72.          A Director or alternate Director may act by himself or his firm in a professional capacity for the Company and he or his firm shall be entitled to remuneration for professional services as if he were not a Director or alternate Director.

 

73.          A shareholding qualification for Directors may be fixed by the Company in general meeting, but unless and until so fixed, no shareholding qualification for Directors shall be required.

 

74.          A Director or alternate Director of the Company may be or become a director or other officer of or otherwise interested in any company promoted by the Company or in which the Company may be interested as a shareholder or otherwise and no such Director or alternate Director shall be accountable to the Company for any remuneration or other benefits received by him as a director or officer of, or from his interest in, such other company.

 

75.          No person shall be disqualified from the office of Director or alternate Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director or alternate Director shall be in any way interested be or be liable to be avoided, nor shall any Director or alternate Director so contracting or being so interested be liable to account to the Company for any profit realized by any such contract or transaction by reason of such Director holding office or of the fiduciary relation thereby established. A Director (or his alternate Director in his absence) shall be at liberty to vote in respect of any contract or transaction in which he is so interested as aforesaid; provided, however, that the nature of the interest of any Director or alternate Director in any such contract or transaction shall be disclosed by him or the alternate Director appointed by him at or prior to its consideration and any vote thereon.

 

76.          A general notice or disclosure to the Directors or otherwise contained in the minutes of a Meeting or a written resolution of the Directors or any committee thereof that a Director or alternate Director is a Member of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure under Article 75 and after such general notice it shall not be necessary to give special notice relating to any particular transaction.

 

ALTERNATE DIRECTORS

 

77.          A Director who expects to be unable to attend Directors’ Meetings because of absence, illness or otherwise may appoint any person to be an alternate Director to act in his stead and such appointee whilst he holds office as an alternate Director shall, in the event of absence therefrom of his appointor, be entitled to attend meetings of the Directors and to vote thereat and to do, in the place and stead of his appointor, any other act or thing which his appointor is permitted or required to do by virtue of his being a Director as if the alternate Director were the appointor, other than appointment of an alternate to himself, and he shall ipso facto vacate office if and when his appointor ceases to be a Director or removes the appointee from office. Any appointment or removal under this Article shall be effected by notice in writing under the hand of the Director making the same.

 

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POWERS AND DUTIES OF DIRECTORS

 

78.          The business of the Company shall be managed by the Directors. The Directors may pay all expenses incurred in promoting, registering and setting up the Company, and may exercise all such powers of the Company as are not, from time to time by the Statute, or by these Articles, or such regulations, as may be prescribed by the Company in a general meeting required to be exercised by the Company in general meetings provided, however, that no regulations made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that regulation had not been made.

 

79.          Subject to Article 19, all cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed as the case may be in such manner as the Directors shall from time to time by resolution determine.

 

80.          The Directors shall cause minutes to be made in books provided for the purpose:

 

(a)           of all appointments of officers made by the Directors;

 

(b)           of the names of the Directors (including those represented thereat by an alternate or by proxy) present at each meeting of the Directors and of any committee of the Directors; and

 

(c)           of all resolutions and proceedings at all meetings of the Company and of the Directors and of committees of Directors.

 

The Company shall cause copies of all such minutes to be delivered to the holders of the Preferred Shares, each Director and Observer, through email, facsimile, registered mail, or the like ways within fourteen (14) days after the relevant meeting.

 

81.          The Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or to his widow or dependents and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.

 

82.          Subject to Article 19, the Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or of any third party.

 

MANAGEMENT

 

83.          Subject to Article 19 hereof,

 

(a)           The Directors may from time to time and at any time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the next three (3) paragraphs shall be without prejudice to the general powers conferred by this paragraph.

 

(b)           The Directors may from time to time and at any time establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any persons to be members of such committees or local boards or any managers or agents and may fix their remuneration.

 

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(c)           The Directors may from time to time and at any time delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorize the members for the time being of any such local board, or any of them to fill any vacancy therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.

 

(d)           Any such delegate as aforesaid may be authorized by the Directors to sub-delegate all or any of the powers, authorities, and discretions for the time being vested in them.

 

MANAGING DIRECTORS

 

84.          Subject to Article 19, the Directors may, from time to time, appoint one or more of their body (but not an alternate Director) to the office of a Managing Director for such term and at such remuneration (whether by way of salary, or commission, or participation in profits, or a combination of any of the foregoing) as they may think fit but his appointment shall be subject to determination ipso facto if he ceases for any cause to be a Director and no alternate Director appointed by him can act in his stead as a Director or a Managing Director.

 

85.          The Directors may entrust to and confer upon a Managing Director any of the powers exercisable by them upon such terms and conditions and with such restrictions as they may think fit and either collaterally with or to the exclusion of their own powers and may from time to time revoke, withdraw, alter or vary all or any of such powers.

 

PROCEEDINGS OF DIRECTORS

 

86.          Except as otherwise provided by these Articles, the Directors shall meet together for the despatch of business, convening, adjourning and otherwise regulating their meetings as they think fit, but no less frequent than once every quarter. Subject to Article 19, questions arising at any meeting shall be decided by a majority of votes of the Directors present at a meeting at which there is a quorum.

 

87.          A Director or alternate Director may, and the Secretary on the requisition of a Director or alternate Director shall, at any time summon a meeting of the Directors by at least twenty (20) days’ notice in writing to every Director and alternate Director, which notice shall set forth the general nature of the business to be considered unless notice is waived by all the Directors (or their alternates) either at, before or after the meeting is held and provided further , that, if notice is given in person, by facsimile or electronic mail the same shall be deemed to have been given on the day it is delivered to the Directors or transmitting organization, as the case may be. The provisions of Article 44 shall apply mutatis mutandis with respect to notices of meetings of Directors.

 

88.          The quorum necessary for the transaction of the business shall be four (4) Directors, inclusive of the Series A Director, the Series B Director and the Series C Director. If the number of the Directors who attend the meeting is less than the quorum, no resolutions shall be adopted by such meeting. A Director and his appointed alternate Director shall be considered only one (1) person for the purpose of quorum, provided always, that if there shall at any time be only a sole Director, the quorum shall be one. For the purposes of this Article, an alternate Director or proxy appointed by a Director shall be counted in a quorum at a meeting at which the Director appointing him is not present. In the case of an equality of votes in a Board meeting, no Director shall have a second or casting vote and the second Board meeting shall be convened

 

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within thirty (30) days in which the unresolved matter shall be put to the vote again. In case that the matter cannot be resolved in the second Board meeting, such matter shall be put to the vote in the general meeting of the shareholders of the Company in accordance with these Articles.

 

89.          The continuing Directors may act notwithstanding any vacancy in the Board of Directors, but if and so long as their number is reduced below the minimum number fixed by or pursuant to these Articles, the continuing Directors, notwithstanding that the number of Directors is reduced below the number fixed by or in accordance with these Articles as the quorum or that there is only one continuing Director, may act for the purpose of filling vacancies in the Board or of summoning a general meeting of the Company, but not for any other purpose.

 

90.          The Directors may elect a Chairman of the Board of Directors and determine the period for which he is to hold office; but if no such Chairman is elected, or if at any meeting, the Chairman is not present within five (5) minutes after the time appointed for holding the same, the Directors present may choose one of their number to be the Chairman of the meeting. The Chairman of the Board meeting shall not be entitled to a second or casting vote under any circumstance.

 

91.          The Directors may delegate any of their powers to committees consisting of such member or members of the Board of Directors (including Alternate Directors in the absence of their appointors) as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors.

 

92.          A committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members present, and in the case of an equality of votes the Chairman shall not have a second or casting vote.

 

93.          All acts done by any meeting of the Directors or of a committee of Directors (including any person acting as an alternate Director) shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or alternate Director, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and qualified to be a Director or alternate Director, as the case may be.

 

94. Members of the Board of Directors or of any committee thereof may participate in a meeting of the Board of Directors or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. A resolution in writing (in one or more counterparts), signed by all the Directors for the time being or all the members of a committee of Directors (an alternate Director being entitled to sign such resolution on behalf of his appointor) shall be as valid and effectual as if it had been passed at a meeting of the Directors or committee, as the case may be duly convened and held.

 

95.                                (a)           A Director may be represented at any meetings of the Board of Directors by a proxy appointed by him in which event the presence or vote of the proxy shall for all purposes be deemed to be that of the Director. Such proxy can be another Director or any other person.

 

(b)           The provisions of Articles 61 - 64 shall mutatis mutandis apply to the appointment of proxies by Directors.

 

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VACATION OF OFFICE OF DIRECTOR

 

96.          The office of a Director shall be vacated:

 

(a)           if he gives notice in writing to the Company that he resigns the office of Director;

 

(b)           if he absents himself (without being represented by proxy or an alternate Director appointed by him) from three (3) consecutive meetings of the Board of Directors without special leave of absence from the Directors, and they pass a resolution that he has by reason of such absence vacated office;

 

(c)           if he dies, becomes bankrupt or makes any arrangement or composition with his creditors generally;

 

(d)           if he is found a lunatic or becomes of unsound mind; or

 

(e)           if he is removed by a shareholder vote by the holders of the class of shares that originally appointed him, as set forth in Article 68.

 

APPOINTMENT AND REMOVAL OF DIRECTORS

 

97.          The Directors of the Company may only be appointed or removed as provided in Article 68 . No Director designated or appointed pursuant to this Article may be removed from office unless (A) such removal is directed or approved of the Member which originally designated or appoint such Director, or (B) the Member(s) originally entitled to designate or appoint such Director pursuant to these Articles is no longer so entitled to designate or appoint such Director. Any vacancy on the Board of Directors occurring because of the death, resignation or removal of a director shall be filled by the vote or written consent of the same shareholder or shareholders who nominated and elected such Director.

 

98.          In the absence of reasonable cause, a Director of the Company shall only be removed by the Members who nominated and elected him as provided in Article 68.

 

PRESUMPTION OF ASSENT

 

99.          A Director of the Company who is present at a meeting of the Board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the Minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action.

 

SEAL

 

100.                         (a)                                  The Company may, if the Directors so determine, have a Seal which shall, subject to Article 100(c)  below, only be used by the authority of the Directors or of a committee of the Directors authorized by the Directors in that behalf and every instrument to which the Seal has been affixed shall be signed by one (1) person who shall be either a Director or the Secretary or secretary treasurer or some person appointed by the Directors for such purpose.

 

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(b)           The Company may have a duplicate Seal or Seals each of which shall be a facsimile of the Seal of the Company and, if the Directors so determine, with the addition on its face of the name of every place where it is to be used.

 

(c)           A Director, Secretary or other officer or representative or attorney may without further authority of the Directors affix the Seal of the Company over his signature alone to any document of the Company required to be authenticated by him under Seal or to be filed with the Registrar of Companies in the Cayman Islands or elsewhere wheresoever.

 

OFFICERS

 

101.        Subject to Article 19, the Company may have a chief executive officer, a president, a chief financial officer, a secretary or a secretary treasurer appointed by the Directors who may also from time to time appoint such other officers as they consider necessary, all for such terms, at such remuneration and to perform such duties, and subject to such provisions as to disqualification and removal as the Directors from time to time prescribe.

 

DIVIDENDS, DISTRIBUTIONS AND RESERVE

 

102.                         (a)           Subject to the Statute and these Articles, in particular Article 86, the Directors may from time to time declare dividends (including interim dividends) and distributions on shares of the Company outstanding and authorize payment of the same out of the funds of the Company lawfully available therefor and in accordance with the provisions of this Article 102.

 

(b)           No dividends shall be declared or paid during any fiscal year of the Company in cash, properties, shares or any other means unless otherwise agreed by the Board of Directors, including the consent of the Series A Director, the Series B Director, and the Series C Director.

 

103.        The Directors may, before declaring any dividends or distributions, set aside such sums as they think proper as a reserve or reserves which shall at the discretion of the Directors, be applicable for any purpose of the Company and pending such application may, at the like discretion, be employed in the business of the Company.

 

104.        No dividend or distribution shall be payable except out of the profits of the Company, realized or unrealized, or out of the Share Premium Account or as otherwise permitted by the Statute.

 

105.        Subject to the rights of persons, if any, entitled to shares with special rights as to dividends or distributions, if dividends or distributions are to be declared on a class of shares they shall be declared and paid according to the amounts paid or credited as paid on the shares of such class outstanding on the record date for such dividend or distribution as determined in accordance with these Articles but no amount paid or credited as paid on a share in advance of calls shall be treated for the purpose of this Article as paid on the share.

 

106.        The Directors may deduct from any dividend or distribution payable to any Member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.

 

107.        The Directors may declare that any dividend or distribution be paid wholly or partly by the distribution of specific assets and in particular of paid up shares, debentures, or debenture stock of any other company or in any one or more of such ways and where any

 

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difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular, may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the footing of the value so fixed in order to adjust the rights of all Members and may vest any such specific assets in trustees as may seem expedient to the Directors.

 

108.        Any dividend, distribution, interest or other monies payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the holder who is first named on the register of Members or to such person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one (1) of two (2) or more joint holders may give effectual receipts for any dividends, bonuses, or other monies payable in respect of the share held by them as joint holders.

 

109.        No dividend or distribution shall bear interest against the Company.

 

CAPITALIZATION

 

110.        Subject to Article 19, the Company may upon the recommendation of the Directors by an Ordinary Resolution authorize the Directors to capitalize any sum standing to the credit of any of the Company’s reserve accounts (including Share Premium Account and capital redemption reserve fund) or any sum standing to the credit of profit and loss account or otherwise available for distribution and to appropriate such sum to Members in the proportions in which such sum would have been divisible amongst them had the same been a distribution of profits by way of dividend and to apply such sum on their behalf in paying up in full unissued shares for allotment and distribution credited as fully paid up to and amongst them in the proportion aforesaid. In such event the Directors shall do all acts and things required to give effect to such capitalization, with full power to the Directors to make such provisions as they think fit for the case of shares becoming distributable in fractions (including provisions whereby the benefit of fractional entitlements accrue to the Company rather than to the Members concerned). The Directors may authorize any person to enter on behalf of all of the Members interested into an agreement with the Company providing for such capitalization and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned.

 

BOOKS OF ACCOUNT

 

111.        The Directors shall cause proper books of account to be kept with respect to:

 

(a)           all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place;

 

(b)           all sales and purchases of goods by the Company; and

 

(c)           the assets and liabilities of the Company.

 

Proper books shall not be deemed to be kept if such books of account are not kept as necessary to give a true and fair view of the state of the Company’s affairs and to explain its transactions.

 

112.        The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors and no Member (not being a Director) shall have any right of inspecting any account or book

 

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document of the Company except as conferred by Statute or authorized by the Directors or by the Company in general meeting.

 

113.                         The Directors may from time to time cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance sheets, group accounts (if any) and such other reports and accounts as may be required by law.

 

AUDIT

 

114.                         The Directors shall deliver to the holders of the Preferred Shares, (1) within ninety (90) days after the end of each fiscal year of the Group Companies beginning in 2012, a consolidated, audited annual financial statements for the Company for such fiscal year, audited and certified by the Auditor; (2) within thirty (30) days after the end of each fiscal quarter, a consolidated un-audited quarterly financial statement of the Group Companies; (3) within thirty (30) days after the end of each month, a consolidated un-audited monthly financial statement of the Group Companies; (4) no later than thirty (30) days prior to the beginning of each fiscal year, a comprehensive operating budget forecasting the revenues, expenses and cash position of the Group Companies on a quarter-to-quarter basis for the succeeding fiscal year which has been approved by the Board of Directors; (5) within thirty (30) days of the end of each fiscal quarter, an up-to-date capitalization table certified by the chief executive officer of the Company; and (6) upon the written request by the holders of any Preferred Shares, such other information as such holder shall reasonably request.

 

115.                         For so long as any holder of the Preferred Shares continues to hold the Preferred Shares, (or Ordinary Shares received upon conversion of the Preferred Shares), each such holder shall be entitled to visit and inspect, during normal business hours following five-day prior written notice by such holder to such member of the Group Companies and in a manner so as not to interfere with the normal business operations of the Group Companies, any of the properties of the Group Companies, and examine the books of account and records of the Group Companies, and discuss the affairs, finances and accounts of the Group Companies with the directors, officers, management employees, accountants, legal counsel and investment bankers of such companies, all at such reasonable times as may be requested in writing by such holder; provided, that such holder agrees to keep confidential any information so obtained.

 

116.                         For so long as any holder of the Preferred Shares continues to hold the Preferred Shares (or Ordinary Shares received upon conversion of the Preferred Shares), the Directors shall provide each such holder with copies of (i) promptly after filing, all of the Company’s annual and periodic reports made available to its Members as well as all public reports (including any periodic, interim, or extraordinary reports) filed with the Securities and Futures Commission of the Hong Kong Special Administrative Region, the China Securities and Regulatory Commission of the People’s Republic of China , the U.S. Securities and Exchange Commission, or any other stock exchange or securities regulatory authority; and (ii) promptly upon request, current versions of investment documents and all documents relating to any subsequent financings by the Company, or otherwise affecting the Preferred Shares or the holders of the Preferred Shares, in each case with all amendments and restatements.

 

117.                         Subject to Article 19, the Company may, by a Board Resolution (including the affirmative vote of the Series A Director, the Series B Director and the Series C Director), appoint an Auditor or Auditors of the Company who shall hold office until the next annual general meeting and may fix his or their remuneration.

 

118.                         The Directors may before the first annual general meeting appoint an Auditor or Auditors of the Company who shall hold office until the first annual general meeting unless

 

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previously removed by an Ordinary Resolution of the Members in general meeting in which case the Members at that meeting may appoint Auditors. The Directors may fill any casual vacancy in the office of Auditor but while any such vacancy continues, the surviving or continuing Auditor or Auditors, if any, may act. The remuneration of any Auditor appointed by the Directors under this Article may be fixed by the Directors.

 

119.                         Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and Officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors.

 

120.                         Auditors shall at the next annual general meeting following their appointment and at any other time during their term of office, upon request of the Directors or any general meeting of the Members, make a report on the accounts of the Company in general meeting during their tenure of office.

 

NOTICES

 

121.                         Notices shall be in writing and may be given by the Company to any Member either personally or by sending it by overnight or international courier, facsimile or electronic mail to him or to his address as shown in the register of Members.

 

122.                         (a)                                  Where a notice is sent by overnight or international courier, service of the notice shall be deemed to be effected by properly addressing, pre-paying and posting a letter containing the notice, and to have been effected at the expiration of sixty (60) hours after the letter containing the same is sent by overnight or international courier as aforesaid.

 

(b)                                  Where a notice is sent by facsimile or electronic mail, service of the notice shall be deemed to be effected on the day the same is sent as aforesaid.

 

123.                         A notice may be given by the Company to the joint holders of record of a share by giving the notice to the joint holder first named on the register of Members in respect of the share.

 

124.                         A notice may be given by the Company to the person or persons which the Company has been advised are entitled to a share or shares in consequence of the death or bankruptcy of a Member by sending it through overnight or international courier as aforesaid in a pre-paid letter addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address supplied for that purpose by the persons claiming to be so entitled, or at the option of the Company by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred.

 

125.                         Notice of every general meeting shall be given in any manner hereinbefore authorized to:

 

(a)                                  every person shown as a Member in the register of Members as of the record date for such meeting except that in the case of joint holders the notice shall be sufficient if given to the joint holder first named in the register of Members; and

 

(b)                                  every person upon whom the ownership of a share devolves by reason of his being a legal personal representative or a trustee in bankruptcy of a Member of record where the Member of record but for his death or bankruptcy would be entitled to receive notice of the meeting.

 

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No other person shall be entitled to receive notices of general meetings.

 

WINDING UP

 

126.                         Subject to these Articles, if the Company shall be wound up, the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Statute, divide amongst the Members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for such purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any shares or other securities whereon there is any liability.

 

LIQUIDATION PREFERENCE.

 

127.                         Upon any liquidation, dissolution or winding up of the Company, either voluntary or involuntary (each a “ Liquidation Event ), distributions to the Members of the Company shall be made in the following manner:

 

(a)                                  Before any distribution or payment shall be made to the holders of any Series C Shares, Series B-1 Preferred Shares, Series B Preferred Shares, any Series A Preferred Shares and any Ordinary Shares, (A) each holder of Series D-1 Preferred Shares shall be entitled to receive an amount equal to, (i) prior to the consummation of the Deferred Payment of Purchase Price, (x) annual interest calculated at an Internal Rate of Return of twelve percent (12%) based on the applicable Actual Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), as applicable, from the date of issuance of such Preferred Share and up to and including the date of receipt by the holder thereof of the full Series D-1 Liquidation Preference, which shall be paid to the holders of the Series D-1 Preferred Shares; plus (y) the amount of Domestic Loan that the WFOE received pursuant to the Domestic Loan Agreement, which amount shall be repaid by WFOE to the Investor’s Affiliate pursuant to this Articles and the Domestic Loan Agreement but in no event that the sum of the foregoing (x) and (y) shall exceed one hundred and fifty five percent (155%) of the applicable Actual Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus (z) all dividends accrued and unpaid with respect thereto per Series D-1 Preferred Share then held by such holder; or (ii) upon or after the consummation of the Deferred Payment of Purchase Price, the applicable Actual Issue Price plus annual interest calculated at an Internal Rate of Return of twelve percent (12%) based on the applicable Actual Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), as applicable, from the date of issuance of such Preferred Share and up to and including the date of receipt by the holder thereof of the full Series D-1 Liquidation Preference, but in no event that the foregoing amount shall exceed one hundred and fifty five percent (155%) of the applicable Actual Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto per Series D-1 Preferred Share then held by such holder (with respect to the Series D-1 Preferred Shares, the “ Series D-1 Liquidation Preference ”), and (B) each holder of Series D Preferred Shares shall be entitled to receive an amount equal to the applicable Actual Issue Price plus annual interest calculated at an Internal Rate of Return of twelve percent (12%) based on the applicable Actual Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), as applicable, from the date of issuance of such Preferred Share and up to and including the date of receipt by the holder thereof of the full Series D Liquidation Preference, but in no event that the foregoing amount shall exceed one hundred

 

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and fifty five percent (155%) of the applicable Actual Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), plus all dividends accrued and unpaid with respect thereto per Series D Preferred Share then held by such holder (with respect to the Series D Preferred Shares, the “ Series D Liquidation Preference ”). If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series D-1 Preferred Shares and Series D Preferred Shares, then such assets shall be distributed among the holders of Series D-1 Preferred Shares and the holders of Series D Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon; for the avoidance of doubts, for the purpose of calculating the aforesaid allocation proportion, prior to the consummation of the Deferred Payment of Purchase Price, the repayment of the Domestic Loan shall be considered as part of Series D-1 Liquidation Preference, hence, in case of insufficient funds, as part of payment of Series D-1 Liquidation Preference, WFOE may only be obligated to repay such portion of the Domestic Loan based on the aforesaid allocation mechanism.

 

(b)                                  Before any distribution or payment shall be made to the holders of any Series B-1 Preferred Shares, Series B Preferred Shares, any Series A Preferred Shares and any Ordinary Shares, each holder of Series C Preferred Shares shall be entitled to receive an amount equal to one hundred and fifteen percent (115%) of the applicable Actual Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), as applicable, plus all dividends accrued and unpaid with respect thereto (the “ Series C Liquidation Preference ) (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series C Preferred Share then held by such holder. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series C Preferred Shares, then such assets shall be distributed among the holders of Series C Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

(c)                                   Before any distribution or payment shall be made to the holders of any Series A Preferred Shares and any Ordinary Shares, each holder of Series B-1 Preferred Shares and Series B Preferred Shares shall be entitled to receive an amount equal to one hundred and thirty percent (130%) of the applicable Actual Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), as applicable, plus all dividends accrued and unpaid with respect thereto (the “ Series B Liquidation Preference ) (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series B-1 Preferred Share or Series B Preferred Share (as applicable) then held by such holder. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series B Preferred Shares, then such assets shall be distributed among the holders of Series B-1 Preferred Shares and Series B Preferred Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

(d)                                  Subject to Article 127(a), (b) and (c), before any distribution or payment shall be made to the holders of any Ordinary Shares, each holder of Series A Preferred Shares shall be entitled to receive an amount equal to the applicable Actual Issue Price (adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions), as applicable, plus all dividends accrued and unpaid with respect thereto (the “ Series A Liquidation Preference , together with the Series C Liquidation Preference and the Series B Liquidation Preference, the “ Liquidation Preference ) (as adjusted for any share splits, share dividends, combinations, recapitalizations and similar transactions) per Series A Preferred Share then held by such holder. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment of the foregoing amounts in full on all Series A Preferred Shares, then such assets shall be distributed among the holders of Series A Preferred

 

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Shares, ratably in proportion to the full amounts to which they would otherwise be respectively entitled thereon.

 

(e)                                   After distribution or payment in full of the amount distributable or payable on the Preferred Shares pursuant to paragraphs (a), (b), (c) and (d) of this Article 127, the remaining assets and/or proceeds, cash or otherwise, of the Company available for distribution to members shall be distributed ratably among the holders of issued and outstanding Ordinary Shares and the holders of issued and outstanding Preferred Shares in proportion to the number of issued and outstanding Ordinary Shares held by them (with issued and outstanding Preferred Shares treated on an as-if-converted basis).

 

(f)                                    Liquidation on Sale or Merger. The following events shall be treated as a liquidation under this Article 127 unless waived by the holders of at least a majority of the issued and outstanding Series A Preferred Shares, the holders of at least a majority of the issued and outstanding Series B Preferred Shares and Series B-1 Preferred Shares, the holders of at least a majority of the issued and outstanding Series C Preferred Shares and the holders of at least a majority of the issued and outstanding Series D and Series D-1 Preferred Shares, each voting together as a single group on an as-converted basis (each, a Deemed Liquidation Event ) , and for the avoidance of doubt, a Drag-Along Sale under Article 10B shall not be considered as a Deemed Liquidation Event:

 

(1)                                  any consolidation, amalgamation or merger of the Company with or into any other Person or other corporate reorganization, in which the members of the Company immediately prior to such consolidation, amalgamation, merger or reorganization, own less than fifty percent (50%) of the Company’s voting power immediately after such consolidation, merger, amalgamation or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company’s voting power is transferred, but excluding any transaction effected solely for tax purposes or to change the Company’s domicile;

 

(2)                                  the sale, exchange, transfer or other disposition, in one or a series of related transactions, of a majority of the outstanding share capital of the Company to one Person or a group of Persons acting in concert, under circumstances in which the holders of a majority in voting power of the outstanding share capital of the Company immediately prior to such transaction beneficially own less than a majority in voting power of the outstanding share capital of the surviving entity or the acquiring Person immediately following such transaction;

 

(3)                                  a sale, lease or other disposition of all or substantially all of the assets of the Company or any Group Company; or

 

(4)                                  the exclusive licensing of all or substantially all of the Company’s or any Group Company’s intellectual property to a third party.

 

Upon any such event, any proceeds resulting to the shareholders of the Company therefrom shall be distributed in accordance with the terms of paragraphs (a) to (e) of this Article 127.

 

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(g)                                   In the event the Company proposes to distribute assets other than cash in connection with any liquidation, dissolution or winding up of the Company, the value of the assets to be distributed to the holder of the Preferred Shares and Ordinary Shares shall be determined in good faith by the Board of Directors, or by a liquidator if one is appointed. Any securities not subject to investment letter or similar restrictions on free marketability shall be valued as follows:

 

(i)                              if traded on a securities exchange, the value shall be deemed to be the average of the security’s closing prices on such exchange over the thirty (30) day period ending one (1) day prior to the distribution;

 

(ii)                               if traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the thirty (30) day period ending three (3) days prior to the distribution; and

 

(iii)                                if there is no active public market, the value shall be the fair market value thereof as determined in good faith by the Board of Directors.

 

The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be adjusted to make an appropriate discount from the market value determined as above in sub-paragraph (i), (ii) or (iii) to reflect the fair market value thereof as determined in good faith by the Board of Directors, or by a liquidator if one is appointed. Each of the holders of at least a majority of the issued and outstanding Series A Preferred Shares, the holders of at least a majority of the issued and outstanding Series B Preferred Shares and Series B-1 Preferred Shares, the holders of at least a majority of the issued and outstanding Series C Preferred Shares and the holders of at least a majority of the issued and outstanding Series D and Series D-1 Preferred Shares shall have the right to challenge any determination by the Board of Directors of fair market value pursuant to this Article 127(g), in which case the determination of fair market value shall be made by one of the Big 4 accounting firms as an independent appraiser selected jointly by the Board of Directors and the challenging parties, the cost of such appraisal to be borne equally by the Company and the challenging parties.

 

Notwithstanding anything contrary contained in the Articles and without prejudice to any rights of the holder of Series D-1 Preferred Shares and the holders of Series D Preferred Shares, in the event that the Company proposes to distribute assets in combination of cash and non-cash assets, the holder of Series D-1 Preferred Shares and each of the holders of Series D Preferred Shares shall have the right to choose the forms of assets it will receive, including cash, non-cash assets or a combination of the foregoing, before any distribution or payment shall be made to the holders of any Series C Shares, Series B-1 Preferred Shares, Series B Preferred Shares, any Series A Preferred Shares and any Ordinary Shares. If the assets available for distribution is insufficient to pay in full in the form as requested by the holder of Series D-1 Preferred Shares and such holders of Series D Preferred Shares, all of the available asset as requested by such holder of Series D-1 Preferred Shares and such holders of Series D Preferred Shares shall be distributed among the holder of Series D-1 Preferred Shares and the holders of Series D Preferred Shares of such request on a pro rata basis. For the avoidance of doubt, the value of non-cash assets shall be the fair value as of the date of distribution as determined in accordance with Articles 127(g) .

 

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INDEMNITY

 

128.                         The Directors and officers for the time being of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and their respective heirs, executors, administrators and personal representatives shall be indemnified out of the assets of the Company from and against all actions, proceedings, costs, charges, losses, damages and expenses which they or any of them shall or may incur or sustain by reason of any act done or omitted in or about the execution of their duty in their respective offices or trusts, except such (if any) as they shall incur or sustain by or through their own willful neglect or default and no such Director, officer or trustee shall be answerable for the acts, receipts, neglects or defaults of any other Director, officer or trustee or for joining in any receipt for the sake of conformity or for the solvency or honesty of any banker or other persons with whom any monies or effects belonging to the Company may be lodged or deposited for safe custody or for any insufficiency of any security upon which any monies of the Company may be invested or for any other loss or damage due to any such cause as aforesaid or which may happen in or about the execution of his office or trust unless the same shall happen through the willful neglect or default of such Director, officer or trustee.

 

FINANCIAL YEAR

 

129.                         Unless the Directors otherwise prescribe, the financial year of the Company shall end on December 31 in each year and, following the year of incorporation, shall begin on January 1 in each year.

 

AMENDMENTS OF ARTICLES

 

130.                         Subject to the Statute and Article 19 above and to any quorum, voting or procedural requirements expressly imposed by these Articles in regard to the variation of rights attached to a specific class of shares of the Company, the Company may at any time and from time to time by a Special Resolution, change the name of the Company or alter or amend these Articles or the Memorandum, in whole or in part.

 

TRANSFER BY WAY OF CONTINUATION

 

131.                         If the Company is exempted as defined in the Statute, it shall, subject to the provisions of the Statute and with the approval of a Special Resolution, have the power to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands.

 

NO PUBLIC DOCUMENT

 

132.                         None of the documents of the Company, including its Memorandum, these Articles, or any register of Members, Directors, transfers or changes, will be exhibited as a public document in the Cayman Islands.

 

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SCHEDULE A

 

PROVISIONS RELATING TO TRANSFER OF SHARES

 

SECTION 1

DEFINITIONS

 

For the purposes of this Schedule A, the following terms shall have the meanings indicated below. All capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in these Articles or the Shareholders’ Agreement, as the case may be. Unless otherwise specified, the words “ hereof ”, “ herein ”, “ hereunder ” and “ hereto ” and words of like import, refer to this Schedule A.

 

Equity Securities ” means any Ordinary Shares and/or Ordinary Share Equivalents of the Company.

 

Holder(s) ” means the holder(s) of Registrable Securities who are Parties to the Shareholders’ Agreement from time to time, and their permitted transferees that become Parties to the Shareholders Agreement from time to time.

 

Ordinary Share Equivalents ” means warrants, options and rights exercisable for Ordinary Shares or securities convertible into or exchangeable for Ordinary Shares, including, without limitation and the Preferred Shares.

 

Party ” or “ Parties ” shall mean one of or more parties to the Shareholders’ Agreement.

 

Registrable Securities ” means (a) the Ordinary Shares issuable or issued upon conversion of the Preferred Shares, (b) any Ordinary Shares owned or hereafter acquired by any Preferred Shareholder, and (c) any Ordinary Shares of the Company issued as a dividend or other distribution with respect to, in exchange for, or in replacement of, the shares referenced in (a) and (b) herein. For purposes of this Schedule A, (a) Registrable Securities shall cease to be Registrable Securities when a Registration Statement covering such Registrable Securities has been declared effective under the Securities Act by the Commission whether or not such Registrable Securities have been disposed of pursuant to such effective Registration Statement, and (b) the Registrable Securities of a Holder shall not be deemed to be Registrable Securities at any time when the entire amount of such Registrable Securities proposed to be sold by such Holder in a single sale are or, in the opinion of counsel satisfactory to the Company and such Holder, each in their reasonable judgment, may be, so distributed to the public pursuant to Rule 144 (or any successor provision then in effect) under the Securities Act in any three (3) month period or any such Registrable Securities have been sold in a sale made pursuant to Rule 144 of the Securities Act.

 

Transaction Documents means the Series D-1 Preferred Shares Purchase Agreement, the Memorandum and Articles and the Ancillary Agreements (as defined therein), and other agreements and documents the execution and delivery of which is contemplated under the Shareholder’s Agreement.

 

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SECTION 2

TRANSFER OF SHARES

 

2.1.             Holders of Ordinary Shares .

 

Except as provided herein and the Shareholders Agreement, any holder (whether directly or indirectly, including but not limited to each Founder who holds the Ordinary Shares of the Company through the Founder Hold Cos) of Ordinary Shares of the Company other than the Holders, Zhu Haiyan or holders of Ordinary Shares converted from Preferred Shares (each a “ Restricted Shareholder ), regardless of any such holder’s employment status with any member of the Group Companies or the Founder Hold Cos, may not transfer, directly or indirectly, any interest in any Equity Securities of the Company now or hereafter owned or held directly or indirectly by him or her prior to a Qualified IPO or a Liquidation Event, unless otherwise approved in writing by (i) the Majority Preferred Holders, or (ii) the Board (including the approval of the Series A Director, the Series B Director and the Series C Director) and a majority of Series D and Series D-1 Preferred Shareholders. For the purposes hereof, redemption or repurchase of Shares by the Company shall not be prohibited under this clause.

 

2.2.             Permitted Transfers .

 

Subject to the provisions of Sections 3 and 6.3 hereof, after the Initial Closing (as defined in the Series D-1 Preferred Shares Purchase Agreement) and prior to the closing of a Qualified IPO, each Founder may sell or otherwise assign to any third party in one transaction or a series of transactions up to twenty percent (20%) of the Ordinary Shares directly or indirectly held by such Founder as of the date hereof, subject to the adjustment of any share splits, share dividends, combinations, recapitalizations and similar transactions, provided that the valuation of the Company in such transaction(s) is no less than US$700,000,000. For the avoidance of doubt, each of the Series A Preferred Shareholders, the Series B Preferred Shareholders, the Series C Preferred Shareholders, the Series D Preferred Shareholders and the Series D-1 Preferred Shareholders shall have the right of first refusal to purchase the shares transferred by the Founders under this Section 2.2 pursuant to Section 3.

 

For the avoidance of doubt, each of Series A Preferred Shareholders, Series B Preferred Shareholders, Series B-1 Preferred Shareholders, Series C Preferred Shareholders, Series D Preferred Shareholders and the Series D-1 Preferred Shareholders may transfer any Equity Securities of the Company now or hereafter owned or held by it as a result of its purchase of any Preferred Shares to any third party; provided that (i) such transfer is effected in compliance with all applicable Laws, (ii) the transferee shall have executed and delivered a deed of adherence in form and substance satisfactory to the Series A Preferred Shareholders, the Series B Preferred Shareholders, Series B-1 Preferred Shareholders, the Series C Preferred Shareholders, the Series D Preferred Shareholders and the Series D-1 Preferred Shareholders and take such other actions as may be necessary for the transferee to join in and be bound by the terms of these Articles and the Shareholders’ Agreement as the “Series A Preferred Shareholder”, the “Series B Preferred Shareholder”, the “Series C Preferred Shareholder”, the “Series D Preferred Shareholder” or the “Series D-1 Preferred Shareholder” or the “Series D and Series D-1 Preferred Shareholder”(if not already a party thereto) upon and after such transfer; (iii) the other holders holding Series A Preferred Shares may have the right of first refusal to purchase the shares transferred by such Series A Investor subject to the same terms and conditions; (iv) the other holders holding Series B Preferred Shares may have the right of first refusal to purchase the shares transferred by such Series B Investor subject to the same terms and conditions; (v) the other holders holding Series B-1

 

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Preferred Shares may have the right of first refusal to purchase the shares transferred by such Series B-1 Investor subject to the same terms and conditions; (vi) the other holders holding Series C Preferred Shares may have the right of first refusal to purchase the shares transferred by such Series C Investor subject to the same terms and conditions; (vii) the other holders holding Series D Preferred Shares may have the right of first refusal to purchase the shares transferred by such Series D Investor subject to the same terms and conditions; (viii) the other holders holding Series D-1 Preferred Shares may have the right of first refusal to purchase the shares transferred by such Series D-1 Investor subject to the same terms and conditions, and (ix) the Series D and Series D-1 Preferred Shareholders shall have the right of first refusal to purchase, on a pro rata basis, the Shares transferred by any shareholder of the Company as of the date hereof (including the Shares held by the holders of Series A Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series D-1 Preferred Shares and Ordinary Shares) subject to the same terms and conditions. Notwithstanding the foregoing, each of the Series A Preferred Shareholders, the Series B Preferred Shareholders, Series B-1 Preferred Shareholders, the Series C Preferred Shareholders, Series D and Series D-1 Preferred Shareholders may be entitled to transfer all its shares in the Company to its Affiliate, and the other shareholders of the Company shall give consent to such share transfer irrevocably and waive its right of first refusal and co-sale right (if any) with respect to such share transfer, provided that such transfer by such Series A Preferred Shareholder, Series B Preferred Shareholder, Series B-1 Preferred Shareholders, Series C Preferred Shareholder, Series D and Series D-1 Preferred Shareholder shall be subject to Section 6.3(a) hereof. The Company will update its register of members upon the consummation of any such permitted transfer.

 

2.3.             Prohibited Transfers Void .

 

Any direct or indirect transfer of Equity Securities by a Restricted Shareholder not made in compliance with this Schedule A or the Shareholders Agreement shall be null and void as against the Company, the corresponding Founder Hold Co (as applicable), shall not be recorded on the books of the Company or the corresponding Founder Hold Co (as applicable) and shall not be recognized by the Company or the corresponding Founder Hold Co (as applicable).

 

2.4.             Fractions

 

No fractions of a Share will be transferred to any person and the transferor shall have no obligation to refund any sum which represents such fraction (if any); provided that the number of Shares to be transferred pursuant to this Section shall be rounded down to the nearest whole number of Shares.

 

SECTION 3

RIGHT OF FIRST REFUSAL

 

3.1.             Transfer Notice .

 

Prior to the closing of a Qualified IPO, if a Restricted Shareholder, an employee of any Group Company or Zhu Haiyan, who holds more than two percent (2%) of the Equity Securities of the Company, proposes to transfer all or part of the Equity Securities he/ she directly or indirectly holds in the Company to one or more third parties pursuant to an understanding with such third parties (a “ Transfer , and such holder a “ Transferor ), then the Transferor shall give each Holder a written notice of the Transferor’s intention to make

 

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the Transfer (the “ Transfer Notice ”), which shall include (i) a description of the Equity Securities to be transferred (the “ Offered Shares ”), (ii) subject to any applicable non-disclosure agreement with such third party, the identity of the prospective transferee and (iii)  the consideration and the material terms and conditions upon which the proposed Transfer is to be made. The Transfer Notice shall certify that the Transferor has received a firm offer from the prospective transferee and in good faith believes a binding agreement for the Transfer is obtainable on the terms set forth in the Transfer Notice.

 

3.2.             Holder’s Option .

 

(a)                                  Subject to the Holders’ exercising of their rights of co-sale set forth in Section 4, the Holders shall have an option for a period of fifteen (15) days following the receipt of the Transfer Notice to elect to purchase its respective pro rata share of the Offered Shares at the same price and subject to the same material terms and conditions as described in the Transfer Notice.

 

(b)                                  Each Holder may exercise such purchase option and, thereby, purchase all or any portion of its pro rata share of the Offered Shares, by notifying the Transferor in writing, before the expiration of the fifteen (15) day period as to the number of such shares that it wishes to purchase.

 

(c)                                   Each Holder’s pro rata share of the Offered Shares shall be a fraction, the numerator of which shall be the number of Equity Securities (assuming the exercise, conversion and exchange of any Ordinary Share Equivalents) owned by such Holder on the date of the Transfer Notice and the denominator of which shall be the total number of Equity Securities (assuming the exercise, conversion and exchange of any Ordinary Share Equivalents) held by all Holders on such date.

 

(d)                                  If any Holder fails to exercise such purchase option pursuant to this Section 3.2, the Transferor shall give notice of such failure (the “ Re-allotment Notice ”) to each other Holder that elected to purchase its entire pro rata share of the Offered Shares (the “ Purchasing Holders ”). Such Re-allotment Notice may be made by telephone if confirmed in writing within two (2) days. The Purchasing Holders shall have a right of re-allotment such that they shall have ten (10) days from the date such Re-allotment Notice was given to elect to increase the number of Offered Shares they agreed to purchase under Section 3.2(c)  to include their respective pro rata share of the Offered Shares contained in any Re-allotment Notice.

 

(e)                                   If the Holder gives the Transferor notice that it desires to purchase Offered Shares, then payment for the Offered Shares to be purchased shall be by check or wire transfer in immediately available funds of the appropriate currency, against allotment of such Offered Shares to be purchased at a place agreed by the Transferor and all the participating Holders and at the time of the scheduled closing therefor, which shall be no later than forty-five (45) days after the Holder’s receipt of the Transfer Notice, unless the value of the purchase price has not yet been established pursuant to Section 3.4.

 

(f)                                    Regardless of any other provision of this Schedule A and the Shareholders Agreement, if the Holders decline in writing, or fail to exercise its purchase option pursuant to this Section 3.2 with respect to all (and not less than all) Offered Shares, then the Transferor shall be under no obligation to transfer the Offered Shares to the Holders pursuant to this Section 3.2 and instead shall be free to sell such Offered

 

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Shares pursuant to the Transfer Notice, subject to Sections 3.3 and Section 3.4 hereunder.

 

(g)                                   Notwithstanding the forgoing, if more than one Holder wants to exercise its right of first refusal, the Holders may negotiate the percentage of the Offered Shares they can buy under this Section 3.2 , if no agreement can be reached, the Holders can only purchase its respective pro rata share of the Offered Shares.

 

3.3.             Valuation of Property .

 

(a)                                  Should the purchase price specified in the Transfer Notice be payable in property other than cash or evidences of indebtedness, the Holders shall have the right to pay the purchase price in the form of cash equal in amount to the fair market value of such property.

 

(b)                                  If the Transferor, on the one hand, and the Holders, on the other hand, cannot agree on such cash value within seven (7) days after the Holders’ receipt of the Transfer Notice, the valuation shall be made by an appraiser of internationally recognized standing jointly selected by the Transferor and the Holders, or, if they cannot agree on an appraiser within ten (10) days after the Holders’ receipt of the Transfer Notice, each shall select an appraiser of internationally recognized standing and the two appraisers shall designate a third appraiser of internationally recognized standing, whose appraisal shall be determinative of such value.

 

(c)                                   The cost of such appraisal shall be shared equally by the Transferor and the Purchasing Holders, with the half of the cost borne by the Purchasing Holders to be borne pro rata by each Purchasing Holder based on the number of shares such Purchasing Holder has elected to purchase pursuant to this Section 3.

 

(d)                                  If the value of the purchase price offered by the prospective transferee is not determined within the forty-five (45) day period specified in Section 3.2(e)  above, the closing of the Holders’ purchase shall be held on or prior to the fifth Business Day after such valuation shall have been made pursuant to this Section 3.3.

 

SECTION 4

RIGHT OF CO-SALE

 

4.1.             To the extent the Holders do not exercise their respective rights of first refusal as to all of the Offered Shares pursuant to Section 3, each Holder that did not exercise its right of first refusal as to any of the Offered Shares pursuant to Section 3 shall have the right to participate in such sale of Equity Securities on the same terms and conditions as specified in the Transfer Notice by notifying the Transferor in writing within fifteen (15) days after receipt of the Transfer Notice referred to in Section 3.1 (such Holder, a “ Selling Holder ”).

 

(a)                                  Such Selling Holder’s notice to the Transferor shall indicate the number of Equity Securities the Selling Holder wishes to sell under its right to participate.

 

(b)                                  To the extent one or more of the Holders exercise such right of participation in accordance with the terms and conditions set forth below, the number of Equity Securities that the Transferor may sell in the Transfer shall be correspondingly reduced.

 

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4.2.             The Selling Holders may elect to sell such number of Equity Securities that in aggregate equals to the total number of Offered Shares being transferred following the exercise or expiration of all rights of first refusal pursuant to Section 3 hereof on pro rata basis. Each Selling Holder may elect to sell such number of Equity Securities that equals to the product of (i) the aggregate number of the Offered Shares being transferred following the exercise or expiration of all rights of first refusal pursuant to Section 3 hereof multiplied by (ii) a fraction, the numerator of which is the number of Ordinary Shares (on as-if-converted basis which include the number of Ordinary Shares that would be issuable upon the exercise, conversion or exchange of Ordinary Share Equivalents) owned by the Selling Holder on the date of the Transfer Notice and the denominator of which is the total number of Ordinary Shares (on as-if-converted basis which include the number of Ordinary Shares that would be issuable upon the exercise, conversion or exchange of Ordinary Share Equivalents) owned by all Selling Holders on the date of the Transfer Notice.

 

4.3.             Each Selling Holder shall effect its participation in the sale by promptly delivering to the Transferor for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent the type and number of Equity Securities which such Selling Holder elects to sell; provided, however that if the prospective third-party purchaser objects to the delivery of any Ordinary Share Equivalents in lieu of Ordinary Shares, such Selling Holder shall only allot and deliver Ordinary Shares (and therefore shall convert any such Ordinary Share Equivalents into Ordinary Shares) and certificates corresponding to such Ordinary Shares. The Company agrees to make any such conversion concurrent with the actual transfer of such shares to the purchaser and contingent on such transfer.

 

4.4.             The share certificate or certificates that a Selling Holder delivers to the Transferor pursuant to Section 4.3 shall be transferred to the prospective purchaser in consummation of the sale of the Equity Securities pursuant to the terms and conditions specified in the Transfer Notice, and the Transferor shall concurrently therewith remit to such Selling Holder that portion of the sale proceeds to which such Selling Holder is entitled by reason of its participation in such sale.

 

4.5.             To the extent that any prospective purchaser prohibits the participation of a Selling Holder exercising its co-sale rights hereunder in a proposed Transfer or otherwise refuses to purchase shares or other securities from a Selling Holder exercising its co-sale rights hereunder, the Transferor shall not sell to such prospective purchaser any Equity Securities unless and until, simultaneously with such sale, the Transferor shall purchase from such Selling Holder such shares or other securities that such Selling Holder would otherwise be entitled to sell to the prospective purchaser pursuant to its co-sale rights for the same consideration and on the same terms and conditions as the proposed transfer described in the Transfer Notice.

 

4.6.             If any Holder fails to exercise its right of co-sale, the Selling Holder shall have the right to exercise the right of co-sale granted to such Holder on a pro-rata basis and sell more Equity Securities on the same terms and conditions as specified in the Transfer Notice.

 

4.7.             This right of co-sale shall not apply to and shall terminate upon a Liquidation Event or the consummation of a Qualified IPO.

 

SECTION 5

NON-EXERCISE OF RIGHTS

 

5.1.             To the extent that the Holders have not exercised their rights to purchase the Offered Shares within the time periods specified in Section 3 hereof, and the Holders have not exercised

 

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their rights to participate in the sale of the Offered Shares within the time periods specified in Section 4 hereof, the Transferor shall have a period of ninety (90) days from the expiration of such rights in which to sell the Offered Shares to the third-party transferee identified in the Transfer Notice upon terms and conditions (including the purchase price) no more favorable to the purchaser than those specified in the Transfer Notice.

 

5.2.             In the event the Transferor does not consummate the sale or disposition of the Offered Shares within ninety (90) days from the expiration of such rights, the Holders’ first refusal rights and co-sale rights hereunder shall continue to be applicable to any subsequent disposition of the Offered Shares by the Transferor until such rights lapse in accordance with the terms of this Schedule A and the Shareholders Agreement.

 

5.3.             The exercise or non-exercise of the rights of the Holders under this Schedule A to purchase Equity Securities from a Transferor or participate in the sale of Equity Securities by a Transferor shall not adversely affect their rights to make subsequent purchases from the Transferor of Equity Securities or subsequently participate in sales of Equity Securities by the Transferor hereunder.

 

SECTION 6

MISCELLANEOUS

 

6.1.             Change in Control

 

The Parties agree that, for purposes of the transfer restrictions in the Shareholders Agreement and in other Transaction Documents, a transaction or series of transactions that result in a change in Control of a Restricted Shareholder shall be deemed to constitute a Transfer of such Restricted Shareholder’s Equity Securities.

 

6.2.             Subsequent Rights

 

After the closing of the issuance of the Preferred Shares, the Company shall not grant to any future investor(s) any rights, preferences or privileges that may be more favorable than the ones granted to the Series A Preferred Shareholders, Series B Preferred Shareholders, Series B-1 Preferred Shareholders, Series C Preferred Shareholders, Series D Preferred Shareholders and Series D-1 Preferred Shareholders hereunder, unless otherwise approved in writing by the Series A Preferred Shareholders, the Series B Preferred Shareholders, Series B-1 Preferred Shareholders, the Series C Preferred Shareholders, the Series D Preferred Shareholders and the Series D-1 Preferred Shareholders, provided however, the ESOP (as defined in the Series D-1 Preferred Shares Purchase Agreement) plan or other incentive plan as approved by the Board of Directors (including the Series A Director, the Series B Director and the Series C Director), a majority of Series D Preferred Shareholders and a majority of Series D-1 Preferred Shareholders shall not subject to the restrictions under this Section 6.2.

 

6.3.             New Issuances or Transfers to Competitors

 

Notwithstanding any other provision of these Articles, within twenty-seven (27) months from the date of the Series C Preferred Shareholders’ Agreement, the Company, each Group Company, and each shareholder of the Company shall not:

 

(a)                                  Issue or sell, or take any actions that would result in the issuance or sale of any Equity Securities to any Competitor;

 

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(b)                                  Transfer or allow or permit to be transferred any Equity Securities, either by action or omission, including, without limitation, by operation of Law, to any Competitor;

 

(c)                                   Sell, transfer, license, pledge, or encumber technology or intellectual property (other than licenses granted in the ordinary course of business) of any Group Company to any Competitor; and

 

(d)                                  Effectuate or permit to occur, by action or omission, any Deemed Liquidation Event, if such a Deemed Liquidation Event involves a Competitor.

 

6.4.             Assignments and Transfers; No Third Party Beneficiaries

 

(a)                                  Except as otherwise provided herein, the Shareholders’ Agreement and the rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives, but shall not otherwise be for the benefit of any third party. The rights of any Holder hereunder are only assignable in connection with the transfer or sale (subject to applicable securities and other Laws) of the Equity Securities held by such Holder but only to the extent of such transfer, provided, however, that (i) the transferor shall, prior to the effectiveness of such transfer, furnish to the Company written notice of the name and address of such transferee and the Equity Securities that are being assigned to such transferee, and (ii) such transferee shall, concurrently with the effectiveness of such transfer, become a party to the Shareholders Agreement as a Holder and be subject to all applicable restrictions set forth in the Shareholders Agreement.

 

(b)                                  Except as otherwise provided herein, the sale or transfer of any Equity Securities by the Holders shall not be subject to any right of first refusal, co-sale rights or any other contractual conditions or restrictions on transfer except as may be required by Law.

 

6.5.             Legend

 

Each existing or replacement certificate for shares now owned or hereafter acquired by any Restricted Shareholder shall bear the following legend:

 

“THE SALE, PLEDGE, HYPOTHECATION, ASSIGNMENT OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A SHAREHOLDER AGREEMENT BY AND AMONG THE MEMBERS OF THE COMPANY, THE FOUNDERS, THE COMPANY AND CERTAIN OTHER PARTIES. COPIES OF SUCH AGREEMENTS MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”

 

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Exhibit 3.2

 

THE COMPANIES LAW (2018 REVISION)

OF THE CAYMAN ISLANDS

COMPANY LIMITED BY SHARES

SEVENTH AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION

OF

COOTEK (CAYMAN) INC.

 

(adopted by a Special Resolution passed on August 8, 2018 and effective immediately prior to the completion of the initial public offering of the Company’s American Depositary Shares representing its Class A Ordinary Shares)

 

1.                           The name of the Company is CooTek (Cayman) Inc .

 

2.                           The Registered Office of the Company will be situated at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such other location within the Cayman Islands as the Directors may from time to time determine.

 

3.                           The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Law or any other law of the Cayman Islands.

 

4.                           The Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit as provided by the Companies Law.

 

5.                           The Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; provided that nothing in this section shall be construed as to prevent the Company from effecting and concluding contracts in the Cayman Islands or exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands.

 

6.                           The liability of each Shareholder is limited to the amount, if any, unpaid on the Shares held by such Shareholder.

 

7.                           The authorised share capital of the Company is US$150,000 divided into 15,000,000,000 shares comprising of (i) 13,750,000,000 Class A Ordinary Shares of a par value of US$0.00001 each, (ii) 250,000,000 Class B Ordinary Shares of a par value of US$0.00001 each and (iii) 1,000,000,000 shares of a par value of US$0.00001 each of such class or classes (however designated) as the board of directors may determine in accordance with Article 9 of the Articles. Subject to the Companies Law and the Articles, the Company shall have the power to redeem or purchase any of its Shares, to increase or reduce its authorised share capital, to sub-divide or consolidate the said Shares or any of them, and to issue all or any part of its capital whether original, redeemed, increased or reduced with or without any preference, priority, special privilege or other rights or subject to any postponement of rights or to any conditions or restrictions whatsoever and so that, unless the conditions of issue shall otherwise expressly provide, every issue of shares whether stated to be ordinary, preference or otherwise shall be subject to the powers on the part of the Company hereinbefore provided.

 

8.                           The Company has the power contained in the Companies Law to deregister in the Cayman Islands and be registered by way of continuation in any other jurisdiction.

 

9.                           Capitalised terms that are not defined in this Memorandum of Association bear the same meanings as those given in the Articles of Association of the Company.

 



 

THE COMPANIES LAW (2018 REVISION)

OF THE CAYMAN ISLANDS

COMPANY LIMITED BY SHARES

SEVENTH AMENDED AND RESTATED

ARTICLES OF ASSOCIATION

OF

COOTEK (CAYMAN) INC.

 

(adopted by a Special Resolution passed on August 8, 2018 and effective immediately prior to the completion of the initial public offering of the Company’s American Depositary Shares representing its Class A Ordinary Shares)

 

TABLE A

 

The regulations contained or incorporated in Table ‘A’ in the First Schedule of the Companies Law shall not apply to the Company and the following Articles shall comprise the Articles of Association of the Company.

 

INTERPRETATION

 

1.                                       In these Articles the following defined terms will have the meanings ascribed to them, if not inconsistent with the subject or context:

 

“ADS”

 

means an American Depositary Share representing Class A Ordinary Shares;

 

 

 

“Affiliate”

 

means in respect of a Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, and (i) in the case of a natural person, shall include, without limitation, such person’s spouse, parents, children, siblings, mother-in-law, father-in-law, brothers-in-law and sisters-in-law, a trust for the benefit of any of the foregoing, and a corporation, partnership or any other entity wholly or jointly owned by any of the foregoing, and (ii) in the case of an entity, shall include a partnership, a corporation or any other entity or any natural person which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such entity. The term “control” shall mean the ownership, directly or indirectly, of shares possessing more than fifty per cent (50%) of the voting power of the corporation, partnership or other entity (other than, in the case of a corporation, securities having such power only by reason of the happening of a contingency), or having the power to control the management or elect a majority of members to the board of directors or equivalent decision-making body of such corporation, partnership or other entity;

 

 

 

“Articles”

 

means these articles of association of the Company, as amended or substituted from time to time;

 

 

 

“Board” and “Board of Directors” and “Directors”

 

means the directors of the Company for the time being, or as the case may be, the directors assembled as a board or as a committee thereof;

 

 

 

“Chairman”

 

means the chairman of the Board of Directors;

 

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“Class” or “Classes”

 

means any class or classes of Shares as may from time to time be issued by the Company;

 

 

 

“Class A Ordinary Share”

 

means an Ordinary Share of a par value of US$0.00001 in the capital of the Company, designated as a Class A Ordinary Shares and having the rights provided for in these Articles;

 

 

 

“Class B Ordinary Share”

 

means an Ordinary Share of a par value of US$0.00001 in the capital of the Company, designated as a Class B Ordinary Share and having the rights provided for in these Articles;

 

 

 

“Commission”

 

means the Securities and Exchange Commission of the United States of America or any other federal agency for the time being administering the Securities Act;

 

 

 

“Company”

 

means CooTek (Cayman) Inc., a Cayman Islands exempted company;

 

 

 

“Companies Law”

 

means the Companies Law (2018 Revision) of the Cayman Islands and any statutory amendment or re-enactment thereof;

 

 

 

“Company’s Website”

 

means the main corporate/investor relations website of the Company, the address or domain name of which has been disclosed in any registration statement filed by the Company with the Commission in connection with its initial public offering of ADSs, or which has otherwise been notified to Shareholders;

 

 

 

“Designated Stock Exchange”

 

means the stock exchange in the United States on which any Shares and ADSs are listed for trading;

 

 

 

“Designated Stock Exchange Rules”

 

means the relevant code, rules and regulations, as amended, from time to time, applicable as a result of the original and continued listing of any Shares or ADSs on the Designated Stock Exchange;

 

 

 

“electronic”

 

has the meaning given to it in the Electronic Transactions Law and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor;

 

 

 

“electronic communication”

 

means electronic posting to the Company’s Website, transmission to any number, address or internet website or other electronic delivery methods as otherwise decided and approved by not less than two-thirds of the vote of the Board;

 

 

 

“Electronic Transactions Law”

 

means the Electronic Transactions Law (2003 Revision) of the Cayman Islands and any statutory amendment or re-enactment thereof;

 

 

 

“electronic record”

 

has the meaning given to it in the Electronic Transactions Law and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor;

 

 

 

“Memorandum of Association”

 

means the memorandum of association of the Company, as amended or substituted from time to time;

 

 

 

“Ordinary Resolution”

 

means a resolution:

 

(a)                    passed by a simple majority of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of the Company held in accordance with these Articles; or

 

 

 

 

 

(b)                    approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is executed;

 

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“Ordinary Share”

 

means a Class A Ordinary Share or a Class B Ordinary Share;

 

 

 

“paid up”

 

means paid up as to the par value in respect of the issue of any Shares and includes credited as paid up;

 

 

 

“Person”

 

means any natural person, firm, company, joint venture, partnership, corporation, association or other entity (whether or not having a separate legal personality) or any of them as the context so requires;

 

 

 

“Register”

 

means the register of Members of the Company maintained in accordance with the Companies Law;

 

 

 

“Registered Office”

 

means the registered office of the Company as required by the Companies Law;

 

 

 

“Seal”

 

means the common seal of the Company (if adopted) including any facsimile thereof;

 

 

 

“Secretary”

 

means any Person appointed by the Directors to perform any of the duties of the secretary of the Company;

 

 

 

“Securities Act”

 

means the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time;

 

 

 

“Share”

 

means a share in the capital of the Company. All references to “Shares” herein shall be deemed to be Shares of any or all Classes as the context may require. For the avoidance of doubt in these Articles the expression “Share” shall include a fraction of a Share;

 

 

 

“Shareholder” or “Member”

 

means a Person who is registered as the holder of one or more Shares in the Register;

 

 

 

“Share Premium Account”

 

means the share premium account established in accordance with these Articles and the Companies Law;

 

 

 

“signed”

 

means bearing a signature or representation of a signature affixed by mechanical means or an electronic symbol or process attached to or logically associated with an electronic communication and executed or adopted by a person with the intent to sign the electronic communication;

 

 

 

“Special Resolution”

 

means a special resolution of the Company passed in accordance with the Companies Law, being a resolution:

 

(a)                    passed by not less than two-thirds of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of the Company of which notice specifying the intention to propose the resolution as a special resolution has been duly given; or

 

(b)                    approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed;

 

4



 

“Treasury Share”

 

means a Share held in the name of the Company as a treasury share in accordance with the Companies Law; and

 

 

 

“United States”

 

means the United States of America, its territories, its possessions and all areas subject to its jurisdiction.

 

2.                                       In these Articles, save where the context requires otherwise:

 

(a)                                  words importing the singular number shall include the plural number and vice versa;

 

(b)                                  words importing the masculine gender only shall include the feminine gender and any Person as the context may require;

 

(c)                                   the word “may” shall be construed as permissive and the word “shall” shall be construed as imperative;

 

(d)                                  reference to a dollar or dollars (or US$) and to a cent or cents is reference to dollars and cents of the United States of America;

 

(e)                                   reference to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being in force;

 

(f)                                    reference to any determination by the Directors shall be construed as a determination by the Directors in their sole and absolute discretion and shall be applicable either generally or in any particular case;

 

(g)                                   reference to “in writing” shall be construed as written or represented by any means reproducible in writing, including any form of print, lithograph, email, facsimile, photograph or telex or represented by any other substitute or format for storage or transmission for writing including in the form of an electronic record or partly one and partly another;

 

(h)                                  any requirements as to delivery under the Articles include delivery in the form of an electronic record or an electronic communication;

 

(i)                                      any requirements as to execution or signature under the Articles, including the execution of the Articles themselves, can be satisfied in the form of an electronic signature as defined in the Electronic Transaction Law; and

 

(j)                                     Sections 8 and 19(3) of the Electronic Transactions Law shall not apply.

 

3.                                       Subject to the last two preceding Articles, any words defined in the Companies Law shall, if not inconsistent with the subject or context, bear the same meaning in these Articles.

 

PRELIMINARY

 

4.                                       The business of the Company may be conducted as the Directors see fit.

 

5.                                       The Registered Office shall be at such address in the Cayman Islands as the Directors may from time to time determine. The Company may in addition establish and maintain such other offices and places of business and agencies in such places as the Directors may from time to time determine.

 

6.                                       The expenses incurred in the formation of the Company and in connection with the offer for subscription and issue of Shares shall be paid by the Company. Such expenses may be amortised over such period as the Directors may determine and the amount so paid shall be charged against income and/or capital in the accounts of the Company as the Directors shall determine.

 

5



 

7.                                       The Directors shall keep, or cause to be kept, the Register at such place as the Directors may from time to time determine and, in the absence of any such determination, the Register shall be kept at the Registered Office.

 

SHARES

 

8.                                       Subject to these Articles, all Shares for the time being unissued shall be under the control of the Directors who may, in their absolute discretion and without the approval of the Members, cause the Company to:

 

(a)                                  issue, allot and dispose of Shares (including, without limitation, preferred shares) (whether in certificated form or non-certificated form) to such Persons, in such manner, on such terms and having such rights and being subject to such restrictions as they may from time to time determine;

 

(b)                                  grant rights over Shares or other securities to be issued in one or more classes or series as they deem necessary or appropriate and determine the designations, powers, preferences, privileges and other rights attaching to such Shares or securities, including dividend rights, voting rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers, preferences, privileges and rights associated with the then issued and outstanding Shares, at such times and on such other terms as they think proper; and

 

(c)                                   grant options with respect to Shares and issue warrants or similar instruments with respect thereto.

 

9.                                       The Directors may authorise the division of Shares into any number of Classes and the different Classes shall be authorised, established and designated (or re-designated as the case may be) and the variations in the relative rights (including, without limitation, voting, dividend and redemption rights), restrictions, preferences, privileges and payment obligations as between the different Classes (if any) may be fixed and determined by the Directors or by an Ordinary Resolution. The Directors may issue Shares with such preferred or other rights, all or any of which may be greater than the rights of Ordinary Shares, at such time and on such terms as they may think appropriate.  Notwithstanding Article 17, the Directors may issue from time to time, out of the authorised share capital of the Company (other than the authorised but unissued Ordinary Shares), series of preferred shares in their absolute discretion and without approval of the Members; provided, however, before any preferred shares of any such series are issued, the Directors shall by resolution of Directors determine, with respect to any series of preferred shares, the terms and rights of that series, including:

 

(a)                                  the designation of such series, the number of preferred shares to constitute such series and the subscription price thereof if different from the par value thereof;

 

(b)                                  whether the preferred shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited;

 

(c)                                   the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any shares of any other class or any other series of shares;

 

(d)                                  whether the preferred shares of such series shall be subject to redemption by the Company, and, if so, the times, prices and other conditions of such redemption;

 

(e)                                   whether the preferred shares of such series shall have any rights to receive any part of the assets available for distribution amongst the Members upon the liquidation of the Company, and, if so, the terms of such liquidation preference, and the relation which such liquidation preference shall bear to the entitlements of the holders of shares of any other class or any other series of shares;

 

6



 

(f)                                    whether the preferred shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the preferred shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof;

 

(g)                                   whether the preferred shares of such series shall be convertible into, or exchangeable for, shares of any other class or any other series of preferred shares or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange;

 

(h)                                  the limitations and restrictions, if any, to be effective while any preferred shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Company of, the existing shares or shares of any other class of shares or any other series of preferred shares;

 

(i)                                      the conditions or restrictions, if any, upon the creation of indebtedness of the Company or upon the issue of any additional shares, including additional shares of such series or of any other class of shares or any other series of preferred shares; and

 

(j)                                     any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof;

 

and, for such purposes, the Directors may reserve an appropriate number of Shares for the time being unissued. The Company shall not issue Shares to bearer.

 

10.                                The Company may, insofar as may be permitted by law, pay a commission to any Person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any Shares. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up Shares or partly in one way and partly in the other. The Company may also pay such brokerage as may be lawful on any issue of Shares.

 

11.                                The Directors may refuse to accept any application for Shares, and may accept any application in whole or in part, for any reason or for no reason.

 

CLASS A ORDINARY SHARES AND CLASS B ORDINARY SHARES

 

12.                                Holders of Class A Ordinary Shares and Class B Ordinary Shares shall at all times vote together as one class on all resolutions submitted to a vote by the Members. Each Class A Ordinary Share shall entitle the holder thereof to one (1) vote on all matters subject to vote at general meetings of the Company, and each Class B ordinary share shall entitle the holder thereof to twenty-five (25) votes on all matters subject to vote at general meetings of the Company.

 

13.                                Each Class B Ordinary Share is convertible into one (1) Class A Ordinary Share at any time at the option of the holder thereof. The right to convert shall be exercisable by the holder of the Class B Ordinary Share delivering a written notice to the Company that such holder elects to convert a specified number of Class B Ordinary Shares into Class A Ordinary Shares. In no event shall Class A Ordinary Shares be convertible into Class B Ordinary Shares.

 

14.                                Any conversion of Class B Ordinary Shares into Class A Ordinary Shares pursuant to these Articles shall be effected by means of the re-designation of each relevant Class B Ordinary Share as a Class A Ordinary Share. Such conversion shall become effective forthwith upon entries being made in the Register to record the re-designation of the relevant Class B Ordinary Shares as Class A Ordinary Shares.

 

7



 

15.                                Upon any sale, transfer, assignment or disposition of any Class B Ordinary Share by a Shareholder to any person who is not an Affiliate of such Shareholder, or upon a change of ultimate beneficial ownership of any Class B Ordinary Share to any Person who is not an Affiliate of the registered shareholder of such Class B Ordinary Share, such Class B Ordinary Share shall be automatically and immediately converted into one Class A Ordinary Share. For the avoidance of doubt, (i) a sale, transfer, assignment or disposition shall be effective upon the Company’s registration of such sale, transfer, assignment or disposition in its Register; and (ii) the creation of any pledge, charge, encumbrance or other third party right of whatever description on any Class B Ordinary Shares to secure  contractual or legal obligations shall not be deemed as a sale, transfer, assignment or disposition unless and until any such pledge, charge, encumbrance or other third party right is enforced and results in any third party holding legal title to any such Class B Ordinary Shares, in which case any such Class B Ordinary Shares shall be automatically converted into the same number of Class A Ordinary Shares. For purpose of this Article 15, beneficial ownership shall have the meaning set forth in Rule 13d-3 under the United States Securities Exchange Act of 1934, as amended.

 

16.                                Save and except for voting rights and conversion rights as set out in Articles 12 to 15 (inclusive), the Class A Ordinary Shares and the Class B Ordinary Shares shall rank pari passu with one another and shall have the same rights, preferences, privileges and restrictions.

 

MODIFICATION OF RIGHTS

 

17.                                Whenever the capital of the Company is divided into different Classes, the rights attached to any such Class may, subject to any rights or restrictions for the time being attached to any Class, only be materially adversely varied with the consent in writing of the holders of two-thirds of the issued Shares of that Class or with the sanction of a resolution passed at a separate meeting of the holders of the Shares of that Class by the holders of two-thirds of the issued Shares of that Class. To every such separate meeting all the provisions of these Articles relating to general meetings of the Company or to the proceedings thereat shall, mutatis mutandis , apply, except that the necessary quorum shall be one or more Persons holding or representing by proxy at least one-third in nominal or par value amount of the issued Shares of the relevant Class (but if at any adjourned meeting of such holders a quorum as above defined is not present, those Shareholders who are present shall form a quorum) and that, subject to any rights or restrictions for the time being attached to the Shares of that Class, every Shareholder of the Class shall on a poll have one vote for each Share of the Class held by him. For the purposes of this Article, the Directors may treat all the Classes or any two or more Classes as forming one Class if they consider that all such Classes would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate Classes.

 

18.                                The rights conferred upon the holders of the Shares of any Class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the Shares of that Class, be deemed to be materially adversely varied by, inter alia , the creation, allotment or issue of further Shares ranking pari passu with or subsequent to them or the redemption or purchase of any Shares of any Class by the Company. The rights of the holders of Shares shall not be deemed to be materially adversely varied by the creation or issue of Shares with preferred or other rights including, without limitation, the creation of Shares with enhanced or weighted voting rights.

 

CERTIFICATES

 

19.                                Every Person whose name is entered as a Member in the Register may, without payment and upon its written request, request a certificate within two calendar months after allotment or lodgement of transfer (or within such other period as the conditions of issue shall provide) in the form determined by the Directors. All certificates shall specify the Share or Shares held by that Person, provided that in respect of a Share or Shares held jointly by several persons the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a Share to one of several joint holders shall be sufficient delivery to all. All certificates for Shares shall be delivered personally or sent through the post addressed to the Member entitled thereto at the Member’s registered address as appearing in the Register.

 

20.                                Every share certificate of the Company shall bear legends required under the applicable laws, including the Securities Act.

 

21.                                Any two or more certificates representing Shares of any one Class held by any Member may at the Member’s request be cancelled and a single new certificate for such Shares issued in lieu on payment (if the Directors shall so require) of one dollar (US$1.00) or such smaller sum as the Directors shall determine.

 

8



 

22.                                If a share certificate shall be damaged or defaced or alleged to have been lost, stolen or destroyed, a new certificate representing the same Shares may be issued to the relevant Member upon request, subject to delivery up of the old certificate or (if alleged to have been lost, stolen or destroyed) compliance with such conditions as to evidence and indemnity and the payment of out-of-pocket expenses of the Company in connection with the request as the Directors may think fit.

 

23.                                In the event that Shares are held jointly by several persons, any request may be made by any one of the joint holders and if so made shall be binding on all of the joint holders.

 

FRACTIONAL SHARES

 

24.                                The Company may issue fractions of a Share and, if so issued, a fraction of a Share shall be subject to and carry the corresponding fraction of liabilities (whether with respect to nominal or par value, premium, contributions, calls or otherwise), limitations, preferences, privileges, qualifications, restrictions, rights (including, without prejudice to the generality of the foregoing, voting and participation rights) and other attributes of a whole Share. If more than one fraction of a Share of the same Class is issued to or acquired by the same Shareholder, such fractions shall be accumulated.

 

LIEN

 

25.                                The Company has a first and paramount lien on every Share (whether or not fully paid) for all amounts (whether presently payable or not) payable at a fixed time or called in respect of that Share. The Company also has a first and paramount lien on every Share registered in the name of a Person indebted or under liability to the Company (whether he is the sole registered holder of a Share or one of two or more joint holders) for all amounts owing by him or his estate to the Company (whether or not presently payable). The Directors may at any time declare a Share to be wholly or in part exempt from the provisions of this Article. The Company’s lien on a Share extends to any amount payable in respect of it, including but not limited to dividends.

 

26.                                The Company may sell, in such manner as the Directors in their absolute discretion think fit, any Share on which the Company has a lien, but no sale shall be made unless an amount in respect of which the lien exists is presently payable nor until the expiration of fourteen (14) calendar days after a notice in writing, demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the Share, or the Persons entitled thereto by reason of his death or bankruptcy.

 

27.                                For giving effect to any such sale the Directors may authorise a Person to transfer the Shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the Shares comprised in any such transfer and he shall not be bound to see to the application of the purchase money, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.

 

28.                                The proceeds of the sale after deduction of expenses, fees and commission incurred by the Company shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue shall (subject to a like lien for sums not presently payable as existed upon the Shares prior to the sale) be paid to the Person entitled to the Shares immediately prior to the sale.

 

CALLS ON SHARES

 

29.                                Subject to the terms of the allotment, the Directors may from time to time make calls upon the Shareholders in respect of any moneys unpaid on their Shares, and each Shareholder shall (subject to receiving at least fourteen (14) calendar days’ notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on such Shares. A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed.

 

30.                                The joint holders of a Share shall be jointly and severally liable to pay calls in respect thereof.

 

31.                                If a sum called in respect of a Share is not paid before or on the day appointed for payment thereof, the Person from whom the sum is due shall pay interest upon the sum at the rate of eight percent per annum from the day appointed for the payment thereof to the time of the actual payment, but the Directors shall be at liberty to waive payment of that interest wholly or in part.

 

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32.                                The provisions of these Articles as to the liability of joint holders and as to payment of interest shall apply in the case of non-payment of any sum which, by the terms of issue of a Share, becomes payable at a fixed time, whether on account of the amount of the Share, or by way of premium, as if the same had become payable by virtue of a call duly made and notified.

 

33.                                The Directors may make arrangements with respect to the issue of partly paid Shares for a difference between the Shareholders, or the particular Shares, in the amount of calls to be paid and in the times of payment.

 

34.                                The Directors may, if they think fit, receive from any Shareholder willing to advance the same all or any part of the moneys uncalled and unpaid upon any partly paid Shares held by him, and upon all or any of the moneys so advanced may (until the same would, but for such advance, become presently payable) pay interest at such rate (not exceeding without the sanction of an Ordinary Resolution, eight percent per annum) as may be agreed upon between the Shareholder paying the sum in advance and the Directors. No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable.

 

FORFEITURE OF SHARES

 

35.                                If a Shareholder fails to pay any call or instalment of a call in respect of partly paid Shares on the day appointed for payment, the Directors may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued.

 

36.                                The notice shall name a further day (not earlier than the expiration of fourteen (14) calendar days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed, the Shares in respect of which the call was made will be liable to be forfeited.

 

37.                                If the requirements of any such notice as aforesaid are not complied with, any Share in respect of which the notice has been given may at any time thereafter, before the payment required by notice has been made, be forfeited by a resolution of the Directors to that effect.

 

38.                                A forfeited Share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit.

 

39.                                A Person whose Shares have been forfeited shall cease to be a Shareholder in respect of the forfeited Shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the Shares forfeited, but his liability shall cease if and when the Company receives payment in full of the amount unpaid on the Shares forfeited.

 

40.                                A certificate in writing under the hand of a Director that a Share has been duly forfeited on a date stated in the certificate shall be conclusive evidence of the facts in the declaration as against all Persons claiming to be entitled to the Share.

 

41.                                The Company may receive the consideration, if any, given for a Share on any sale or disposition thereof pursuant to the provisions of these Articles as to forfeiture and may execute a transfer of the Share in favour of the Person to whom the Share is sold or disposed of and that Person shall be registered as the holder of the Share and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the disposition or sale.

 

42.                                The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which by the terms of issue of a Share becomes due and payable, whether on account of the amount of the Share, or by way of premium, as if the same had been payable by virtue of a call duly made and notified.

 

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TRANSFER OF SHARES

 

43.                                The instrument of transfer of any Share shall be in writing and in any usual or common form or such other form as the Directors may, in their absolute discretion, approve and be executed by or on behalf of the transferor and if in respect of a nil or partly paid up Share, or if so required by the Directors, shall also be executed on behalf of the transferee and shall be accompanied by the certificate (if any) of the Shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain a Shareholder until the name of the transferee is entered in the Register in respect of the relevant Shares.

 

44.                                (a)                                  The Directors may in their absolute discretion decline to register any transfer of Shares which is not fully paid up or on which the Company has a lien.

 

(b)                                  The Directors may also decline to register any transfer of any Share unless:

 

(i)                                      the instrument of transfer is lodged with the Company, accompanied by the certificate for the Shares to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer;

 

(ii)                                   the instrument of transfer is in respect of only one Class of Shares;

 

(iii)                                the instrument of transfer is properly stamped, if required;

 

(iv)                               in the case of a transfer to joint holders, the number of joint holders to whom the Share is to be transferred does not exceed four; and

 

(v)                                  a fee of such maximum sum as the Designated Stock Exchange may determine to be payable, or such lesser sum as the Board of Directors may from time to time require, is paid to the Company in respect thereof.

 

45.                                The registration of transfers may, on ten (10) calendar days’ notice being given by advertisement in such one or more newspapers, by electronic means or by any other means in accordance with the Designated Stock Exchange Rules, be suspended and the Register closed at such times and for such periods as the Directors may, in their absolute discretion, from time to time determine, provided always that such registration of transfer shall not be suspended nor the Register closed for more than thirty (30) calendar days in any calendar year.

 

46.                                All instruments of transfer that are registered shall be retained by the Company. If the Directors refuse to register a transfer of any Shares, they shall within three calendar months after the date on which the transfer was lodged with the Company send a notice of the refusal to each of the transferor and the transferee.

 

TRANSMISSION OF SHARES

 

47.                                The legal personal representative of a deceased sole holder of a Share shall be the only Person recognised by the Company as having any title to the Share. In the case of a Share registered in the name of two or more holders, the survivors or survivor, or the legal personal representatives of the deceased survivor, shall be the only Person recognised by the Company as having any title to the Share.

 

48.                                Any Person becoming entitled to a Share in consequence of the death or bankruptcy of a Shareholder shall, upon such evidence being produced as may from time to time be required by the Directors, have the right either to be registered as a Shareholder in respect of the Share or, instead of being registered himself, to make such transfer of the Share as the deceased or bankrupt Person could have made; but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the Share by the deceased or bankrupt Person before the death or bankruptcy.

 

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49.                                A Person becoming entitled to a Share by reason of the death or bankruptcy of a Shareholder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered Shareholder, except that he shall not, before being registered as a Shareholder in respect of the Share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company, provided however, that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the Share, and if the notice is not complied with within ninety (90) calendar days, the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the Share until the requirements of the notice have been complied with.

 

REGISTRATION OF EMPOWERING INSTRUMENTS

 

50.                                The Company shall be entitled to charge a fee not exceeding one dollar (US$1.00) on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument.

 

ALTERATION OF SHARE CAPITAL

 

51.                                The Company may from time to time by Ordinary Resolution increase the share capital by such sum, to be divided into Shares of such Classes and amount, as the resolution shall prescribe.

 

52.                                The Company may by Ordinary Resolution:

 

(a)                                  increase its share capital by new Shares of such amount as it thinks expedient;

 

(b)                                  consolidate and divide all or any of its share capital into Shares of a larger amount than its existing Shares;

 

(c)                                   subdivide its Shares, or any of them, into Shares of an amount smaller than that fixed by the Memorandum, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced Share shall be the same as it was in case of the Share from which the reduced Share is derived; and

 

(d)                                  cancel any Shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any Person and diminish the amount of its share capital by the amount of the Shares so cancelled.

 

53.                                The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner authorised by law.

 

REDEMPTION, PURCHASE AND SURRENDER OF SHARES

 

54.                                Subject to the provisions of the Companies Law and these Articles, the Company may:

 

(a)                                  issue Shares that are to be redeemed or are liable to be redeemed at the option of the Shareholder or the Company. The redemption of Shares shall be effected in such manner and upon such terms as may be determined, before the issue of such Shares, by either the Board or by the Shareholders by Special Resolution;

 

(b)                                  purchase its own Shares (including any redeemable Shares) on such terms and in such manner and terms as have been approved by the Board or by the Members by Ordinary Resolution, or are otherwise authorised by these Articles; and

 

(c)                                   make a payment in respect of the redemption or purchase of its own Shares in any manner permitted by the Companies Law, including out of capital.

 

55.                                The purchase of any Share shall not oblige the Company to purchase any other Share other than as may be required pursuant to applicable law and any other contractual obligations of the Company.

 

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56.                                The holder of the Shares being purchased shall be bound to deliver up to the Company the certificate(s) (if any) thereof for cancellation and thereupon the Company shall pay to him the purchase or redemption monies or consideration in respect thereof.

 

57.                                The Directors may accept the surrender for no consideration of any fully paid Share.

 

TREASURY SHARES

 

58.                                The Directors may, prior to the purchase, redemption or surrender of any Share, determine that such Share shall be held as a Treasury Share.

 

59.                                The Directors may determine to cancel a Treasury Share or transfer a Treasury Share on such terms as they think proper (including, without limitation, for nil consideration).

 

GENERAL MEETINGS

 

60.                                All general meetings other than annual general meetings shall be called extraordinary general meetings.

 

61.                                (a)                                  The Company may (but shall not be obliged to) in each calendar year hold a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as may be determined by the Directors.

 

(b)                                  At these meetings, the report of the Directors (if any) shall be presented.

 

62.                                (a)                                  The Chairman or a majority of the Directors may call general meetings, and they shall on a Shareholders’ requisition forthwith proceed to convene an extraordinary general meeting of the Company.

 

(b)                                  A Shareholders’ requisition is a requisition of Members holding at the date of deposit of the requisition Shares which carry in aggregate not less than one-third (1/3) of all votes attaching to all issued and outstanding Shares of the Company that as at the date of the deposit carry the right to vote at general meetings of the Company.

 

(c)                                   The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more requisitionists.

 

(d)                                  If there are no Directors as at the date of the deposit of the Shareholders’ requisition, or if the Directors do not within twenty-one (21) calendar days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one (21) calendar days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three (3) calendar months after the expiration of the said twenty-one (21) calendar days.

 

(e)                                   A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors.

 

NOTICE OF GENERAL MEETINGS

 

63.                                At least ten (10) calendar days’ notice shall be given for any general meeting.  Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this Article has been given and whether or not the provisions of these Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed:

 

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(a)                                  in the case of an annual general meeting, by all the Shareholders (or their proxies) entitled to attend and vote thereat; and

 

(b)                                  in the case of an extraordinary general meeting, by two-thirds (2/3) of the Shareholders having a right to attend and vote at the meeting, present in person or by proxy or, in the case of a corporation or other non-natural person, by its duly authorised representative or proxy.

 

64.                                The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Shareholder shall not invalidate the proceedings at any meeting.

 

PROCEEDINGS AT GENERAL MEETINGS

 

65.                                No business except for the appointment of a chairman for the meeting shall be transacted at any general meeting unless a quorum of Shareholders is present at the time when the meeting proceeds to business. One or more Shareholders holding Shares which carry in aggregate (or representing by proxy) not less than one-third of all votes attaching to all Shares in issue and entitled to vote at such general meeting, present in person or by proxy or, if a corporation or other non-natural person, by its duly authorised representative, shall be a quorum for all purposes.

 

66.                                If within half an hour from the time appointed for the meeting a quorum is not present, the meeting shall be dissolved.

 

67.                                If the Directors wish to make this facility available for a specific general meeting or all general meetings of the Company, participation in any general meeting of the Company may be by means of a telephone or similar communication equipment by way of which all Persons participating in such meeting can communicate with each other and such participation shall be deemed to constitute presence in person at the meeting.

 

68.                                The Chairman, if any, of the Board of Directors shall preside as chairman at every general meeting of the Company.

 

69.                                If there is no such Chairman of the Board of Directors, or if at any general meeting he is not present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as chairman of the meeting, any Director or Person nominated by the Directors shall preside as chairman of that meeting, failing which the Shareholders present in person or by proxy shall choose any Person present to be chairman of that meeting.

 

70.                                The chairman may with the consent of any general meeting at which a quorum is present (and shall if so directed by the meeting) adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting, or adjourned meeting, is adjourned for fourteen (14) calendar days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting.

 

71.                                The Directors may cancel or postpone any duly convened general meeting at any time prior to such meeting, except for general meetings requisitioned by the Shareholders in accordance with these Articles, for any reason or for no reason, upon notice in writing to Shareholders. A postponement may be for a stated period of any length or indefinitely as the Directors may determine.

 

72.                                At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands) demanded by the chairman of the meeting or any Shareholder present in person or by proxy, and unless a poll is so demanded, a declaration by the chairman of the meeting that a resolution has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book of the proceedings of the Company, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favour of, or against, that resolution.

 

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73.                                If a poll is duly demanded it shall be taken in such manner as the chairman of the meeting directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.

 

74.                                All questions submitted to a meeting shall be decided by an Ordinary Resolution except where a greater majority is required by these Articles or by the Companies Law. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote.

 

75.                                A poll demanded on the election of a chairman of the meeting or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting directs.

 

VOTES OF SHAREHOLDERS

 

76.                                Subject to any rights and restrictions for the time being attached to any Share, on a show of hands every Shareholder present in person or by proxy (or, if a corporation or other non-natural person, by its duly authorised representative or proxy) shall, at a general meeting of the Company, each have one vote and on a poll every Shareholder present in person or by proxy (or, if a corporation or other non-natural person, by its duly authorised representative or proxy) shall have one vote for each Class A Ordinary Share and twenty-five (25) votes for each Class B Ordinary Share of which he is the holder.

 

77.                                In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy (or, if a corporation or other non-natural person, by its duly authorised representative or proxy) shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register.

 

78.                                Shares carrying the right to vote that are held by a Shareholder of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may be voted, whether on a show of hands or on a poll, by his committee, or other Person in the nature of a committee appointed by that court, and any such committee or other Person may vote in respect of such Shares by proxy.

 

79.                                No Shareholder shall be entitled to vote at any general meeting of the Company unless all calls, if any, or other sums presently payable by him in respect of Shares carrying the right to vote held by him have been paid.

 

80.                                On a poll, votes may be given either personally or by proxy.

 

81.                                Each Shareholder, other than a recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)), may only appoint one proxy on a show of hand. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under Seal or under the hand of an officer or attorney duly authorised. A proxy need not be a Shareholder.

 

82.                                An instrument appointing a proxy may be in any usual or common form or such other form as the Directors may approve.

 

83.                                The instrument appointing a proxy shall be deposited at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company:

 

(a)                                  not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote; or

 

(b)                                  in the case of a poll taken more than 48 hours after it is demanded, be deposited as aforesaid after the poll has been demanded and not less than 24 hours before the time appointed for the taking of the poll; or

 

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(c)                                   where the poll is not taken forthwith but is taken not more than 48 hours after it was demanded be delivered at the meeting at which the poll was demanded to the chairman or to the secretary or to any director;

 

provided that the Directors may in the notice convening the meeting, or in an instrument of proxy sent out by the Company, direct that the instrument appointing a proxy may be deposited at such other time (no later than the time for holding the meeting or adjourned meeting) at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company. The Chairman may in any event at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited. An instrument of proxy that is not deposited in the manner permitted shall be invalid.

 

84.                                The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll.

 

85.                                A resolution in writing signed by all the Shareholders for the time being entitled to receive notice of and to attend and vote at general meetings of the Company (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held.

 

CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS

 

86.                                Any corporation which is a Shareholder or a Director may by resolution of its directors or other governing body authorise such Person as it thinks fit to act as its representative at any meeting of the Company or of any meeting of holders of a Class or of the Directors or of a committee of Directors, and the Person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Shareholder or Director.

 

DEPOSITARY AND CLEARING HOUSES

 

87.                                If a recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)) is a Member of the Company it may, by resolution of its directors or other governing body or by power of attorney, authorise such Person(s) as it thinks fit to act as its representative(s) at any general meeting of the Company or of any Class of Shareholders provided that, if more than one Person is so authorised, the authorisation shall specify the number and Class of Shares in respect of which each such Person is so authorised. A Person so authorised pursuant to this Article shall be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)) which he represents as that recognised clearing house (or its nominee(s)) or depositary (or its nominee(s)) could exercise if it were an individual Member holding the number and Class of Shares specified in such authorisation, including the right to vote individually on a show of hands.

 

DIRECTORS

 

88.                                (a)                                  Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than three (3) Directors, the exact number of Directors to be determined from time to time by the Board of Directors.

 

(b)                                  The Board of Directors shall have a Chairman elected and appointed by a majority of the Directors then in office. The period for which the Chairman will hold office will also be determined by a majority of all of the Directors then in office. The Chairman shall preside as chairman at every meeting of the Board of Directors. To the extent the Chairman is not present at a meeting of the Board of Directors within fifteen minutes after the time appointed for holding the same, the attending Directors may choose one of their number to be the chairman of the meeting.

 

(c)                                   The Company may by Ordinary Resolution appoint any person to be a Director.

 

(d)                                  The Board may, by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting, appoint any person as a Director, to fill a casual vacancy on the Board or as an addition to the existing Board.

 

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(e)                                   An appointment of a Director may be on terms that the Director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event or after any specified period in a written agreement between the Company and the Director, if any; but no such term shall be implied in the absence of express provision. Each Director whose term of office expires shall be eligible for re-election at a meeting of the Shareholders or re-appointment by the Board.

 

89.                                A Director may be removed from office by Ordinary Resolution of the Company, notwithstanding anything in these Articles or in any agreement between the Company and such Director (but without prejudice to any claim for damages under such agreement). A vacancy on the Board created by the removal of a Director under the previous sentence may be filled by Ordinary Resolution or by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting. The notice of any meeting at which a resolution to remove a Director shall be proposed or voted upon must contain a statement of the intention to remove that Director and such notice must be served on that Director not less than ten (10) calendar days before the meeting. Such Director is entitled to attend the meeting and be heard on the motion for his removal.

 

90.                                The Board may, from time to time, and except as required by applicable law or Designated Stock Exchange Rules, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives of the Company and determine on various corporate governance related matters of the Company as the Board shall determine by resolution of Directors from time to time.

 

91.                                A Director shall not be required to hold any Shares in the Company by way of qualification. A Director who is not a Member of the Company shall nevertheless be entitled to attend and speak at general meetings.

 

92.                                The remuneration of the Directors may be determined by the Directors or by Ordinary Resolution.

 

93.                                The Directors shall be entitled to be paid for their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive such fixed allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such method and partly the other.

 

ALTERNATE DIRECTOR OR PROXY

 

94.                                Any Director may in writing appoint another Person to be his alternate and, save to the extent provided otherwise in the form of appointment, such alternate shall have authority to sign written resolutions on behalf of the appointing Director, but shall not be required to sign such written resolutions where they have been signed by the appointing director, and to act in such Director’s place at any meeting of the Directors at which the appointing Director is unable to be present. Every such alternate shall be entitled to attend and vote at meetings of the Directors as a Director when the Director appointing him is not personally present and where he is a Director to have a separate vote on behalf of the Director he is representing in addition to his own vote. A Director may at any time in writing revoke the appointment of an alternate appointed by him. Such alternate shall be deemed for all purposes to be a Director of the Company and shall not be deemed to be the agent of the Director appointing him. The remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion thereof shall be agreed between them.

 

95.                                Any Director may appoint any Person, whether or not a Director, to be the proxy of that Director to attend and vote on his behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the proxy, at a meeting or meetings of the Directors which that Director is unable to attend personally. The instrument appointing the proxy shall be in writing under the hand of the appointing Director and shall be in any usual or common form or such other form as the Directors may approve, and must be lodged with the chairman of the meeting of the Directors at which such proxy is to be used, or first used, prior to the commencement of the meeting.

 

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POWERS AND DUTIES OF DIRECTORS

 

96.                                Subject to the Companies Law, these Articles and any resolutions passed in a general meeting, the business of the Company shall be managed by the Directors, who may pay all expenses incurred in setting up and registering the Company and may exercise all powers of the Company. No resolution passed by the Company in a general meeting shall invalidate any prior act of the Directors that would have been valid if that resolution had not been passed.

 

97.                                Subject to these Articles, the Directors may from time to time appoint any natural person or corporation, whether or not a Director to hold such office in the Company as the Directors may think necessary for the administration of the Company, including but not limited to, chief executive officer, one or more other executive officers, president, one or more vice-presidents, treasurer, assistant treasurer, manager or controller, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another), and with such powers and duties as the Directors may think fit. Any natural person or corporation so appointed by the Directors may be removed by the Directors. The Directors may also appoint one or more of their number to the office of managing director upon like terms, but any such appointment shall ipso facto terminate if any managing director ceases for any cause to be a Director, or if the Company by Ordinary Resolution resolves that his tenure of office be terminated.

 

98.                                The Directors may appoint any natural person or corporation to be a Secretary (and if need be an assistant Secretary or assistant Secretaries) who shall hold office for such term, at such remuneration and upon such conditions and with such powers as they think fit. Any Secretary or assistant Secretary so appointed by the Directors may be removed by the Directors or by the Company by Ordinary Resolution.

 

99.                                The Directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors.

 

100.                         The Directors may from time to time and at any time by power of attorney (whether under Seal or under hand) or otherwise appoint any company, firm or Person or body of Persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys or authorised signatory (any such person being an “Attorney” or “Authorised Signatory”, respectively) of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of Persons dealing with any such Attorney or Authorised Signatory as the Directors may think fit, and may also authorise any such Attorney or Authorised Signatory to delegate all or any of the powers, authorities and discretion vested in him.

 

101.                         The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following Articles shall not limit the general powers conferred by this Article.

 

102.                         The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any natural person or corporation to be a member of such committees or local boards and may appoint any managers or agents of the Company and may fix the remuneration of any such natural person or corporation.

 

103.                         The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any natural person or corporation so appointed and may annul or vary any such delegation, but no Person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.

 

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104.                         Any such delegates as aforesaid may be authorised by the Directors to sub-delegate all or any of the powers, authorities, and discretion for the time being vested in them.

 

BORROWING POWERS OF DIRECTORS

 

105.                         The Directors may from time to time at their discretion exercise all the powers of the Company to raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

 

THE SEAL

 

106.                         The Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general form confirming a number of affixings of the Seal. The Seal shall be affixed in the presence of a Director or a Secretary (or an assistant Secretary) or in the presence of any one or more Persons as the Directors may appoint for the purpose and every Person as aforesaid shall sign every instrument to which the Seal is so affixed in their presence.

 

107.                         The Company may maintain a facsimile of the Seal in such countries or places as the Directors may appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form confirming a number of affixings of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such Person or Persons as the Directors shall for this purpose appoint and such Person or Persons as aforesaid shall sign every instrument to which the facsimile Seal is so affixed in their presence and such affixing of the facsimile Seal and signing as aforesaid shall have the same meaning and effect as if the Seal had been affixed in the presence of and the instrument signed by a Director or a Secretary (or an assistant Secretary) or in the presence of any one or more Persons as the Directors may appoint for the purpose.

 

108.                         Notwithstanding the foregoing, a Secretary or any assistant Secretary shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the Company.

 

DISQUALIFICATION OF DIRECTORS

 

109.                         The office of Director shall be vacated, if the Director:

 

(a)                                  becomes bankrupt or makes any arrangement or composition with his creditors;

 

(b)                                  dies or is found to be or becomes of unsound mind;

 

(c)                                   resigns his office by notice in writing to the Company;

 

(d)                                  without special leave of absence from the Board, is absent from meetings of the Board for three consecutive meetings and the Board resolves that his office be vacated; or

 

(e)                                   is removed from office pursuant to any other provision of these Articles.

 

PROCEEDINGS OF DIRECTORS

 

110.                         The Directors may meet together (either within or without the Cayman Islands) for the despatch of business, adjourn, and otherwise regulate their meetings and proceedings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. At any meeting of the Directors, each Director present in person or represented by his proxy or alternate shall be entitled to one vote. In case of an equality of votes, the Chairman shall have a second or casting vote. A Director may, and a Secretary or assistant Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors.

 

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111.                         A Director may participate in any meeting of the Directors, or of any committee appointed by the Directors of which such Director is a member, by means of telephone or similar communication equipment by way of which all Persons participating in such meeting can communicate with each other and such participation shall be deemed to constitute presence in person at the meeting.

 

112.                         The quorum necessary for the transaction of the business of the Board may be fixed by the Directors, and unless so fixed, the quorum shall be a majority of Directors then in office. A Director represented by proxy or by an alternate Director at any meeting shall be deemed to be present for the purposes of determining whether or not a quorum is present.

 

113.                         A Director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with the Company shall declare the nature of his interest at a meeting of the Directors. A general notice given to the Directors by any Director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract or transaction which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made or transaction so consummated. Subject to the Designated Stock Exchange Rules and disqualification by the chairman of the relevant Board meeting, a Director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein and, if he does so, his vote shall be counted and he may be counted in the quorum at any meeting of the Directors at which any such contract or transaction or proposed contract or transaction shall come before the meeting for consideration.

 

114.                         A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting of the Directors whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged and he may vote on any such appointment or arrangement.

 

115.                         Any Director may act by himself or through his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director; provided that nothing herein contained shall authorise a Director or his firm to act as auditor to the Company.

 

116.                         The Directors shall cause minutes to be made for the purpose of recording:

 

(a)                                  all appointments of officers made by the Directors;

 

(b)                                  the names of the Directors present at each meeting of the Directors and of any committee of the Directors; and

 

(c)                                   all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors.

 

117.                         When the chairman of a meeting of the Directors signs the minutes of such meeting the same shall be deemed to have been duly held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the proceedings.

 

118.                         A resolution in writing signed by all the Directors or all the members of a committee of Directors entitled to receive notice of a meeting of Directors or committee of Directors, as the case may be (an alternate Director, subject as provided otherwise in the terms of appointment of the alternate Director, being entitled to sign such a resolution on behalf of his appointer), shall be as valid and effectual as if it had been passed at a duly called and constituted meeting of Directors or committee of Directors, as the case may be. When signed a resolution may consist of several documents each signed by one or more of the Directors or his duly appointed alternate.

 

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119.                         The continuing Directors may act notwithstanding any vacancy in their body but if and for so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number, or of summoning a general meeting of the Company, but for no other purpose.

 

120.                         Subject to any regulations imposed on it by the Directors, a committee appointed by the Directors may elect a chairman of its meetings. If no such chairman is elected, or if at any meeting the chairman is not present within fifteen minutes after the time appointed for holding the meeting, the committee members present may choose one of their number to be chairman of the meeting.

 

121.                         A committee appointed by the Directors may meet and adjourn as it thinks proper. Subject to any regulations imposed on it by the Directors, questions arising at any meeting shall be determined by a majority of votes of the committee members present and in case of an equality of votes the chairman shall have a second or casting vote.

 

122.                         All acts done by any meeting of the Directors or of a committee of Directors, or by any Person acting as a Director, shall notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or Person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such Person had been duly appointed and was qualified to be a Director.

 

PRESUMPTION OF ASSENT

 

123.                         A Director who is present at a meeting of the Board of Directors at which an action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the chairman or secretary of the meeting before the adjournment thereof or shall forward such dissent by registered post to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action.

 

DIVIDENDS

 

124.                         Subject to any rights and restrictions for the time being attached to any Shares, the Directors may from time to time declare dividends (including interim dividends) and other distributions on Shares in issue and authorise payment of the same out of the funds of the Company lawfully available therefor.

 

125.                         Subject to any rights and restrictions for the time being attached to any Shares, the Company by Ordinary Resolution may declare dividends, but no dividend shall exceed the amount recommended by the Directors.

 

126.                         The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, in the absolute discretion of the Directors, be applicable for meeting contingencies or for equalising dividends or for any other purpose to which those funds may be properly applied, and pending such application may in the absolute discretion of the Directors, either be employed in the business of the Company or be invested in such investments (other than Shares of the Company) as the Directors may from time to time think fit.

 

127.                         Any dividend payable in cash to the holder of Shares may be paid in any manner determined by the Directors. If paid by cheque it will be sent by mail addressed to the holder at his address in the Register, or addressed to such person and at such addresses as the holder may direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the Register in respect of such Shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company.

 

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128.                         The Directors may determine that a dividend shall be paid wholly or partly by the distribution of specific assets (which may consist of the shares or securities of any other company) and may settle all questions concerning such distribution. Without limiting the generality of the foregoing, the Directors may fix the value of such specific assets, may determine that cash payment shall be made to some Shareholders in lieu of specific assets and may vest any such specific assets in trustees on such terms as the Directors think fit.

 

129.                         Subject to any rights and restrictions for the time being attached to any Shares, all dividends shall be declared and paid according to the amounts paid up on the Shares, but if and for so long as nothing is paid up on any of the Shares dividends may be declared and paid according to the par value of the Shares. No amount paid on a Share in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the Share.

 

130.                         If several Persons are registered as joint holders of any Share, any of them may give effective receipts for any dividend or other moneys payable on or in respect of the Share.

 

131.                         No dividend shall bear interest against the Company.

 

132.                         Any dividend unclaimed after a period of six calendar years from the date of declaration of such dividend may be forfeited by the Board of Directors and, if so forfeited, shall revert to the Company.

 

ACCOUNTS, AUDIT AND ANNUAL RETURN AND DECLARATION

 

133.                         The books of account relating to the Company’s affairs shall be kept in such manner as may be determined from time to time by the Directors.

 

134.                         The books of account shall be kept at the Registered Office, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors.

 

135.                         The Directors may from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Shareholders not being Directors, and no Shareholder (not being a Director) shall have any right to inspect any account or book or document of the Company except as conferred by law or authorised by the Directors or by Ordinary Resolution.

 

136.                         The accounts relating to the Company’s affairs shall be audited in such manner and with such financial year end as may be determined from time to time by the Directors or failing any determination as aforesaid shall not be audited.

 

137.                         The Directors may appoint an auditor of the Company who shall hold office until removed from office by a resolution of the Directors and may fix his or their remuneration.

 

138.                         Every auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors.

 

139.                         The auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment, and at any time during their term of office, upon request of the Directors or any general meeting of the Members.

 

140.                         The Directors in each calendar year shall prepare, or cause to be prepared, an annual return and declaration setting forth the particulars required by the Companies Law and deliver a copy thereof to the Registrar of Companies in the Cayman Islands.

 

CAPITALISATION OF RESERVES

 

141.                         Subject to the Companies Law, the Directors may, with the authority of an Ordinary Resolution:

 

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(a)                                  resolve to capitalise an amount standing to the credit of reserves (including a Share Premium Account, capital redemption reserve and profit and loss account), which is available for distribution;

 

(b)                                  appropriate the sum resolved to be capitalised to the Shareholders in proportion to the nominal amount of Shares (whether or not fully paid) held by them respectively and apply that sum on their behalf in or towards:

 

(i)                                      paying up the amounts (if any) for the time being unpaid on Shares held by them respectively, or

 

(ii)                                   paying up in full unissued Shares or debentures of a nominal amount equal to that sum,

 

and allot the Shares or debentures, credited as fully paid, to the Shareholders (or as they may direct) in those proportions, or partly in one way and partly in the other, but the Share Premium Account, the capital redemption reserve and profits which are not available for distribution may, for the purposes of this Article, only be applied in paying up unissued Shares to be allotted to Shareholders credited as fully paid;

 

(c)                                   make any arrangements they think fit to resolve a difficulty arising in the distribution of a capitalised reserve and in particular, without limitation, where Shares or debentures become distributable in fractions the Directors may deal with the fractions as they think fit;

 

(d)                                  authorise a Person to enter (on behalf of all the Shareholders concerned) into an agreement with the Company providing for either:

 

(i)                                      the allotment to the Shareholders respectively, credited as fully paid, of Shares or debentures to which they may be entitled on the capitalisation, or

 

(ii)                                   the payment by the Company on behalf of the Shareholders (by the application of their respective proportions of the reserves resolved to be capitalised) of the amounts or part of the amounts remaining unpaid on their existing Shares,

 

and any such agreement made under this authority being effective and binding on all those Shareholders; and

 

(e)                                   generally do all acts and things required to give effect to the resolution.

 

142.                         Notwithstanding any provisions in these Articles, the Directors may resolve to capitalise an amount standing to the credit of reserves (including the share premium account, capital redemption reserve and profit and loss account) or otherwise available for distribution by applying such sum in paying up in full unissued Shares to be allotted and issued to:

 

(a)                                  employees (including Directors) or service providers of the Company or its Affiliates upon exercise or vesting of any options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or the Members;

 

(b)                                  any trustee of any trust or administrator of any share incentive scheme or employee benefit scheme to whom shares are to be allotted and issued by the Company in connection with the operation of any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or Members; or

 

(c)                                   any depositary of the Company for the purposes of the issue, allotment and delivery by the depositary of ADSs to employees (including Directors) or service providers of the Company or its Affiliates upon exercise or vesting of any options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or the Members.

 

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SHARE PREMIUM ACCOUNT

 

143.                         The Directors shall in accordance with the Companies Law establish a Share Premium Account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any Share.

 

144.                         There shall be debited to any Share Premium Account on the redemption or purchase of a Share the difference between the nominal value of such Share and the redemption or purchase price provided always that at the discretion of the Directors such sum may be paid out of the profits of the Company or, if permitted by the Companies Law, out of capital.

 

NOTICES

 

145.                         Except as otherwise provided in these Articles, any notice or document may be served by the Company or by the Person entitled to give notice to any Shareholder either personally, or by posting it by airmail or a recognized courier service in a prepaid letter addressed to such Shareholder at his address as appearing in the Register, or by electronic mail to any electronic mail address such Shareholder may have specified in writing for the purpose of such service of notices, or by facsimile to any facsimile number such Shareholder may have specified in writing for the purpose of such service of notices, or by placing it on the Company’s Website should the Directors deem it appropriate. In the case of joint holders of a Share, all notices shall be given to that one of the joint holders whose name stands first in the Register in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders.

 

146.                         Notices sent from one country to another shall be sent or forwarded by prepaid airmail or a recognized courier service.

 

147.                         Any Shareholder present, either personally or by proxy, at any meeting of the Company shall for all purposes be deemed to have received due notice of such meeting and, where requisite, of the purposes for which such meeting was convened.

 

148.                         Any notice or other document, if served by:

 

(a)                                  post, shall be deemed to have been served five (5) calendar days after the time when the letter containing the same is posted;

 

(b)                                  facsimile, shall be deemed to have been served upon production by the transmitting facsimile machine of a report confirming transmission of the facsimile in full to the facsimile number of the recipient;

 

(c)                                   recognised courier service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service; or

 

(d)                                  electronic means, shall be deemed to have been served immediately (i) upon the time of the transmission to the electronic mail address supplied by the Shareholder to the Company or (ii) upon the time of its placement on the Company’s Website.

 

In proving service by post or courier service it shall be sufficient to prove that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier service.

 

149.                         Any notice or document delivered or sent by post to or left at the registered address of any Shareholder in accordance with the terms of these Articles shall, notwithstanding that such Shareholder be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any Share registered in the name of such Shareholder as sole or joint holder, unless his name shall at the time of the service of the notice or document have been removed from the Register as the holder of the Share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all Persons interested (whether jointly with or as claiming through or under him) in the Share.

 

150.                         Notice of every general meeting of the Company shall be given to:

 

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(a)                                  all Shareholders holding Shares with the right to receive notice and who have supplied to the Company an address for the giving of notices to them; and

 

(b)                                  every Person entitled to a Share in consequence of the death or bankruptcy of a Shareholder, who but for his death or bankruptcy would be entitled to receive notice of the meeting.

 

No other Person shall be entitled to receive notices of general meetings.

 

INFORMATION

 

151.                         No Member shall be entitled to require discovery of any information in respect of any detail of the Company’s trading or any information which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Board would not be in the interests of the Members of the Company to communicate to the public.

 

152.                         The Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of its Members including, without limitation, information contained in the Register and transfer books of the Company.

 

INDEMNITY

 

153.                         Every Director (including for the purposes of this Article any alternate Director appointed pursuant to the provisions of these Articles), Secretary, assistant Secretary, or other officer for the time being and from time to time of the Company (but not including the Company’s auditors) and the personal representatives of the same (each an “Indemnified Person”) shall be indemnified and secured harmless against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such Indemnified Person, other than by reason of such Indemnified Person’s own dishonesty, wilful default or fraud, in or about the conduct of the Company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such Indemnified Person in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere.

 

154.                         No Indemnified Person shall be liable:

 

(a)                                  for the acts, receipts, neglects, defaults or omissions of any other Director or officer or agent of the Company;

 

(b)                                  for any loss on account of defect of title to any property of the Company;

 

(c)                                   on account of the insufficiency of any security in or upon which any money of the Company shall be invested;

 

(d)                                  for any loss incurred through any bank, broker or other similar Person;

 

(e)                                   for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on such Indemnified Person’s part; or

 

(f)                                    for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers, authorities, or discretions of such Indemnified Person’s office or in relation thereto;

 

unless the same shall happen through such Indemnified Person’s own dishonesty, willful default or fraud.

 

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FINANCIAL YEAR

 

155.                         Unless the Directors otherwise prescribe, the financial year of the Company shall end on December 31st in each calendar year and shall begin on January 1st in each calendar year.

 

NON-RECOGNITION OF TRUSTS

 

156.                         No Person shall be recognised by the Company as holding any Share upon any trust and the Company shall not, unless required by law, be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any Share or (except only as otherwise provided by these Articles or as the Companies Law requires) any other right in respect of any Share except an absolute right to the entirety thereof in each Shareholder registered in the Register.

 

WINDING UP

 

157.                         If the Company shall be wound up, the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Companies Law, divide amongst the Members in species or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any asset upon which there is a liability.

 

158.                         If the Company shall be wound up, and the assets available for distribution amongst the Members shall be insufficient to repay the whole of the share capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the par value of the Shares held by them. If in a winding up the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst the Members in proportion to the par value of the Shares held by them at the commencement of the winding up subject to a deduction from those Shares in respect of which there are monies due, of all monies payable to the Company for unpaid calls or otherwise. This Article is without prejudice to the rights of the holders of Shares issued upon special terms and conditions.

 

AMENDMENT OF ARTICLES OF ASSOCIATION

 

159.                         Subject to the Companies Law, the Company may at any time and from time to time by Special Resolution alter or amend these Articles in whole or in part.

 

CLOSING OF REGISTER OR FIXING RECORD DATE

 

160.                         For the purpose of determining those Shareholders that are entitled to receive notice of, attend or vote at any meeting of Shareholders or any adjournment thereof, or those Shareholders that are entitled to receive payment of any dividend, or in order to make a determination as to who is a Shareholder for any other purpose, the Directors may provide that the Register shall be closed for transfers for a stated period which shall not exceed in any case thirty (30) calendar days in any calendar year.

 

161.                         In lieu of or apart from closing the Register, the Directors may fix in advance a date as the record date for any such determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of the Shareholders and for the purpose of determining those Shareholders that are entitled to receive payment of any dividend the Directors may, at or within ninety (90) calendar days prior to the date of declaration of such dividend, fix a subsequent date as the record date for such determination.

 

162.                         If the Register is not so closed and no record date is fixed for the determination of those Shareholders entitled to receive notice of, attend or vote at a meeting of Shareholders or those Shareholders that are entitled to receive payment of a dividend, the date on which notice of the meeting is posted or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Shareholders. When a determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of Shareholders has been made as provided in this Article, such determination shall apply to any adjournment thereof.

 

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REGISTRATION BY WAY OF CONTINUATION

 

163.                         The Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company.

 

DISCLOSURE

 

164.                         The Directors, or any service providers (including the officers, the Secretary and the registered office agent of the Company) specifically authorised by the Directors, shall be entitled to disclose to any regulatory or judicial authority or to any stock exchange on which securities of the Company may from time to time be listed any information regarding the affairs of the Company including without limitation information contained in the Register and books of the Company.

 

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Exhibit 4.4

 

Execution Copy

 

COOTEK (CAYMAN) INC.

 

FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 

DATED AS OF JANUARY 10, 2017

 



 

TABLE OF CONTENTS

 

1

Interpretation

4

 

 

 

 

1.1

Definitions

4

 

1.2

Interpretation

11

 

1.3

Jurisdiction of IPO

11

 

 

 

2

Demand Registration

12

 

 

 

 

2.1

Registration Rights

12

 

2.2

Registration on Form F-3 or Form S-3

13

 

2.3

Right of Deferral

13

 

2.4

Underwritten Offerings

14

 

2.5

Restrictions on Series D-1 Preferred Shares

15

 

 

 

3

Piggyback Registrations

15

 

 

 

 

3.1

Registration of the Company’s Securities

15

 

3.2

Underwriting Requirements

15

 

3.3

Exempt Transactions

16

 

3.4

Restrictions on Series D-1 Preferred Shares

16

 

 

 

4

Procedures

16

 

 

 

 

4.1

Registration Procedures and Obligations

16

 

4.2

Information from Holder

17

 

4.3

Expenses of Registration

18

 

4.4

Delay of Registration

18

 

4.5

Termination of Registration Rights

18

 

4.6

Restrictions on Series D-1 Preferred Shares

18

 

 

 

5

Indemnification

18

 

 

 

 

5.1

Company Indemnity

18

 

5.2

Holder Indemnity

19

 

5.3

Notice of Indemnification Claim

19

 

5.4

Contribution

20

 

5.5

Underwriting Agreement

20

 

5.6

Survival

20

 

 

 

6

Additional Undertakings

20

 

 

 

 

6.1

Reports under the Exchange Act

20

 

6.2

Limitations on Subsequent Registration Rights

21

 

6.3

“Market Stand-Off” Agreement

21

 

6.4

Assignment of Registration Rights

22

 

6.5

Exercise of Preferred Shares

22

 

 

 

7

Preemptive Right

22

 

 

 

 

7.1

General

22

 

i



 

 

7.2

Issuance Notice

23

 

7.3

Over Allotment

23

 

7.4

Sales by the Company

23

 

7.5

Approval of Further Equity Financing

23

 

7.6

Termination of Preemptive Rights

24

 

 

 

8

Information and Inspection Rights

24

 

 

 

 

8.1

Delivery of Financial Statements

24

 

8.2

Inspection

25

 

8.3

Termination of Information and Inspection Rights

25

 

8.4

Governmental / Securities Filings

25

 

8.5

United States Tax Matters

25

 

 

 

9

Rights of First Refusal and Co-Sale Rights

26

 

 

 

 

9.1

Prohibition on Transfer of Shares

26

 

9.2

Rights of First Refusal

28

 

9.3

Right of Co-Sale

30

 

9.4

Non-Exercise of Rights

32

 

9.5

Change in Control

32

 

9.6

Subsequent Rights

32

 

 

 

10

New Issuances or Transfers to Competitors

32

 

 

 

11

Assignments and Transfers; No Third Party Beneficiaries

33

 

 

 

12

Drag-Along Rights

33

 

 

 

13

Legend

35

 

 

 

14

Election of Directors; Board Observer

36

 

 

 

 

14.1

Board of Directors

36

 

14.2

Board Observer

36

 

14.3

Alternate

36

 

14.4

Meetings and Expenses

36

 

14.5

Directors’ Insurance and Indemnification

36

 

14.6

Board Meetings

37

 

 

 

15

Additional Agreements; Covenants

37

 

 

 

 

15.1

Employee Stock Option Plan and Restricted Stock; Employees

37

 

15.2

Qualified IPO

38

 

15.3

Use of Proceeds

38

 

15.4

Approval of Business Plan

38

 

15.5

Related-Party Transactions

39

 

15.6

Restrictions on Disposition of or Encumbrance on Shares

39

 

15.7

Covenants of the Founders and Zhu

39

 

15.8

Protective Provisions

41

 

15.9

Publicity

44

 

15.10

Confidentiality

45

 

ii



 

 

15.11

Liquidation; Redemption; PRC Subsidiaries

46

 

15.12

Professional Agency for Public Listing

46

 

15.13

Repayment of the Domestic Loan

47

 

 

 

16

Miscellaneous

47

 

 

 

 

16.1

Governing Law

47

 

16.2

Dispute Resolution

47

 

16.3

Counterparts

48

 

16.4

Notices

48

 

16.5

Headings and Titles

48

 

16.6

Expenses

49

 

16.7

Entire Agreement; Amendments and Waivers

49

 

16.8

Severability

49

 

16.9

Further Instruments and Actions

49

 

16.10

Rights Cumulative

49

 

16.11

No Waiver

50

 

16.12

Conflict with Restated Articles

50

 

16.13

No Presumption

50

 

16.15

Rights of Third Parties

50

 

16.16

Binding Effect

50

 

iii


 

FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 

THIS FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT (this Agreement ”) is made as of January 10, 2017 by and among:

 

(1)                                  CooTek (Cayman) Inc., a company duly incorporated and validly existing under the Laws of the Cayman Islands, with its registered office at the offices of Corporate Filing Services Ltd., P. O. Box 613, 4th Floor Harbour Centre, George Town, Grand Cayman KY1-1107, Cayman Islands (the “ Company ”);

 

(2)                                  Zhang Kan ( 张瞰 ), a citizen of the People’s Republic of China (“ China ” or the “ PRC ”) with his ID card number of ***; Wang Jialiang ( 王佳梁 ), a citizen of the PRC with his ID card number of ***; Li Qiaoling ( 李巧玲 ), a citizen of the PRC with her ID card number of ***; and Wang Jian ( 王健 ), a citizen of the PRC with his ID card number of *** (collectively, the “ Founders ” and each a “ Founder ”);

 

(3)                                  Kan’s Global CoolStuff Investment Inc., a company duly incorporated and validly existing under the Laws of the British Virgin Islands, with its registered office at P. O. Box 3321, Drake Chambers, Road Town, Tortola, British Virgin Islands; LQL Global Innovation Investment Inc., a company duly incorporated and validly existing under the Laws of the British Virgin Islands, with its registered office at P. O. Box 3321, Drake Chambers, Road Town, Tortola, British Virgin Islands; Jian’s Global CoolStuff Investment Inc., a company duly incorporated and validly existing under the Laws of the British Virgin Islands, with its registered office at P. O. Box 3321, Drake Chambers, Road Town, Tortola, British Virgin Islands; and Jialiang’s Global Creativity Investment Inc., a company duly incorporated and validly existing under the Laws of the British Virgin Islands, with its registered office at P. O. Box 3321, Drake Chambers, Road Town, Tortola, British Virgin Islands (collectively, the “ Founder Holdcos ” and each a “ Founder Holdco ”);

 

(4)                                  CooTek HongKong Limited, a company duly incorporated and validly existing under the Laws of Hong Kong Special Administrative Region of the PRC (“ Hong Kong ”) (the “ HK Subsidiary ”);

 

(5)                                  TouchPal HK Co., Limited, a company duly incorporated and validly existing under the Law of the Hong Kong Special Administrative Region (“ TouchPal HK ”);

 

(6)                                  TouchPal, Inc., a corporation duly incorporated and validly existing under the Law of Delaware State, USA (“ TouchPal US ”, together with TouchPal HK, collectively, the “ Offshore Subsidiaries ”);

 

(7)                                  Shanghai Chu Le (CooTek) Information Technology Co., Ltd. ( 上海触乐信息科技有限公司 ), a wholly foreign-owned enterprise duly organized and validly existing under the Laws of the PRC, with its registered office at Suite A2060, Building B, No. 555, Dongchuan Road, Minhang District, Shanghai, China (the “ WFOE ”);

 

1



 

(8)                                  Shanghai Han Xiang (CooTek) Information Technology Co., Ltd. ( 上海汉翔信息技术有限公司 ), a Sino-foreign joint venture company duly incorporated and validly existing under the Laws of the PRC, with its registered office at Suite 1023, Building B, No. 555, Dongchuan Road, Minhang District, Shanghai, China (“ Han Xiang ”);

 

(9)                                  Shanghai Chu Bao (CooTek) Information Technology Co., Ltd. ( 上海触宝信息技术有限公司 ), a limited liability company duly incorporated and validly existing under the Laws of the PRC, with its registered office at No.01, 02, 12th Floor, Building 82, No. 1198, North Qinzhou Road, Shanghai, China (“ Chu Bao, ” together with Han Xiang, the “ Domestic Companies ” and each a “ Domestic Company ”; the Domestic Companies together with the WFOE, collectively, the “ PRC Subsidiaries ” and each, a “ PRC Subsidiary ”);

 

(10)                           Haiyan’s Global Creativity Investment Inc., a company duly incorporated and validly existing under the Laws of the British Virgin Islands, with its registered office at P. O. Box 3321, Drake Chambers, Road Town, Tortola, British Virgin Islands (“ Haiyan’s Holdco ”);

 

(11)                           Zhu Haiyan ( 朱海燕 ), a citizen of the PRC with her ID card number of *** (“ Zhu ”);

 

(12)                           Qiming Venture Partners II, L.P., an exempted limited partnership duly incorporated and validly existing under the Laws of Cayman Islands (“ Qiming-1 ”);

 

(13)                           Qiming Venture Partners II-C, L.P., an exempted limited partnership duly incorporated and validly existing under the Laws of Cayman Islands (“ Qiming-2 ”);

 

(14)                           Qiming Managing Directors Fund II, L.P., an exempted limited partnership duly incorporated and validly existing under the Laws of Cayman Islands (“ Qiming-3 ” together with Qiming-1 and Qiming-2, collectively, “ Qiming ”);

 

(15)                           Orange Capital Management, a limited liability company duly incorporated and validly existing under the Laws of France (“ Orange ”);

 

(16)                           Qualcomm International, Inc., a company duly incorporated and validly existing under the Laws of the State of California of the United States of America (“ Qualcomm ”, together with Qiming and Orange collectively to the extent that each of them is a holder of Series A Preferred Shares, the “ Series A Investors ”, and each, a “ Series A Investor ”);

 

(17)                           Sycamore Capital Holdings Limited, a limited liability company duly incorporated and validly existing under the Laws of the British Virgin Islands (“ Sycamore Capital ”);

 

(18)                           SIG China Investments Master Fund III, LLLP, a limited liability limited partnership duly incorporated and validly existing under the Laws of the State of Delaware of the United States of America (“ SIG ”, together with Qiming and Qualcomm, collectively to the extent that each of them is a holder of Series B-1 Preferred Shares, the “ Series B-1 Investors ”, and each, a “ Series B-1 Investor ”);

 

2



 

(19)                           Alibaba Investment Limited, a limited liability company duly incorporated and validly existing under the Laws of the British Virgin Islands (“ Alibaba ”, together with Qiming, Qualcomm, Sycamore Capital, and SIG, collectively to the extent that each of them is a holder of Series B Preferred Shares, the “ Series B Investors ”, and each, a “ Series B Investor ”);

 

(20)                           Sequoia Capital China GF Holdco III-A, Ltd., a company duly incorporated and validly existing under the Laws of the Cayman Islands (“ Sequoia ”, together with Qiming and SIG, collectively to the extent that each of them is a holder of Series C Preferred Shares, the “ Series C Investors ”, and each, a “ Series C Investor ”);

 

(21)                           CHANCE TALENT MANAGEMENT LIMITED, a company duly incorporated and validly existing under the Laws of the British Virgin Islands (“ CCBI ”);

 

(22)                           New Alliance CC Limited, a company duly incorporated and validly existing under the Laws of the British Virgin Islands(“ New Alliance ”);

 

(23)                           TRANQUILITY COMMUNICATIONS LIMITED ( 静康通讯有限公司 ), a company duly incorporated and validly existing under the Laws of Republic of Seychelles (“ Tranquility Investments ”, together with CCBI, New Alliance, and Qiming, SIG and Sequoia, to the extent that each of them is a holder of Series D Preferred Shares, the “ Series D Investors ”, and each a “ Series D Investor ”); and

 

(24)                           HG Qiandao Limited, a company duly incorporated and validly existing under the Laws of the British Virgin Islands (the “ Series D-1 Investor ”, together with Series D Investors, the “ Series D and Series D-1 Investors ”).

 

Each of the Company, the Founders, the Founder Holdcos, Haiyan’s Holdco, the HK Subsidiary, the Offshore Subsidiaries, the PRC Subsidiaries, Zhu, the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D Investors and the Series D-1 Investor shall be referred to individually as a “ Party ” and collectively as the “ Parties ”.

 

RECITALS

 

A.                                     WHEREAS, the Series D-1 Investor has agreed to purchase from the Company, and the Company has agreed to issue to the Series D-1 Investor, a certain number of Series D-1 Preferred Shares of the Company on the terms and conditions set forth in that certain Share Purchase Agreement entered into by and among the Company, the Series D-1 Investor, and other parties thereto on January 10, 2017 (the “ Share Purchase Agreement ”). However, upon the Initial Closing as defined in the Share Purchase Agreement, the Series D-1 Preferred Shares issued to the Series D-1 Investor are unpaid and Series D-1 Investor shall pay the Purchase Price after the Initial Closing but in no event after the later date of (i) the commencement of IPO application as determined by the Board of the Company or (ii) one year after the execution of the Domestic Loan Agreement (as defined below) (“ Deferred Payment of Purchase Price ”).

 

3



 

B.                                     WHEREAS, each of the Founder Holdcos and the Qualcomm agrees to sell to the Company and the Company agrees to repurchase from each of the Founder Holdcos and Qualcomm and cancel certain shares of the Company pursuant to the terms and subject to the conditions of the Share Purchase Agreement.

 

C.                                     WHEREAS, the Investor wishes to designate one of its Affiliates to provide a loan to WFOE, and WFOE wishes to accept and borrow such loan from such Affiliates designated by the Investor, in a principal amount of US$20,000,000 or its equivalent RMB pursuant to the terms and subject to the conditions of the Loan Agreement (the “ Domestic Loan Agreement ”) entered into by and among the Investor’s Affiliate, the WFOE and other parties thereto (the “ Domestic Loan ”);

 

D.                                     WHEREAS, the Company, the HK Subsidiary, the PRC Subsidiaries, the Founders, Zhu, the Founder Holdcos, Haiyan’s Holdco, the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors and the Series D Investors entered into a Fourth Amended and Restated Shareholders’ Agreement on July 14, 2016 (including any and all deeds of adherence to such Shareholders’ Agreement, the “ Prior Agreement ” collectively).

 

E.                                      WHEREAS, the Parties desire to enter into this Agreement to amend, restate, supersede and replace in its entirety the Prior Agreement.

 

F.                                       WHEREAS, it is a condition precedent to the Initial Closing under the Share Purchase Agreement that the Parties enter into this Agreement.

 

G.                                     WHEREAS, it is understood by the Company, the Founders, the Founder Holdcos, Haiyan’s Holdco, the HK Subsidiary, the Offshore Subsidiaries, the PRC Subsidiaries, Zhu, the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D Investors and the Series D-1 Investor that this Agreement is intended to be binding on all Founders, all shareholders of the Company as well as each member of the Group Companies at and after the Initial Closing under the Share Purchase Agreement.

 

WITNESSTH

 

NOW, THEREFORE, in consideration of the premises set forth above, the mutual promises and covenants set forth herein and other good and valuable consideration, the Parties agree as follows:

 

1                                          Interpretation .

 

1.1                                Definitions .

 

Capitalized terms used herein without definitions shall have the meanings set forth in the Share Purchase Agreement. For purposes of this Agreement, the following terms shall have the following meanings:

 

Affiliate ” means, with respect to a Person, any other Person (in the case of Orange Capital Management, such “ other Person ” shall also include any Orange Publicis Venture Fund managed

 

4



 

by its management company Iris Capital) that, directly or indirectly, Controls, is Controlled by or is under common Control with such Person.

 

Agreement ” has the meaning ascribed to it in the preamble hereof.

 

Applicable Securities Law ” means (i) with respect to any offering of securities in the United States, or any other act or omission within that jurisdiction, the securities Law of the United States, including the Exchange Act and the Securities Act, and any applicable securities Law of any state of the United States, and (ii) with respect to any offering of securities in any jurisdiction other than the United States, or any related act or omission in that jurisdiction, the applicable securities Laws of that jurisdiction.

 

Arbitration Rules ” has the meaning ascribed to it in Section 16.2(b)  hereof.

 

Board ” or “ Board of Directors ” means the board of directors of the Company.

 

Center ” has the meaning ascribed to it in Section 16.2(b)  hereof.

 

CFC ” has the meaning ascribed to it in Section 8.5(a)  hereof.

 

Code ” has the meaning ascribed to it in Section 8.5(a)  hereof.

 

Commission ” means (a) with respect to any offering of securities in the United States, the Securities and Exchange Commission of the United States or any other federal agency at the time administering the Securities Act, and (b) with respect to any offering of securities in a jurisdiction other than the United States, the regulatory body of the jurisdiction with authority to supervise and regulate the offering and sale of securities in that jurisdiction.

 

Company ” has the meaning ascribed to it in the preamble hereof.

 

Competitor ” has the meaning ascribed to it in Section 10 hereof.

 

Control ” of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, which power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at meetings of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person; the terms “ Controlling ” and “ Controlled ” have meanings correlative to the foregoing.

 

Deed of Adherence ” has the meaning set forth in Section 9.1(b)  hereof.

 

Deemed Liquidation Event ” has the meaning ascribed to it in the Restated Articles.

 

Deferred Payment of Purchase Price ” has the meaning set forth in the Recitals of this Agreement.

 

5



 

Domestic Loan ” has the meaning set forth in the Recitals of this Agreement.

 

Domestic Loan Agreement ” has the meaning set forth in the Recitals of this Agreement.

 

Drag-Along Date ” has the meaning set forth in Section 12(d)  hereof.

 

Drag-Along Notice ” has the meaning set forth in Section 12(d)  hereof.

 

Drag-Along Sale ” has the meaning set forth in Section 11(a)  hereof.

 

Drag-Along Shareholder ” has the meaning set forth in Section 11(a)  hereof.

 

Equity Securities ” means any Ordinary Shares and/or Ordinary Share Equivalents of the Company.

 

ESOP ” means the employee stock incentive plan of the Company to be adopted by the Company.

 

Exchange Act ” means the United States Securities Exchange Act of 1934, as amended.

 

Exercising Holder ” has the meaning ascribed to it in Section 7.3 hereof.

 

Form F-3 ” means Form F-3 promulgated by the Commission under the Securities Act or any successor form or substantially similar form then in effect.

 

Form S-3 ” means Form S-3 promulgated by the Commission under the Securities Act or any successor form or substantially similar form then in effect.

 

Founders ” shall mean Zhang Kan, Wang Jialiang, Li Qiaoling and Wang Jian, each of whom is a citizen of the PRC.

 

Governmental Authority ” means any nation or government or any province or state or any other political subdivision thereof; any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the PRC or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.

 

Group Companies ” means the Company, the HK Subsidiary, the Offshore Subsidiaries, the PRC Subsidiaries and any of their Subsidiaries and branches (if any), and each Person (other than a natural person) that is, directly or indirectly, Controlled by the Company or the PRC Subsidiaries.

 

Holder(s) ” mean the holder(s) of Registrable Securities who are Parties to this Agreement from time to time, and their permitted transferees that become Parties to this Agreement from time to time.

 

HK Subsidiary ” has the meaning set forth in the preamble hereof.

 

6



 

Hong Kong ” has the meaning set forth in the preamble hereof.

 

Hong Kong Stock Exchange ” means The Stock Exchange of Hong Kong Limited.

 

IFRS ” shall mean the International Financial Reporting Standards promulgated by the International Accounting Standards Board (the “ IASB ”) (which includes standards and interpretations approved by the IASB and International Accounting Principles issued under previous constitutions), together with its pronouncements thereon from time to time, and applied on a consistent basis.

 

Initial Closing ” has the meaning ascribed to it in the Share Purchase Agreement.

 

Initiating Holders ” means, with respect to a request duly made under Section 2.1 or Section 2.2  to register any Registrable Securities, the Holders initiating such request.

 

IPO ” means the first firmly underwritten registered public offering (a) by the Company of its Ordinary Shares or any member of Group Companies pursuant to a Registration Statement that is filed with and declared effective by either the Commission under the Securities Act in the United States, or (b) listing of all the equity interest or shares of any member of Group Companies on the Hong Kong Stock Exchange or United States stock exchange or PRC stock exchange approved by the Board of the Company.

 

Issuance Notice ” has the meaning ascribed to it in Section 7.2 .

 

Law(s) ” means any constitutional provision, statute or other law, rule, regulation, official policy or interpretation of any Governmental Authority and any injunction, judgment, order, ruling, assessment or writ issued by any Governmental Authority.

 

Liquidation Event ” has the meaning ascribed to it in the Restated Articles.

 

Management Directors ” has the meaning ascribed to it in Section 14.1(a) .

 

Majority Preferred Holders ” means the holders of more than 50% of the voting power of the issued and outstanding Series A Preferred Shares, the holders of more than 50% of the voting power of the issued and outstanding Series B Preferred Shares, the holders of more than 50% of the voting power of the issued and outstanding Series B-1 Preferred Shares, the holders of more than 50% of the voting power of the issued and outstanding Series C Preferred Shares (each voting as a single class), the holders of more than 50% of the voting power of the issued and outstanding Series D and Series D-1 Preferred Shares (each voting as a single class).

 

New Securities ” means, subject to the terms of Section 7 hereof, any newly issued Equity Securities of the Company, except for (a) any Ordinary Shares Equivalent issued to the employees, consultants, officers or directors of the Group Companies pursuant to other share option, share purchase or share bonus plan, agreement or arrangement to be approved by the Board of Directors of the Company from time to time; (b) securities issued upon conversion of the Preferred Shares or exercise of any outstanding warrants or options; (c) securities issued in connection with a bona fide acquisition of another business; (d) securities issued in a Qualified IPO; (e) securities issued in

 

7



 

connection with any share split, share dividend, combination, recapitalization or similar transaction of the Company; (f) securities issued pursuant to the Share Purchase Agreement, as such agreement may be amended or modified from time to time; (g) Ordinary Shares issued or issuable pursuant to equipment lease financings or bank credit arrangements approved by the Board; or (h) any other issuance of Equity Securities whereby the Holders give a written waiver of their rights under Section 7 hereof at the Holder’s sole discretion.

 

Non-Exercising Holder ” has the meaning ascribed to it in Section 7.3 hereof.

 

Offered Shares ” has the meaning set forth in Section 9.2(a)  hereof.

 

Offshore Subsidiaries ” has the meaning set forth in the preamble hereof.

 

Observer ” has the meaning set forth in Section 14.2 hereof.

 

Ordinary Share Equivalents ” means warrants, options and rights exercisable for Ordinary Shares or securities convertible into or exchangeable for Ordinary Shares, including, without limitation the Preferred Shares.

 

Ordinary Shares ” means the Ordinary Shares, par value US$0.00001, of the Company.

 

Party ” has the meaning ascribed to it in the preamble hereof.

 

Person ” means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, trust, estate or other enterprise or entity.

 

PFIC ” has the meaning ascribed to it in Section 8.5(a)  hereof.

 

PRC ” means the People’s Republic of China, but solely for the purposes of this Agreement, excluding Hong Kong, the Macau Special Administrative Region and Taiwan.

 

Preferred Shares ” means the Series A Preferred Shares, the Series B Preferred Shares, the Series B-1 Preferred Shares, the Series C Preferred Shares, the Series D Preferred Shares and the Series D-1 Preferred Shares.

 

Purchasing Holders ” has the meaning set forth in Section 9.2(b)(iv)  hereof.

 

Purchase Price ” has the meaning set forth in Section 2.1 of Share Purchase Agreement.

 

QEF Election ” has the meaning ascribed to it in Section 8.5(a)  hereof.

 

Qualified IPO ” means an IPO approved by the Company and satisfactory to the Majority Preferred Holders resulting in (i) market capitalization of at least US$1,000,000,000, and (ii) gross proceeds to the Company of at least US$100,000,000.

 

Re-allotment Notice ” has the meaning set forth in Section 9.2(b)(iv)  hereof.

 

8



 

Registrable Securities ” means (a) the Ordinary Shares issuable or issued upon conversion of the Preferred Shares, (b) any Ordinary Shares owned or hereafter acquired by any Series A Investor or Series B Investor or Series B-1 Investor or Series C Investor, Series D Investor or Series D-1 Investor, and (c) any Ordinary Shares of the Company issued as a dividend or other distribution with respect to, in exchange for, or in replacement of, the shares referenced in (a) and (b) herein. For purposes of this Agreement, (a) Registrable Securities shall cease to be Registrable Securities when a Registration Statement covering such Registrable Securities has been declared effective under the Securities Act by the Commission whether or not such Registrable Securities have been disposed of pursuant to such effective Registration Statement, and (b) the Registrable Securities of a Holder shall not be deemed to be Registrable Securities at any time when the entire amount of such Registrable Securities proposed to be sold by such Holder in a single sale are or, in the opinion of counsel satisfactory to the Company and such Holder, each in their reasonable judgment, may be, so distributed to the public pursuant to Rule 144 (or any successor provision then in effect) under the Securities Act in any three (3) month period or any such Registrable Securities have been sold in a sale made pursuant to Rule 144 of the Securities Act.

 

Registration ” means a registration effected by preparing and filing a Registration Statement and the declaration or ordering of the effectiveness of that Registration Statement; and the terms “ Register ” and “ Registered ” have meanings concomitant with the foregoing.

 

Registration Statement ” means a registration statement prepared on Form F-1, F-2, F-3, S-1, S-2 or S-3 under the Securities Act (including, without limitation, Rule 415 under the Securities Act), or on any comparable form in connection with registration in a jurisdiction other than the United States.

 

Remaining Securities ” has the meaning ascribed to it in Section 7.3 hereof.

 

Repurchase Price ” has the meaning ascribed to it in the Share Purchase Agreement.

 

Restated Articles ” means the fifth amended and restated memorandum and articles of association of the Company, as amended and restated from time to time.

 

Restricted Shareholder ” has the meaning set forth in Section 9.1(a)  hereof.

 

Securities Act ” means the United States Securities Act of 1933, as amended.

 

Selling Holder ” has the meaning set forth in Section 9.3(a)  hereof.

 

Series A Director ” has the meaning ascribed to it in Section 14.1 hereof.

 

Series A Investor(s) ” has the meaning ascribed to it in the preamble hereof.

 

Series A Preferred Shares ” means any and all of the Company’s Series A Preferred Shares, par value US$0.00001 per share, with the rights and privileges as set forth in the Restated Articles.

 

Series B Director ” has the meaning ascribed to it in Section 14.1 hereof.

 

9



 

Series B Investor(s) ” has the meaning ascribed to it in the preamble hereof.

 

Series B-1 Investor(s) ” has the meaning ascribed to it in the preamble hereof.

 

Series B Preferred Shares ” means any and all of the Company’s Series B Preferred Shares, par value US$0.00001 per share, with the rights and privileges as set forth in the Restated Articles.

 

Series B-1 Preferred Shares ” means any and all of the Company’s Series B-1 Preferred Shares, par value US$0.00001 per share, with the rights and privileges as set forth in the Restated Articles.

 

Series C Director ” has the meaning ascribed to it in Section 14.1 hereof.

 

Series C Investor(s) ” has the meaning ascribed to it in the preamble hereof.

 

Series C Preferred Shares ” means any and all of the Company’s Series C Preferred Shares, par value US$0.00001 per share, with the rights and privileges as set forth in the Restated Articles.

 

Series D Investor(s) ” has the meaning ascribed to it in the preamble hereof.

 

Series D Preferred Shares ” means any and all of the Company’s Series D Preferred Shares, par value US$0.00001 per share, with the rights and privileges as set forth in the Restated Articles.

 

Series D-1 Investor ” has the meaning ascribed to it in the preamble hereof.

 

Series D-1 Preferred Shares ” means any and all of the Company’s Series D-1 Preferred Shares, par value US$0.00001 per share, with the rights and privileges as set forth in the Restated Articles.

 

Series D and Series D-1 Investor ” has the meaning ascribed to it in the preamble hereof.

 

Series D and Series D-1 Preferred Shares ” means any and all of the Company’s Series D Preferred Shares and Series D-1 Preferred Shares.

 

Shares ” means the Company’s Ordinary Shares and/or the Preferred Shares.

 

Share Purchase Agreement ” has the meaning ascribed to it in the Recitals hereof.

 

Subsidiary ” means, with respect to any specified Person, any Person of which the specified Person, directly or indirectly, owns more than fifty percent (50%) of the issued and outstanding authorized capital, share capital, voting interests or registered capital.

 

TouchPal HK ” has the meaning set forth in the preamble hereof.

 

TouchPal US ” has the meaning set forth in the preamble hereof.

 

Transfer ” or “ Transferor ” has the meaning set forth in Section 9.2(a)  hereof.

 

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Transfer Notice ” has the meaning set forth in Section 9.2(a)  hereof.

 

United States ” means the United States of America.

 

US GAAP ” means generally accepted accounting principles in effect in the United States of America from time to time.

 

Violation ” has the meaning ascribed to it in Section 5.1(a)  hereof.

 

1.2                                Interpretation .

 

For all purposes of this Agreement, except as otherwise expressly provided herein, (a) the terms defined in Section 1.1 shall have the meanings ascribed to them in Section 1.1 and shall include the plural as well as the singular, (b) all accounting terms not otherwise defined herein have the meanings assigned under IFRS or US GAAP, (c) all references in this Agreement to designated “Sections” and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement, (d) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms, (e) the words “herein”, “hereof”, and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section or other subdivision, (f) all references to dollars are to currency of the United States of America, (g) the term “including” will be deemed to be followed by “ but not limited to”, (h) the terms “shall”, “will” and “agrees” are mandatory, and the term “may” is permissive, and (i) the term “day” means “calendar day.”

 

1.3                                Jurisdiction of IPO .

 

The terms of this Agreement are drafted primarily in contemplation of an offering of securities on the Hong Kong Stock Exchange or United States stock exchange or PRC stock exchange approved by the Board of the Company. The Parties recognize, however, the possibility that securities may be qualified or registered in Hong Kong, the United States or PRC for offering to the public.

 

Accordingly:

 

(a)                                  It is their intention that, whenever this Agreement refers to a Law, form, process or institution of the United States of America but the Parties wish to effectuate qualification or registration in a different jurisdiction, reference in this Agreement to the Laws or institutions of the United States shall be read as referring, mutatis mutandis , to the comparable Laws or institutions of the jurisdiction in question; and

 

(b)                                  The terms of this Agreement are drafted primarily in contemplation of an IPO. Each Party shall use its best efforts to cause the requirements of the applicable Laws and regulations governing the IPO to be fulfilled.

 

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2                                          Demand Registration .

 

2.1                                Registration Rights .

 

Subject to the terms of this Agreement, at any time or from time to time after the earlier of (a) June 30, 2020 and (b) the date that is six (6) months after the closing of an IPO, Holders holding at least (i) ten percent (10%) of the Series A Preferred Shares (or Ordinary Shares issued upon conversion of the Series A Preferred Shares or a combination of such Ordinary Shares and Series A Preferred Shares), (ii) ten percent (10%) of the Series B Preferred Shares (or Ordinary Shares issued upon conversion of the Series B Preferred Shares or a combination of such Ordinary Shares and Series B Preferred Shares), (iii) ten percent (10%) of the Series B-1 Preferred Shares (or Ordinary Shares issued upon conversion of the Series B-1 Preferred Shares or a combination of such Ordinary Shares and Series B-1 Preferred Shares), (iv) ten percent (10%) of the Series C Preferred Shares (or Ordinary Shares issued upon conversion of the Series C Preferred Shares or a combination of such Ordinary Shares and Series C Preferred Shares), or (v) ten percent (10%) of the Series D and Series D-1 Preferred Shares (or Ordinary Shares issued upon conversion of the Series D and Series D-1 Preferred Shares or a combination of such Ordinary Shares and Series D and Series D-1 Preferred Shares) may request in writing that the Company file a Registration Statement in any jurisdiction in which the Company has had a registered underwritten public offering (or, if the Company has not yet had a registered underwritten public offering, then such request may be to effect such Registration on the New York Stock Exchange, the NASDAQ National Market, or any other internationally recognized exchange that is approved by Company) of all or part of the Registrable Securities, including without limitation any registration statement filed under the Securities Act providing for the registration of, and the sale on a continuous or delayed basis by the Holders of, all of the Registrable Securities pursuant to Rule 415 under the Securities Act and/or any similar rule that may be adopted by the Commission on Form F-1 or Form S-1 (or any comparable form for Registration in a jurisdiction other than the United States, if applicable).

 

Upon receipt of such a request, the Company shall (a) within fifteen (15) days of the receipt thereof, give written notice of the proposed Registration to all other Holders, and (b) as soon as practicable, use its best efforts to cause the Registrable Securities specified in the request, together with any Registrable Securities of any Holder who requests in writing to join such Registration within fifteen (15) days after the Company’s delivery of written notice, to be Registered and/or qualified for sale and distribution in such jurisdiction. The Company shall not be obligated to effect more than three (3) such demand Registrations by each of (i) the holders of the Series A Preferred Shares (or Ordinary Shares issued upon conversion of the Series A Preferred Shares or a combination of such Ordinary Shares and Series A Preferred Shares), (ii) the holders of the Series B Preferred Shares (or Ordinary Shares issued upon conversion of the Series B Preferred Shares or a combination of such Ordinary Shares and Series B Preferred Shares), (iii) the holders of the Series B-1 Preferred Shares (or Ordinary Shares issued upon conversion of the Series B-1 Preferred Shares or a combination of such Ordinary Shares and Series B-1 Preferred Shares), (iv) the holders of the Series C Preferred Shares (or Ordinary Shares issued upon conversion of the Series C Preferred Shares or a combination of such Ordinary Shares and Series C Preferred Shares) and, (v) the holders of the Series D and Series D-1 Preferred Shares (or Ordinary Shares issued upon conversion of the Series D and Series D-1 Preferred Shares or a combination of such Ordinary Shares and Series D

 

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and Series D-1 Preferred Shares) pursuant to this Section 2.1 that have been declared and ordered effective.

 

2.2                                Registration on Form F-3 or Form S-3 .

 

Subject to the terms of this Agreement, if the Company qualifies for registration on Form F-3 or Form S-3 (or any comparable form for Registration in a jurisdiction other than the United States), the Holders of Registrable Securities shall be entitled to an unlimited number of demand registrations on Form F-3 or Form S-3 (or any comparable form for Registration in a jurisdiction other than the United States) so long as such registered offerings are each for the Ordinary Shares having an aggregate offering price of not less than US$1,000,000. Upon receipt of such a request, the Company shall (a) within fifteen (15) days of the receipt thereof, give written notice of the proposed Registration to all other Holders and (b) as soon as practicable, use its best efforts to cause the Registrable Securities specified in the request, together with any Registrable Securities of any Holder who requests in writing to join such Registration within fifteen (15) days after the Company’s delivery of written notice, to be Registered and qualified for sale and distribution in such jurisdiction. The Holders may at any time, and from time to time, require the Company to effect the Registration of Registrable Securities under this Section 2.2 , provided , however , that the Company shall be obligated to effect no more than two (2) such Form F-3 or Form S-3 Registrations in every twelve (12) month period pursuant to this Section 2.2 that have been declared and ordered effective.

 

2.3                                Right of Deferral .

 

(a)                                  The Company shall not be obligated to Register or qualify Registrable Securities pursuant to this Section 2 :

 

(i)                                      if, within ten (10) days of the receipt of any request of the Holders to Register any Registrable Securities under Section 2.1 or Section 2.2 , the Company gives notice to the Initiating Holders of its bona fide intention to effect the filing for its own account of a Registration Statement of Ordinary Shares within sixty (60) days of receipt of that request; provided that the Company is actively employing in good faith its best efforts to cause that Registration Statement to become effective within sixty (60) days of the initial filing; provided further that the Holders are entitled to join such Registration subject to Section 3 ;

 

(ii)                                   during the period starting with the date of filing by the Company of, and ending six (6) months following the effective date of any Registration Statement pertaining to Ordinary Shares of the Company; provided that the Holders are entitled to join such Registration subject to Section 3 ; or

 

(iii)                                in any jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such Registration or qualification, unless the Company is already subject to service of process in such jurisdiction.

 

(b)                                  If, after receiving a request from Holders pursuant to Section 2.1 or Section 2.2 hereof, the Company furnishes to the Holders a certificate signed by the chief executive officer of the Company stating that, in the good faith judgment of the Board, there is a reasonable likelihood

 

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that it would be materially detrimental to the Company or its members for a Registration Statement to be filed in the near future, then the Company shall have the right to defer such filing for a period during which such filing would be materially detrimental, provided that such deferral by the Company shall not exceed ninety (90) days from the receipt of any request duly submitted by Holders under Section 2.1 or sixty (60) days from the receipt of any request duly submitted by Holders under Section 2.2 to Register Registrable Securities; provided further, that the Company may not Register any other of its Securities during such sixty (60) or ninety (90) day period (except for Registrations contemplated by Section 3.4 ); as the case may be, and provided that the Company shall not utilize this right more than once in any twelve (12) month period.

 

2.4                                Underwritten Offerings .

 

If, in connection with a request to Register Registrable Securities under Section 2.1 or Section 2.2 , the Initiating Holders seek to distribute such Registrable Securities in an underwriting, they shall so advise the Company as a part of the request, and the Company shall include such information in the written notice to the other Holders described in Section 2.1 and Section 2.2 . In such event, the right of any Holder to include its Registrable Securities in such Registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters of internationally recognized standing selected for such underwriting by the Company. Notwithstanding any other provision of this Agreement, if the managing underwriter advises the Company that marketing factors (including without limitation the aggregate number of securities requested to be Registered, the general condition of the market, and the status of the Persons proposing to sell securities pursuant to the Registration) require a limitation of the number of Registrable Securities to be underwritten in a Registration pursuant to Section 2.1 or Section 2.2 , the underwriters may (a) in the event the offering is the Company’s IPO, exclude from the underwriting all of the Registrable Securities (so long as the only securities included in such offering are those of the Company), or (b) otherwise exclude up to twenty five percent (25%) of the Registrable Securities requested to be Registered but only after first excluding all other Equity Securities held by any other Person, including, without limitation, any Person who is an employee, officer or director of the Company from the Registration and underwriting and so long as the number of shares to be included in the Registration on behalf of Holders is allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities requested by such Holders to be included, provided that if, as a result of such underwriter cutback, the Holders cannot include in the initial public offering all of the Registrable Securities that they have requested to be included therein, then such Registration shall not be deemed to constitute one of the three demand Registrations to which each of the holders of Series A Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series C Preferred Shares and Series D and Series D-1 Preferred Shares are entitled pursuant to Section 2.1 , as the case may be. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the Registration.

 

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2.5                                Restrictions on Series D-1 Preferred Shares .

 

Notwithstanding any provisions of this Section 2 , Holders holding Series D-1 Preferred Shares shall be entitled to the rights under this Section 2 on and only on the condition that it has consummated the Deferred Payment of Purchase Price pursuant to the Share Purchase Agreement.

 

3                                          Piggyback Registrations .

 

3.1                                Registration of the Company’s Securities .

 

Subject to the terms of this Agreement, if the Company proposes to Register for its own account any of its Equity Securities, or for the account of any holder (other than a Holder) of Equity Securities any of such holder’s Equity Securities, in connection with the public offering of such securities solely for cash, the Company shall promptly give each Holder written notice of such Registration and, upon the written request of any Holder given within fifteen (15) days after delivery of such notice, the Company shall use its best efforts to include in such Registration any Registrable Securities thereby requested to be Registered by such Holder. If a Holder decides not to include all or any of its Registrable Securities in such Registration by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent Registration Statement or Registration Statements as may be filed by the Company, all upon the terms and conditions set forth herein. The Holder shall be entitled to the said piggyback registration rights on registrations of the Company or on demand registrations of any later round investor subject to the right, however, of the Company and its underwriters to reduce the number of shares proposed to be registered pro rata in view of market conditions.

 

3.2                                Underwriting Requirements .

 

(a)                                  In connection with any offering involving an underwriting of the Company’s Equity Securities solely for cash, the Company shall not be required to Register the Registrable Securities of a Holder under this Section 3 unless such Holder’s Registrable Securities are included in the underwriting and such Holder enters into an underwriting agreement in customary form with the underwriter or underwriters of internationally recognized standing selected by the Company and setting forth such terms for the underwriting as have been agreed upon between the Company and the underwriters. In the event the underwriters advise Holders seeking Registration of Registrable Securities pursuant to this Section 3 in writing that market factors (including the aggregate number of Registrable Securities requested to be Registered, the general condition of the market, and the status of the Persons proposing to sell securities pursuant to the Registration) require a limitation of the number of Registrable Securities to be underwritten, the underwriters may (a) in the event the offering is the Company’s IPO, exclude all of the Registrable Securities (so long as the only securities included in such offering are those of the Company and no securities of other selling shareholders are included), or (b) otherwise exclude up to twenty five percent (25%) of the Registrable Securities requested to be Registered but only after first excluding all other Equity Securities held by any other Person, including, without limitation, any Person who is an employee, officer or director of the Company (except for securities to be offered by the Company) from the Registration and underwriting and so long as the Registrable Securities to be included in such Registration on behalf of Holders are allocated among all Holders in proportion, as nearly as

 

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practicable, to the respective amounts of Registrable Securities requested by such Holders to be included.

 

(b)                                  If any Holder disapproves the terms of any underwriting, the Holder may elect to withdraw therefrom by written notice to the Company and the underwriters delivered at least ten (10) days prior to the effective date of the Registration Statement. Any Registrable Securities excluded or withdrawn from the underwriting shall be withdrawn from the Registration.

 

3.3                                Exempt Transactions .

 

The Company shall have no obligation to Register any Registrable Securities under this Section 3 in connection with a Registration by the Company (a) relating solely to the sale of securities to participants in a Company share plan, or (b) relating to a corporate reorganization or other transaction under rule 145 of the Securities Act (or comparable provision under the Laws of another jurisdiction, as applicable).

 

3.4                                Restrictions on Series D-1 Preferred Shares .

 

Notwithstanding any provisions of this Section 3 , Holders holding Series D-1 Preferred Shares shall be entitled to the rights under this Section 3 on and only on the condition that it has consummated the Deferred Payment of Purchase Price pursuant to the Share Purchase Agreement.

 

4                                          Procedures .

 

4.1                                Registration Procedures and Obligations .

 

Whenever required under this Agreement to effect the Registration of any Registrable Securities held by the Holders, the Company shall, as expeditiously as reasonably possible:

 

(a)                                  prepare and file with the Commission a Registration Statement with respect to those Registrable Securities and use its best efforts to cause that Registration Statement to become effective, and, upon the request of the Holders holding a majority of the Registrable Securities Registered thereunder, keep the Registration Statement effective for up to one hundred and eighty (180) days or, if earlier, until the distribution thereunder has been completed; provided, however , that such one hundred and eighty (180) day period shall be extended for a period of time equal to the period any Holder refrains from selling any Registrable Securities included in such Registration at the written request of the underwriter(s) for such Registration.

 

(b)                                  prepare and file with the Commission amendments and supplements to that Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to comply with the provisions of Applicable Securities Law with respect to the disposition of all securities covered by the Registration Statement;

 

(c)                                   furnish to the Holders the number of copies of a prospectus, including a preliminary prospectus, required by Applicable Securities Law, and any other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;

 

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(d)                                  use its best efforts to Register and qualify the securities covered by the Registration Statement under the securities Laws of any jurisdiction, as reasonably requested by the Holders, provided that the Company shall not be required to qualify to do business or file a general consent to service of process in any such jurisdictions;

 

(e)                                   in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in customary form, with the managing underwriter(s) of the offering. Each shareholder participating in the underwriting shall also enter into and perform its obligations under such an agreement;

 

(f)                                    notify each Holder of Registrable Securities covered by the Registration Statement at any time when a prospectus relating thereto is required to be delivered under Applicable Securities Law of (a) the issuance of any stop order by the commission, or (b) the happening of any event as a result of which any prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

 

(g)                                   provide a transfer agent and registrar for all Registrable Securities Registered pursuant to the Registration Statement and, where applicable, a number assigned by the Committee on Uniform Securities Identification Procedures for all those Registrable Securities, in each case not later than the effective date of the Registration;

 

(h)                                  furnish, at the request of any Holder requesting Registration of Registrable Securities pursuant to this Agreement, on the date that such Registrable Securities are delivered for sale in connection with a Registration pursuant to this Agreement, (a) an opinion, dated the closing date of the sale, of the counsel representing the Company for the purposes of the Registration, in form and substance as is customarily given to underwriters in an underwritten public offering; (b) (1) a comfort letter dated the signing date of the underwriting agreement; and (2) a bring down comfort letter dated the closing of the sale, each from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters; and

 

(i)                                      take all reasonable action necessary to list the Registrable Securities on the primary exchange on which the Company’s securities are then traded or in connection with a Qualified IPO, the primary exchange on which the Company’s securities will be traded.

 

4.2                                Information from Holder .

 

It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself as required to be disclosed by law relating to the Registrable Securities, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the Registration of such Holder’s Registrable Securities.

 

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4.3                                Expenses of Registration .

 

All expenses (other than underwriting discounts and commissions) incurred in connection with registrations, filings or qualifications pursuant to this Agreement, including without limitation, all registration, filing and qualification fees, printers’ and accounting fees, and fees and disbursements of counsel for the Company shall be borne by the Company.

 

4.4                                Delay of Registration .

 

No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any Registration as the result of any controversy that may arise with respect to the interpretation or implementation of Sections 2, 3, 4, 5 or 6 of this Agreement.

 

4.5                                Termination of Registration Rights .

 

The registration rights specified in this Agreement shall terminate five (5) years after the occurrence of a Qualified IPO.

 

4.6                                Restrictions on Series D-1 Preferred Shares .

 

Notwithstanding any provisions of this Section 4 , Holders holding Series D-1 Preferred Shares shall be entitled to the rights under this Sections 4 on and only on the condition that it has consummated the Deferred Payment of Purchase Price pursuant to the Share Purchase Agreement.

 

5                                          Indemnification .

 

5.1                                Company Indemnity .

 

(a)                                  To the maximum extent permitted by Law, the Company will indemnify and hold harmless each Holder, such Holder’s officers, directors, shareholders, employees, legal counsel and accountants, any underwriter (as defined in the Securities Act) for such Holder and each Person, if any, who controls (as defined in the Securities Act) such Holder or underwriter, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under Laws which are applicable to the Company and relate to action or inaction required of the Company in connection with any Registration, qualification, or compliance, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (each a “ Violation ”): (a) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, on the effective date thereof (including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto), (b) the omission or alleged omission to state in the Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, a material fact required to be stated therein or necessary to make the statements therein not misleading, or (c) any violation or alleged violation by the Company of Applicable Securities Laws, or any rule or regulation promulgated under Applicable Securities Laws. The Company will reimburse each such Holder, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action.

 

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(b)                                  The indemnity agreement contained in this Section 5.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises solely out of or is solely based upon a Violation that occurs in reliance upon and in conformity with written information furnished for use in connection with such Registration by any such Holder, underwriter or controlling person.

 

5.2                                Holder Indemnity .

 

(a)                                  To the maximum extent permitted by Law, each selling Holder (the “ Indemnifying Party ”) will indemnify and hold harmless the Company, its directors, officers, legal counsel and accountants, any underwriter, any other Holder selling securities in connection with such Registration and each Person, if any, who controls (within the meaning of the Securities Act) the Company, such underwriter or other Holder (together, the “ Indemnified Parties ”), against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under Applicable Securities Laws, or any rule or regulation promulgated under Applicable Securities Laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder for use in connection with such Registration; and each such Holder will reimburse any Person intended to be indemnified pursuant to this Section 5.2 , for any legal or other expenses reasonably incurred by such Person in connection with investigating or defending any such loss, claim, damage, liability or action provided, however, such indemnity shall not apply in the case of negligence, willful default or fraud on the Indemnified Parties. No Holder’s liability under this Section 5.2 shall exceed the net proceeds (less underwriting discounts and selling commissions) received by such Holder from the offering of securities made in connection with that Registration; provided, however , such limitation shall not apply in the case of willful fraud by such Holder.

 

(b)                                  The indemnity contained in this Section 5.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld or delayed).

 

5.3                                Notice of Indemnification Claim .

 

Promptly after receipt by an Indemnified Party under Section 5.1 or Section 5.2 of notice of the commencement of any action (including any governmental action), such Indemnified Party will, if a claim in respect thereof is to be made against any Indemnifying Party under Section 5.1 or Section 5.2 , deliver to the Indemnifying Party a written notice of the commencement thereof and the Indemnifying Party shall have the right to participate in, and, to the extent the Indemnifying Party so desires, jointly with any other Indemnifying Party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the Indemnifying Parties. An Indemnified Party (together with all other Indemnified Parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonably incurred fees and expenses to be paid by the Indemnifying Party, if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between

 

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such Indemnified Party and any other Party represented by such counsel in such proceeding. The failure to deliver written notice to the Indemnifying Party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnifying Party, to the extent so prejudiced, of any liability to the Indemnified Party under this Section 5 , but the omission to deliver written notice to the Indemnifying Party will not relieve it of any liability that it may have to any Indemnified Party otherwise than under this Section 5 .

 

5.4                                Contribution .

 

If any indemnification provided for in Section 5.1 or Section 5.2 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to herein, the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying Party, on the one hand, and of the indemnified Party, on the other, in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the indemnifying Party and of the indemnified Party shall be mutually agreed by the indemnifying Party and the indemnified Party, or determined by court or arbitral tribunal of competent jurisdiction if such agreement cannot be reached.

 

5.5                                Underwriting Agreement .

 

To the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

 

5.6                                Survival .

 

The obligations of the Company and Holders under this Section 5 shall survive the completion of any offering of Registrable Securities in a Registration Statement under this Agreement.

 

6                                          Additional Undertakings .

 

6.1                                Reports under the Exchange Act .

 

With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any comparable provision of any Applicable Securities Law that may at any time permit a Holder to sell securities of the Company to the public without Registration or pursuant to a Registration on Form F-3 or Form S-3 (or any comparable form in a jurisdiction other than the United States), the Company agrees to:

 

(a)                                  make and keep public information available, as those terms are understood and defined in Rule 144 (or comparable provision, if any, under Applicable Securities Laws in any jurisdiction where the Company’s securities are listed), at all times following ninety (90) days after

 

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the effective date of the first Registration under the Securities Act filed by the Company for an offering of its securities to the general public;

 

(b)                                  file with the Commission in a timely manner all reports and other documents required of the Company under all Applicable Securities Laws; and

 

(c)                                   at any time following ninety (90) days after the effective date of the first Registration under the Securities Act filed by the Company for an offering of its securities to the general public by the Company, promptly furnish to any Holder holding Registrable Securities, upon request (i) a written statement by the Company that it has complied with the reporting requirements of all Applicable Securities Laws at any time after it has become subject to such reporting requirements or, at any time after so qualified, that it qualifies as a registrant whose securities may be resold pursuant to Form F-3 or Form S-3 (or any form comparable thereto under Applicable Securities Laws of any jurisdiction where the Company’s securities are listed), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents as may be filed by the Company with the Commission, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission, that permits the selling of any such securities without Registration or pursuant to Form F-3 or Form S-3 (or any form comparable thereto under Applicable Securities Laws of any jurisdiction where the Company’s Securities are listed).

 

6.2                                Limitations on Subsequent Registration Rights .

 

From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least sixty percent (60%) of the Registrable Securities then outstanding, grant registration rights to any other security holder of the Company.

 

6.3                                “Market Stand-Off” Agreement .

 

Each Holder agrees, if so required by the managing underwriter(s), that it will not during the period commencing on the date of the final prospectus relating to the Company’s IPO and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days from the date of such final prospectus, or such longer period, as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (a) the publication or other distribution of research reports and (b) analyst recommendations and opinions, including but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto), (a) lend, offer, pledge, hypothecate, hedge, sell, make any short sale of, loan, 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, or otherwise transfer or dispose of, directly or indirectly, any Equity Securities (other than those included in such offering) or (b) 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 Equity Securities, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of Equity Securities or such other securities, in cash or otherwise; provided , that (i) all directors, officers (and related funds) and all other holders of at least one percent (1%) of the outstanding share of the Company must be bound by restrictions substantially identical to those applicable to any Holder pursuant to this

 

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Section 6.3 , (ii) all Holders will be released from any restrictions set forth in this Section 6.3 to the extent that any other members subject to substantially similar restrictions are released, and (iii) the lockup agreements shall permit Holders to transfer their Registrable Securities to their respective Affiliates so long as the transferees enters into the same lockup agreement. The underwriters in connection with the Company’s IPO are intended third party beneficiaries of this Section 6.3 and shall have the right, power and authority to enforce the provisions hereof as though they were a Party hereto. In order to enforce the foregoing covenant, the Company may place restrictive legends on the certificates and impose stop-transfer instructions with respect to the Registrable Securities of each shareholder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.

 

6.4                                Assignment of Registration Rights .

 

The rights to cause the Company to Register Registrable Securities pursuant to Section 2 and Section 3 may be assigned (but only with all related obligations) by a Holder to (a) a transferee or assignee of all Registrable Securities held by such Holder; (b) a transferee or assignee of at least 250,000 Registrable Securities, or (c) an Affiliate or current and former partners and members of the Holder; provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further , that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of a partnership who are partners or retired partners of such partnership (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action hereunder.

 

6.5                                Exercise of Preferred Shares .

 

Notwithstanding anything to the contrary provided in this Agreement, the Company shall have no obligation to Register Registrable Securities which, if constituting Ordinary Share Equivalents, have not been exercised, converted or exchanged, as applicable, for Ordinary Shares.

 

7                                          Preemptive Right .

 

7.1                                General .

 

The Company hereby grants to each Holder a right to purchase up to its pro rata shares of any New Securities that the Company may, from time to time, propose to sell or issue to any person or entity. A Holder’s “ pro rata share ” for purposes of this purchase right shall be determined according to the number of Ordinary Shares owned by such Holder immediately prior to the issuance of the New Securities (assuming the exercise, conversion or exchange of all then outstanding Ordinary Share Equivalents) in relation to the total number of Ordinary Shares of the Company

 

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outstanding immediately prior to the issuance of the New Securities (assuming the exercise, conversion or exchange of all then outstanding Ordinary Share Equivalents).

 

7.2                                Issuance Notice .

 

In the event the Company proposes to undertake an issuance of New Securities, it shall give each Holder written notice (an “ Issuance Notice ”) of such intention, describing the type of New Securities, and their price and the material terms upon which the Company proposes to issue the same. The Holder shall have fifteen (15) days after the receipt of such notice to agree to purchase such New Securities (as determined in Section 7.1 above) for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. Failure by a Holder to give notice within such fifteen-day period shall be deemed to constitute a decision by such Holder not to exercise its purchase rights with respect to such issuance of New Securities.

 

7.3                                Over Allotment .

 

If any Holder fails to exercise its right to purchase its full pro rata share of any New Securities (each, a “ Non-Exercising Holder ”), the Company shall, within five (5) days after the expiration of the fifteen (15) day period described in Section 7.2 above, deliver written notice specifying the aggregate number of un-purchased New Securities that were eligible for purchase by all Non-Exercising Holders (the “ Remaining Securities ”) to each Holder that exercised its right to purchase its full pro rata share of the New Securities (each, an “ Exercising Holder ”). Each Exercising Holder shall have a right of overallotment, and may exercise an additional right to purchase the Remaining Securities by notifying the Company in writing within fifteen (15) days after receipt of the notice by the Company pursuant to the prior sentence of this Section 7.3 ; provided, however, that if the Exercising Holders desire to purchase in aggregate more than the number of Remaining Securities, then the Remaining Securities will be allocated to the extent necessary among the Exercising Holders in accordance with their relative pro rata shares.

 

7.4                                Sales by the Company .

 

For a period of one hundred and twenty (120) days following the fifteen (15) days after the issuance of the Issuance Notice in the event no Holder exercises its preemptive right within the fifteen (15) day period as described in Section 7.2 above, or upon the expiration of the fifteen (15) day period as described in Section 7.3 above, as the case may be, the Company may sell any New Securities with respect to which a Holder’s preemptive rights under this Section 7 were not exercised, at a price and upon terms not more favorable to the purchasers thereof than specified in the Issuance Notice. In the event the Company has not sold such New Securities within such one hundred and twenty (120) days period, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Holders in the manner provided in Section 7.1 above.

 

7.5                                Approval of Further Equity Financing

 

In addition to and without prejudice to any other consent and approval requirements contained in this Agreement and the Restated Articles, at any time prior to the closing of a Qualified

 

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IPO, the prior consent of CCBI is required prior to the consummation of any equity financing with a pre-money valuation of less than US$700,000,000 on an as-converted and full-diluted basis.

 

7.6                                Termination of Preemptive Rights .

 

The preemptive rights in this Section 7 shall terminate on the earlier of (a) the closing of the Qualified IPO, or (b) a Liquidation Event.

 

8                                          Information and Inspection Rights .

 

8.1                                Delivery of Financial Statements .

 

For so long as a Holder continues to hold any Series A Preferred Share (or Ordinary Share issued upon conversion of the Series A Preferred Share), Series B Preferred Share (or Ordinary Share issued upon conversion of the Series B Preferred Share), Series B-1 Preferred Share (or Ordinary Share issued upon conversion of the Series B-1 Preferred Share), Series C Preferred Share (or Ordinary Share issued upon conversion of the Series C Preferred Share), Series D and Series D-1 Preferred Share (or Ordinary Share issued upon conversion of the Series D and Series D-1 Preferred Share), the Company shall deliver to such Holder the following documents or reports:

 

(a)                                  within ninety (90) days after the end of each fiscal year of the Group Companies beginning in 2015, a consolidated annual financial statement (including the balance sheet, cash flow statement and income statement, the same below) of the Group Companies for such fiscal year, audited and certified by Big 4 audit firms or other audit firms approved by the Majority Preferred Holders, prepared in accordance with IFRS or US GAAP;

 

(b)                                  within thirty (30) days of the end of each month, a consolidated un-audited monthly financial statement of the Group Companies as of the end of such month, prepared in accordance with IFRS or US GAAP;

 

(c)                                   within thirty (30) days of the end of each fiscal quarter, a consolidated un-audited quarterly financial statement of the Group Companies as of the end of such fiscal quarter, prepared in accordance with IFRS or US GAAP;

 

(d)                                  no later than thirty (30) days prior to the beginning of each fiscal year, a comprehensive operating budget forecasting the revenues, expenses and cash position of the Group Companies on a quarter-to-quarter basis for the succeeding fiscal year which has been approved by the Board of Directors;

 

(e)                                   within thirty (30) days of the end of each fiscal quarter, an up-to-date capitalization table certified by the chief executive officer of the Company; and

 

(f)                                    such other information as the Holder shall reasonably request from time to time.

 

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8.2                                Inspection .

 

Each member of the Group Companies shall permit each Holder (or its duly authorized designee) to visit and inspect, during normal business hours following five-day prior written notice by the Holder to such member of the Group Companies and in a manner so as not to interfere with the normal business operations of the Group Companies, any of the properties of the Group Companies, and examine the books of account and records of the Group Companies, and discuss the affairs, finances and accounts of the Group Companies with the directors, officers, management employees, accountants and legal counsel of such companies, all at such reasonable times as may be requested in writing by the Holder; provided , that the Holder agrees to keep confidential any non-public information so obtained.

 

8.3                                Termination of Information and Inspection Rights .

 

The rights and covenants set forth in Sections 8.1 and Section 8.2 shall terminate and be of no further force or effect upon the earlier occurrence of (a) the closing of a Qualified IPO, (b) the date that the Company becomes subject to the reporting requirements of Section 13 and Section 15 of the Securities Act of 1934, as amended; or (c) a Liquidation Event.

 

8.4                                Governmental / Securities Filings .

 

For three (3) years upon the time when the Company becomes subject to the filing requirements of the Exchange Act or any other organized securities exchange, the Company shall deliver to the Holder copies of, or provide a link on its public website to, any quarterly, annual, extraordinary, or other reports publicly filed by the Company with the Commission or any other relevant securities exchange, regulatory authority or government agency, and any annual reports and other materials to the members.

 

8.5                                United States Tax Matters .

 

(a)                                  The Company shall determine annually, within forty-five (45) days from the end of each taxable year, with respect to such taxable year (i) whether the Company is “ controlled foreign corporation ” (“ CFC ”) as defined in the U.S. Internal Revenue Code of 1986, as amended (or any successor thereto) (the “ Code ”) or a passive foreign investment company (“ PFIC ”) as described in Section 1197 of the Code (including whether any exception to PFIC status may apply) or is or may be classified as a partnership or branch for U.S. federal income tax purposes, and (ii) to provide such information reasonably available to the company as any U.S. Holder may request to permit such U.S. Holder to elect to treat the Company and/or any such entity (including a Subsidiary of the Company) as a “qualified electing fund” (within the meaning of Section 1195 of the U.S. Internal Revenue Code of 1986, as amended) (a “ QEF Election ”) for U.S. federal income tax purposes. The Company shall also obtain and provide reasonably promptly upon request any and all other information deemed necessary by the U.S. Holder to comply with the provisions of this Section 8.5(a) .

 

(b)                                  If a determination is made by the Company that the Company is a PFIC for a particular taxable year, then for such year and for each year thereafter, the Company shall also

 

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provide each known U.S. Holder within sixty (60) days from the end of such year with a completed “ PFIC Annual Information Statement ”, as required by Treasury Regulation Section 1.1295-1(g)  and any other information required by a U.S. Holder to comply with any reporting or other requirements in connection with the QEF Election.

 

(c)                                   The Company will comply and will cause its Subsidiaries to comply with all record-keeping, reporting, and other requests necessary for the Company and its Subsidiaries to allow any U.S. Holder to comply with any applicable U.S. federal income tax law. The Company will also provide any known U.S. Holder with any information reasonably requested to allow such investor to comply with any applicable U.S. federal income tax law.

 

(d)                                  The Company shall, if requested by a U.S. Holder, cooperate in determining whether it would be desirable, reasonable and appropriate for the Company and/or any Subsidiary to elect to be classified as a partnership or branch for U.S. federal income tax purposes and, if so, to take all reasonable steps to cause any such elections to be made.

 

(e)                                   For purposes of this Section 8.5 : (i) “ U.S. Holder ” means (A) any Holder that is a United States person and (B) any Holder that is an entity treated as a foreign partnership for U.S. federal income tax purposes, one or more of the owners of which are, or controlled by, United States persons; and (ii) “ United States person ” means any person described in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended.

 

9                                          Rights of First Refusal and Co-Sale Rights .

 

9.1                                Prohibition on Transfer of Shares .

 

(a)                                  Holders of Ordinary Shares .

 

Except as provided in Sections 9.2 through Section 9.5 of this Agreement, any holder (whether directly or indirectly, including, but not limited to, each Founder who holds the Ordinary Shares of the Company through the Founder Holdcos) of Ordinary Shares of the Company , provided that the Holders, Zhu, Haiyan’s Holdco or holders of Ordinary Shares converted from Preferred Shares are not included) (each a “ Restricted Shareholder ”), regardless of any such holder’s employment status with any member of the Group Companies or the Founder Holdcos, may not transfer, directly or indirectly, any interest in any Equity Securities of the Company now or hereafter owned or held directly or indirectly by him or her prior to a Qualified IPO or a Liquidation Event, unless otherwise approved in writing by (i) the Majority Preferred Holders, or (ii) the Board (including the approval of the Series A Director, the Series B Director and the Series C Director) and a majority of Series D and Series D-1 Preferred Shareholders. For the purposes hereof, redemption or repurchase of Shares by the Company shall not be prohibited under this clause.

 

(b)                                  Permitted Transfer .

 

(i)                             Subject to the provisions of Section 9.2 and Section 10 of this Agreement, after the Initial Closing and prior to the closing of a Qualified IPO, each Founder may sell or otherwise assign to any third party in one transaction or a series of transactions up to twenty

 

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percent (20%) of the Ordinary Shares directly or indirectly held by such Founder as of the date hereof, subject to the adjustment of any share split, share dividend, combination, recapitalization or similar transaction of the Company, provided that the valuation of the Company in such transaction(s) is no less than US$700,000,000. For the avoidance of doubt, each of the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors and the Series D and Series D-1 Investor shall have the right of first refusal to purchase the shares transferred by the Founders under this Section 9.1(b)  pursuant to Section 9.2 .

 

(ii)                              Notwithstanding anything to the contrary provided in this Agreement, the Founders and Zhu are permitted, through their holding companies, to transfer such number of Ordinary Shares to the Series D and Series D-1 Investors, on a pro rata basis, as set forth and in accordance with Article 16(c)(vii)  of the Restated Articles in addition to the Ordinary Shares permitted to be transferred by the Founders under above Section 9.1(b)(i)  and all shareholders of the Company hereby agree to waive preferred rights (including but not limited to the rights of first refusal and co-sale rights) in relation to any transfer under this Section 9.1(b)(ii) .

 

(iii)                           For the avoidance of doubt, subject to the provisions of Section 10 of this Agreement, each of the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors and the Series D and Series D-1 Investors may freely transfer any Equity Securities of the Company now or hereafter owned or held by it as a result of its purchase of any Preferred Shares to any third party; provided that (i) such transfer is effected in compliance with all applicable Laws, (ii) the transferee shall have executed and delivered the Deed of Adherence substantially in the form attached hereto as Exhibit A (the “ Deed of Adherence ”) and take such other actions as may be necessary for the transferee to join in and be bound by the terms of the Restated Articles and this Agreement as the “ Series A Investor ”, the “ Series B Investor ”, the “ Series B-1 Investor ”, the “ Series C Investor ”, “ Series D Investor ” or the “ Series D-1 Investor ” or “ Series D and Series D-1 Investors ” (if not already a party hereto) upon and after such transfer; (iii) the other holders holding Series A Preferred Shares may have the right of first refusal to purchase the shares transferred by such Series A Investor subject to the same terms and conditions; (iv) the other holders holding Series B Preferred Shares may have the right of first refusal to purchase the shares transferred by such Series B Investor subject to the same terms and conditions; (v) the other holders holding Series B-1 Preferred Shares may have the right of first refusal to purchase the shares transferred by such Series B-1 Investor subject to the same terms and conditions; (vi) the other holders holding Series C Preferred Shares may have the right of first refusal to purchase the shares transferred by such Series C Investor subject to the same terms and conditions; (vii) the other holders holding Series D Preferred Shares may have the right of first refusal to purchase the shares transferred by such Series D Investor subject to the same terms and conditions, (viii) the other holders holding Series D-1 Preferred Shares may have the right of first refusal to purchase the shares transferred by such Series D-1 Investor subject to the same terms and conditions, and (ix) the Series D and Series D-1 Investors shall have the right of first refusal to purchase, on a pro rata basis, the Shares transferred by any shareholder of the Company as of the date hereof (including the Shares held by the holders of Series A Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series D-1 Preferred Shares and Ordinary Shares) subject to the same terms and conditions. Notwithstanding the foregoing, each of the Series A Investors, the Series B Investors, the Series B-1 Investor, the Series C Investors and Series D and Series D-1 Investors may be entitled to transfer all its shares in

 

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the Company to its Affiliate, and the other shareholders of the Company shall give consent to such share transfer irrevocably and waive its right of first refusal and co-sale right (if any) with respect to such share transfer, provided that such transfer by such Series A Investor, Series B Investor, Series B-1 Investor, Series C Investor and Series D and Series D-1 Investors shall be subject to Section   10(a)  of this Agreement. The Company will update its register of members upon the consummation of any such permitted transfer. By delivering a copy of the Deed of Adherence duly executed by the transferee to the Series A Investors, the Series B Investors, the Series B-1 Investor, the Series C Investors, the Series D Investors, the Series D-1 Investor, the Company and the Founders, such transferee shall become a party to this Agreement and shall thereby be a holder of Series A Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series D-1 Preferred Shares of the Company.

 

(c)                                   Prohibited Transfers Void .

 

Any direct or indirect transfer of Equity Securities by a Restricted Shareholder not made in compliance with this Agreement shall be null and void as against the Company or the corresponding Founder Holdco (as applicable), shall not be recorded on the books of the Company or the corresponding Founder Holdco (as applicable) and shall not be recognized by the Company or the corresponding Founder Holdco (as applicable).

 

(d)                                  Fractions

 

No fractions of a Share will be transferred to any person and the transferor shall have no obligation to refund any sum which represents such fraction (if any); provided that the number of Shares to be transferred pursuant to this Section shall be rounded down to the nearest whole number of Shares.

 

9.2                                Rights of First Refusal .

 

(a)                                  Transfer Notice .

 

Except as otherwise provided in this Agreement, prior to the closing of a Qualified IPO, if a Restricted Shareholder, an employee of any Group Company or Zhu, who holds more than two percent (2%) of Shares of the Company, proposes to transfer all or part of the Equity Securities he/she directly or indirectly holds in the Company to one or more third parties pursuant to an understanding with such third parties (a “ Transfer ”, and such holder a “ Transferor ”), then the Transferor shall give each Holder a written notice of the Transferor’s intention to make the Transfer (the “ Transfer Notice ”), which shall include (i) a description of the Equity Securities to be transferred (the “ Offered Shares ”), (ii) subject to any applicable non-disclosure agreement with such third party, the identity of the prospective transferee and (iii) the consideration and the material terms and conditions upon which the proposed Transfer is to be made. The Transfer Notice shall certify that the Transferor has received a firm offer from the prospective transferee and in good faith believes a binding agreement for the Transfer is obtainable on the terms set forth in the Transfer Notice.

 

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(b)                                  Holder’s Option .

 

(i)                                      Subject to the Holders’ exercising of their rights of co-sale set forth in Section 9.3 , the Holders shall have an option for a period of fifteen (15) days following the receipt of the Transfer Notice to elect to purchase its respective pro rata share of the Offered Shares at the same price and subject to the same material terms and conditions as described in the Transfer Notice.

 

(ii)                                   Each Holder may exercise such purchase option and, thereby, purchase all or any portion of its pro rata share of the Offered Shares, by notifying the Transferor in writing, before the expiration of the fifteen (15) day period as to the number of such shares that it wishes to purchase.

 

(iii)                                Each Holder’s pro rata share of the Offered Shares shall be a fraction, the numerator of which shall be the number of Equity Securities (assuming the exercise, conversion and exchange of any Ordinary Share Equivalents) owned by such Holder on the date of the Transfer Notice and the denominator of which shall be the total number of Equity Securities (assuming the exercise, conversion and exchange of any Ordinary Share Equivalents) held by all Holders on such date.

 

(iv)                               If any Holder fails to exercise such purchase option pursuant to this Section 9.2 , the Transferor shall give notice of such failure (the “ Re-allotment Notice ”) to each other Holder that elected to purchase its entire pro rata share of the Offered Shares (the “ Purchasing Holders ”). Such Re-allotment Notice may be made by telephone if confirmed in writing within two (2) days. The Purchasing Holders shall have a right of re-allotment such that they shall have ten (10) days from the date such Re-allotment Notice was given to elect to increase the number of Offered Shares they agreed to purchase under Section 9.2(b)(iii)  to include their respective pro rata share of the Offered Shares contained in any Re-allotment Notice.

 

(v)                                  If the Holder gives the Transferor notice that it desires to purchase Offered Shares, then payment for the Offered Shares to be purchased shall be by check or wire transfer in immediately available funds of the appropriate currency, against allotment of such Offered Shares to be purchased at a place agreed by the Transferor and all the participating Holders and at the time of the scheduled closing therefor, which shall be no later than forty-five (45) days after the Holder’s receipt of the Transfer Notice, unless the value of the purchase price has not yet been established pursuant to Section 9.2(c) .

 

(vi)                               Regardless of any other provision of this Agreement, if the Holders decline in writing, or fails to exercise its purchase option pursuant to this Section 9.2 with respect to any portion of the Offered Shares, then the Transferor shall be under no obligation to transfer such portion of the Offered Shares to the Holders pursuant to this Section 9.2 and instead shall be free to sell such portion of the Offered Shares pursuant to the Transfer Notice, subject to Sections 9.3 and Section 9.4 hereunder.

 

(vii)                            Notwithstanding the forgoing, if more than one Holder wants to exercise its right of first refusal, the Holders may negotiate the percentage of the Offered Shares they

 

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can buy under this Section 9.2 , if no agreement can be reached, the Holders can only purchase its respective pro rata share of the Offered Shares.

 

(c)                                   Valuation of Property .

 

(i)                                      Should the purchase price specified in the Transfer Notice be payable in property other than cash or evidences of indebtedness, the Holders, shall have the right to pay the purchase price in the form of cash equal in amount to the fair market value of such property.

 

(ii)                                   If the Transferor, on the one hand, and the Holders, on the other hand, cannot agree on such cash value within seven (7) days after the Holders’ receipt of the Transfer Notice, the valuation shall be made by an appraiser of internationally recognized standing jointly selected by the Transferor and the Holders, or, if they cannot agree on an appraiser within ten (10) days after the Holders’ receipt of the Transfer Notice, each shall select an appraiser of internationally recognized standing and the two appraisers shall designate a third appraiser of internationally recognized standing, whose appraisal shall be determinative of such value and shall be delivered within thirty (30) days after the appointment of such appraiser, provided that the value of the purchase price has to be established pursuant to section 9.2(c)(ii), the time of the scheduled closing shall be no later than fifteen (15) days after the delivery of the appraisal by the appraiser.

 

(iii)                                The cost of such appraisal shall be shared equally by the Transferor and the Purchasing Holders with the half of the cost borne by the Purchasing Holders to be borne pro rata by each Purchasing Holder based on the number of shares such Purchasing Holder has elected to purchase pursuant to this Section 9 .

 

(iv)                               If the value of the purchase price offered by the prospective transferee is not determined within the forty-five (45) day period specified in Section 9.2(b)(v)  above, the closing of the Holders’ purchase shall be held on or prior to the fifth business day after such valuation shall have been made pursuant to this Section 9.2(c) .

 

9.3                                Right of Co-Sale .

 

(a)                                  To the extent the Holders do not exercise their respective right of first refusal as to all of the Offered Shares pursuant to Section 9.2 , each Holder that did not exercise its right of first refusal as to any of the Offered Shares pursuant to Section 9.2 shall have the right to participate in such sale of Equity Securities on the same terms and conditions as specified in the Transfer Notice by notifying the Transferor in writing within fifteen (15) days after receipt of the Transfer Notice referred to in Section 9.2(a)  (such Holder, a “ Selling Holder ”).

 

(i)                                      Such Selling Holder’s notice to the Transferor shall indicate the number of Equity Securities the Selling Holder wishes to sell under its right to participate.

 

(ii)                                   To the extent one or more of the Holders exercise such right of participation in accordance with the terms and conditions set forth below, the number of Equity Securities that the Transferor may sell in the Transfer shall be correspondingly reduced.

 

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(b)                                  The Selling Holders may elect to sell such number of Equity Securities that in aggregate equals to the total number of Offered Shares being transferred following the exercise or expiration of all rights of first refusal pursuant to Section 9.2 hereof on pro rata basis. Each Selling Holder may elect to sell such number of Equity Securities that equals to the product of (i) the aggregate number of the Offered Shares being transferred following the exercise or expiration of all rights of first refusal pursuant to Section 9.2 hereof multiplied by (ii) a fraction, the numerator of which is the number of Ordinary Shares (on as-if-converted basis which include the number of Ordinary Shares that would be issuable upon the exercise, conversion or exchange of Ordinary Share Equivalents) owned by the Selling Holder on the date of the Transfer Notice and the denominator of which is the total number of Ordinary Shares (on as-if-converted basis which include the number of Ordinary Shares that would be issuable upon the exercise, conversion or exchange of Ordinary Share Equivalents) owned by all Selling Holders on the date of the Transfer Notice.

 

(c)                                   Each Selling Holder shall effect its participation in the sale by promptly delivering to the Transferor for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent the type and number of Equity Securities which such Selling Holder elects to sell; provided, however that if the prospective third-party purchaser objects to the delivery of any Ordinary Share Equivalents in lieu of Ordinary Shares, such Selling Holder shall only allot and deliver Ordinary Shares (and therefore shall convert any such Ordinary Share Equivalents into Ordinary Shares) and certificates corresponding to such Ordinary Shares. The Company agrees to make any such conversion concurrent with the actual transfer of such shares to the purchaser and contingent on such transfer.

 

(d)                                  The share certificate or certificates that a Selling Holder delivers to the Transferor pursuant to Section 9.3(c)  shall be transferred to the prospective purchaser in consummation of the sale of the Equity Securities pursuant to the terms and conditions specified in the Transfer Notice, and the Transferor shall concurrently therewith remit to such Selling Holder that portion of the sale proceeds to which such Selling Holder is entitled by reason of its participation in such sale.

 

(e)                                   To the extent that any prospective purchaser prohibits the participation of a Selling Holder exercising its co-sale rights hereunder in a proposed Transfer or otherwise refuses to purchase shares or other securities from a Selling Holder exercising its co-sale rights hereunder, the Transferor shall not sell to such prospective purchaser any Equity Securities unless and until, simultaneously with such sale, the Transferor shall purchase from such Selling Holder such shares or other securities that such Selling Holder would otherwise be entitled to sell to the prospective purchaser pursuant to its co-sale rights for the same consideration and on the same terms and conditions as the proposed transfer described in the Transfer Notice.

 

(f)                                    If any Holder fails to exercise its right of co-sale, the Selling Holder shall have the right to exercise the right of co-sale granted to such Holder on a pro-rata basis and sell more Equity Securities on the same terms and conditions as specified in the Transfer Notice.

 

(g)                                   This right of co-sale shall not apply to and shall terminate upon a Liquidation Event or the consummation of a Qualified IPO.

 

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9.4                                Non-Exercise of Rights .

 

(a)                                  To the extent that the Holders have not exercised their rights to purchase the Offered Shares within the time periods specified in Section 9.2 , and the Holders have not exercised their rights to participate in the sale of the Offered Shares within the time periods specified in Section 9.3 , the Transferor shall have a period of ninety (90) days from the expiration of such rights in which to sell the Offered Shares to the third-party transferee identified in the Transfer Notice upon terms and conditions (including the purchase price) no more favorable to the purchaser than those specified in the Transfer Notice.

 

(b)                                  In the event the Transferor does not consummate the sale or disposition of the Offered Shares within ninety (90) days from the expiration of such rights, the Holders’ first refusal rights and co-sale rights hereunder shall continue to be applicable to any subsequent disposition of the Offered Shares by the Transferor until such rights lapse in accordance with the terms of this Agreement.

 

(c)                                   The exercise or non-exercise of the rights of the Holders under this Section 9 to purchase Equity Securities from a Transferor or participate in the sale of Equity Securities by a Transferor shall not adversely affect their rights to make subsequent purchases from the Transferor of Equity Securities or subsequently participate in sales of Equity Securities by the Transferor hereunder.

 

9.5                                Change in Control .

 

The Parties agree that, for purposes of the transfer restrictions in this Agreement and in other Transaction Documents, a transaction or series of transactions that result in a change in Control of a Restricted Shareholder shall be deemed to constitute a Transfer of such Restricted Shareholder’s Equity Securities.

 

9.6                                Subsequent Rights .

 

After the closing of the issuance of the Series A Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series D-1 Preferred Shares, the Company shall not grant to any future investor(s) any rights, preferences or privileges that may be more favorable than the ones granted to the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D Investors and the Series D-1 Investor hereunder, unless otherwise approved in writing by the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D Investors and the Series D-1 Investor, provided, however , the ESOP plan or other incentive plan as approved by the Board of Directors (including the affirmative vote of each of the Series A Director, the Series B Director and the Series C Director) shall not be subject to the restrictions under this Section 9.6 .

 

10                                   New Issuances or Transfers to Competitors

 

Notwithstanding any other provision of this Agreement, within twenty-seven (27) months of the closing of the purchase of Series C Preferred Shares, the Company and each shareholder of the

 

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Company shall not, and the Founders and the Founder Holdcos shall cause each Group Company to not:

 

(a)                                  Issue or sell, or take any actions that would result in the issuance or sale of any Equity Securities to any entity set forth on Exhibit B attached hereto, and such entity’s Subsidiaries and/or Affiliates, and/or any survivors or successors of any such entity (each, a “ Competitor, ” and together, the “ Competitors ”), by action or omission, including, without limitation, by operation of Law, to any Competitor;

 

(b)                                  Sell, transfer, license, pledge, or encumber technology or intellectual property (other than licenses granted in the ordinary course of business) of any Group Company to any Competitor; and

 

(c)                                   Effectuate or permit to occur, by action or omission, any Deemed Liquidation Event, if such a Deemed Liquidation Event involves a Competitor.

 

11                                   Assignments and Transfers; No Third Party Beneficiaries .

 

(a)                                  Except as otherwise provided herein, this Agreement and the rights and obligations of the Parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives, but shall not otherwise be for the benefit of any third party. The rights of any Holder hereunder are only assignable in connection with the transfer or sale (subject to applicable securities and other Laws) of the Equity Securities held by such Holder but only to the extent of such transfer, provided, however , that (i) the transferor shall, prior to the effectiveness of such transfer, furnish to the Company written notice of the name and address of such transferee and the Equity Securities that are being assigned to such transferee, and (ii) such transferee shall, concurrently with the effectiveness of such transfer, become a party to this Agreement as a Holder and be subject to all applicable restrictions set forth in this Agreement.

 

(b)                                  Except as otherwise provided herein, the sale or transfer of any Equity Securities by the Holders shall not be subject to any right of first refusal, co-sale rights or any other contractual conditions or restrictions on transfer except as may be required by Law.

 

12                                   Drag-Along Rights .

 

(a)                                  Drag-Along Rights . Subject to the other provisions of this Agreement, if the holder(s) holding at least 77% of the Series A Preferred Shares, the holder(s) holding two thirds of the then issued and outstanding Series B Preferred Shares, the holder(s) holding two thirds of the then issued and outstanding Series B-1 Preferred Shares, the holder(s) holding a majority of the then-issued and outstanding Series C Preferred Shares, the holder(s) holding two thirds of the then issued and outstanding Series D and Series D-1 Preferred Shares (collectively, the “ Drag-Along Shareholder ”), at any time after June 30, 2020 where the Company fails to complete a Qualified IPO or the shareholders of the Company (other than the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D Investors and the Series D-1 Investor) do not agree to the IPO (either by action or omission), approve a sale or transfer of all or part of the assets or Equity Securities of the Company to a third party based on a pre-money valuation of the

 

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Company equal to or more than US$900,000,000 (each, a “ Drag-Along Sale ”), then, in any such event, upon written notice from the Drag-Along Shareholder requesting them to do so, each of the other shareholders of the Company (the “ Dragged Shareholders ”) shall vote, or give its written consent with respect to, all the Equity Securities held by them in favor of such proposed Drag-Along Sale and in opposition of any proposal that could reasonably be expected to delay or impair the consummation of any such proposed Drag-Along Sale, provided that the Dragged Shareholders who do not agree on the Drag-Along Sale shall be obligated to purchase, upon the request by any of the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D and Series D-1 Investor, all of the equity interest held by such Series A Investor, Series B Investor, the Series B-1 Investors, the Series C Investor, the Series D Investors or the Series D-1 Investor, at the same price as the aforesaid third party have offered, and if such dissenting Dragged Shareholder(s) cannot purchase the equity interest to be sold by the said Series A Investor, Series B Investor, the Series B-1 Investors, the Series C Investor, the Series D Investors or the Series D-1 Investor immediately, he/she/it shall be deemed to have agreed to the Drag-Along Sale and shall take all necessary actions to make the director appointed by he/she/it (if applicable) to adopt the board resolution approving the Drag-Along Sale. Notwithstanding any provision to the contrary, the share transfer restrictions of Section 9 of this Agreement shall not apply to any transfers made pursuant to this Section 12 .

 

(b)                                  Drag-Along Sale to a Competitor . If the purchaser of a proposed Drag-Along Sale is any Competitor, Alibaba shall be entitled to a right of first refusal, at its sole discretion, to acquire all of such assets or Equity Securities of the Company being sold on equivalent terms and conditions as the proposed sale to the Competitor; provided that Alibaba shall consummate any such acquisition within three (3) months from the date that Alibaba receives the Drag-Along Notice (as defined below).

 

(c)                                   Representation and Undertaking .

 

(i)                                      Any such sale or disposition by the Dragged Shareholders shall be on the terms and conditions as the proposed Drag-Along Sale by the Drag-Along Shareholder. Such Dragged Shareholders shall be required to make customary and usual representations and warranties in connection with the Drag-Along Sale, including, without limitation, as to their ownership and authority to sell, free of all liens, claims and encumbrances of any kind, the shares proposed to be transferred or sold by such persons or entities; and any violation or breach of or default under (with or without the giving of notice or the lapse of time or both) any law or regulation applicable to such Dragged Shareholders or any material contract to which such Dragged Shareholders is a party or by which they are bound.

 

(ii)                                   Each of the Dragged Shareholders undertakes to obtain all consents, permits, approvals, orders, authorizations or registrations, qualifications, designations, declarations or filings with any governmental authority or any third party, which are required to be obtained or made in connection with the Drag-Along Sale, and to pay its pro rata expenses incurred in connection with the Drag-Along Sale.

 

(d)                                  Drag-Along Notice . Prior to making any Drag-Along Sale in which the Drag- Along Shareholder wishes to exercise their rights under this Section 12 , the Drag-Along Shareholder

 

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shall provide the Company and the Dragged Shareholders with written notice (the “ Drag-Along Notice ”) not less than thirty (30) days prior to the proposed date of the Drag-Along Sale (the “ Drag-Along Sale Date ”). The Drag-Along Notice shall set forth: (a) the name and address of the purchasers; (b) the proposed amount and form of consideration to be paid, and the terms and conditions of payment offered by each of the purchasers; (c) the Drag-Along Sale Date; (d) the number of shares held of record by the Drag-Along Shareholder on the date of the Drag-Along Notice which form the subject to be transferred, sold or otherwise disposed of by the Drag-Along Shareholder; and (e) the number of shares of the Dragged Shareholders to be included in the Drag-Along Sale.

 

(e)                                   Transfer Certificate . On the Drag-Along Sale Date, each of Drag-Along Shareholder and the Dragged Shareholders shall each deliver or cause to be delivered an instrument of transfer and a certificate or certificates evidencing its Equity Securities to be included in the Drag-Along Sale, duly endorsed for transfer with signatures guaranteed, to such third party purchasers in the manner and at the address indicated in the Drag-Along Notice.

 

(f)                                    Payment . If the Drag-Along Shareholder or the Dragged Shareholders receive the purchase price for their shares or such purchase price is made available to them as part of a Drag-Along Sale and, in either case they fail to deliver certificates evidencing their shares as described in this Section 12 , they shall for all purposes be deemed no longer to be a shareholder of the Company (with the record books of the Company updated to reflect such status), shall have no voting rights, shall not be entitled to any dividends or other distributions with respect to any shares held by them, shall have no other rights or privileges as a shareholder of the Company. In addition, the Company shall stop any subsequent transfer of any such shares held by such shareholders.

 

Notwithstanding any other articles herein, if a Drag-Along Sale occurs prior to the consummation of the Deferred Payment of Purchase Price, unless otherwise agreed by the Company and the Series D-1 Investor, the purchase price made available to the Series D-1 Investor, either as the Drag-Along Shareholder or the Dragged Shareholder, for such Drag-Along Sale (the “ Drag-Along Payment ”) shall be distributed in the following manner: (A) WFOE shall repay the Domestic Loan to the Investor’s Affiliate pursuant to this Agreement and the Domestic Loan Agreement; (B) the amount equal to the Drag-Along Payment minus the Purchase Price (equal to the principal amount of the Domestic Loan) shall be paid to the Series D-1 Investor; and (C) the amount equal to the Purchase Price as part of the Drag-Along Payment shall be paid to the Company or any other party designated by the Company.

 

13                                   Legend .

 

Each existing or replacement certificate for shares now owned or hereafter acquired by any Restricted Shareholder shall bear the following legend:

 

“THE SALE, PLEDGE, HYPOTHECATION, ASSIGNMENT OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A SHAREHOLDER AGREEMENT BY AND AMONG THE MEMBERS OF THE COMPANY, THE FOUNDERS, THE COMPANY AND CERTAIN

 

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OTHER PARTIES. COPIES OF SUCH AGREEMENTS MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”

 

14                                   Election of Directors; Board Observer .

 

14.1                         Board of Directors .

 

The Company shall have a Board consisting of seven (7) directors, of which (i) one (1) director shall be appointed/removed by the Series A Investor who holds the highest percentage of the Series A Preferred Shares so long as any Series A Preferred Share is issued and outstanding (the “ Series A Director ”), and shall initially be Kuang, Duane Ziping, (ii) one (1) Director shall be appointed/removed by SIG (the “ Series B Director ”), and shall initially be Xu Bingdong, (iii) one (1) Director shall be appointed/removed by the Series C Investor who holds the highest percentage of the Series C Preferred Shares so long as any Series C Preferred Share is issued and outstanding (the “ Series C Director ”), and shall initially be Qian SUN and (iv) four (4) Directors shall be appointed/removed by the holders of majority of the Ordinary Shares (the “ Management Directors ”), and shall initially be Zhang Kan, Li Qiaoling, Wang Jialiang and Wang Jian.

 

14.2                         Board Observer .

 

For so long as there is any Preferred Share issued and outstanding, each holder of the Preferred Shares shall be entitled to, by notice in writing to the Company, appoint/remove an observer to the Board of Directors and each committee thereof to attend board or board committee meetings of the Company and each of its Subsidiaries in a non-voting observer capacity (whether in person, by telephone or other) (the “ Observer ”). Each member of the Company and its Subsidiaries shall provide to the Observer, concurrently with the members of the Board and all committees thereof, and in the same manner, notice of such meetings and a copy of all materials provided to such members of the Board and all committees thereof.

 

14.3                         Alternate .

 

Subject to applicable Laws, each of the Series A Director, the Series B Director, the Series C Director and the Management Directors, in the case of his absence, shall be entitled to appoint an alternate to serve at any Board meeting, and such alternate shall be permitted to attend all Board meetings and vote on behalf of the director for whom she or he is serving as an alternative.

 

14.4                         Meetings and Expenses .

 

The Board and all committees thereof shall meet in person or by teleconference no less than once every half year. The Company shall reimburse all reasonable, documented expenses of all the Directors and Observer(s) related to all activities of the Board and all committees thereof, including but not limited to attending the meetings of the Board and all committees thereof.

 

14.5                         Directors’ Insurance and Indemnification .

 

After the Company’s IPO or if commercially reasonable, the Company shall provide customary insurance coverage for members of its Board of Directors to the extent available on

 

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commercially reasonable terms upon the written request of the Series A Director, the Series B Director and the Series C Director. The Restated Articles of the Company shall at all times provide that the Company shall indemnify the members of the Company’s Board of Directors to the maximum extent permitted by the Law of the jurisdiction in which the Company is organized.

 

14.6                         Board Meetings .

 

The Company shall use its best efforts to hold no less than one (1) Board meeting during each quarter of each calendar year, unless otherwise agreed by a vote of a simple majority of the Board, including the affirmative votes of the Series A Director and the Series B Director. A quorum for a Board meeting shall consist of four (4) directors, including the Series A Director, the Series B Director and the Series C Director.

 

In the case of an equality of votes in a Board meeting, no director shall have a second or casting vote and the second Board meeting shall be convened within thirty (30) days in which the unresolved matter shall be put to the vote again. In case that the matter cannot be resolved in the second Board meeting, such matter shall be put to the vote in the general meeting of the shareholders of the Company in accordance with this Agreement and Restated Articles.

 

15                                   Additional Agreements; Covenants .

 

15.1                         Employee Stock Option Plan and Restricted Stock; Employees .

 

(a)                                  The detailed terms of the Company’s ESOP shall be approved by the Board (including the Series A Director, the Series B Director and the Series C Director). The ESOP shall be exercised by the selected Founders and other employees of the Company, to be governed by the terms of the ESOP.

 

(b)                                  Unless otherwise approved by the Board (including the approval of the Series A Director, the Series B Director and the Series C Director), all Ordinary Shares or options or other securities granted under the ESOP shall be subject to the following vesting schedule: 20% of the shares shall be vested one year after the execution date of his/her labor contracts with any Group Company, and the remaining 80% of the shares shall be vested at each anniversary thereafter for four (4) years. If any employee who is granted the options under the ESOP (the “ Grantee ”) terminates his/her employment with the Group Companies one year after the execution date of his/her labor contract or service agreement with the Group Companies due to his/her own cause, the options that have not been vested to such Grantee will be terminated.

 

(c)                                   In the event of termination of the Grantee’s continuous service for the Group Companies as a result of his or her disability caused by the work-related accident or illness, the Board (including the Series A Director, the Series B Director and the Series C Director) will determine how to deal with the options vested and/or unvested to such Grantee.

 

(d)                                  If the Grantee does any actions that adversely affect the interests of the Group Companies, the Group Companies shall have the right to terminate the employment of such Grantee,

 

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and the Company can repurchase all the vested options from the Grantee without consideration and the unvested options will be terminated immediately.

 

(e)                                   Upon (i) a merger, acquisition or change of Control of the Company or (ii) the involuntary termination of the employment of a shareholder, with or without cause but except termination for gross negligence, all of such option holder’s unvested options shall vest in full and such option holder shall have the right to vest such option without restrictions. All option holders shall have the right to exercise this option without restrictions upon consummation of a Qualified IPO.

 

15.2                         Qualified IPO .

 

Subject to applicable Laws, the Company, each Founder Holdco and each Founder shall use commercially best efforts to effectuate the closing of a Qualified IPO. In the event of the closing of a Qualified IPO, each of the Company, the Founder Holdco and the Founder agree to use commercially best efforts, subject to applicable Laws, to minimize restrictions on the transfer of any Series A Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series D-1 Preferred Shares held by the Holders (or Ordinary Shares that have been converted from such Series A Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series D-1 Preferred Shares).

 

15.3                         Use of Proceeds .

 

The Company shall use the proceeds that it receives pursuant to the Share Purchase Agreement for business expansion, research and development and general working capital of the Group Companies; provided that , other than making the payment of the Repurchase Price pursuant the Share Purchase Agreement (if applicable), such proceeds may not be used for repurchasing, redeeming or cancelling any securities, making any payments to shareholders, directors or officers of the Company or its Affiliates or any of the foregoing unless in connection with a bona fide arms-length transaction approved by the Board of Directors (including the affirmative vote of each of the Series A Director, the Series B Director and the Series C Director), repaying any shareholders’ loan, repaying any loan secured by the directors of the Company or its Affiliates, unless otherwise approved by the Board of Directors (including the approval of the Series A Director, the Series B Director and the Series C Director), the Series D-1 Investor and each of the Series D Investors. In any event, the Company shall not use the proceeds to purchase shares of other listed companies or corporate bonds or any other negotiable securities. Each of the Investor shall have the right to monitor the use of the proceeds.

 

15.4                         Approval of Business Plan.

 

The Company, each Founder Holdco, each Founder, each Series A Investor, each Series B Investor, each Series B-1 Investor, each Series C Investor, each Series D Investor and each the Series D-1 Investor shall use their best efforts to cause each annual budget, business plan or operating plan (including any capital expenditure budget, operating budget and financing plan) to be approved before the beginning of each calendar year, as the case may be.

 

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15.5                         Related-Party Transactions .

 

Until the closing of the Qualified IPO, except for the transactions contemplated under this Agreement and the Transaction Documents, all related party transactions between any of the Company, the members of the Group Companies, the Founders, the senior managers, employees, officers and directors of the Group Companies, “related party” of any of such Persons and the Founders, shall be negotiated and entered into on an arms-length basis and shall be subject to the approval of the Board. In addition, a related party transaction or a series of related party transactions concerning consideration in excess of US$500,000 shall be subject to the approval of the Board (including the approval of the Series A Director, the Series B Director and the Series C Director).

 

15.6                         Restrictions on Disposition of or Encumbrance on Shares .

 

Except otherwise provided in the Transaction Documents, unless with the prior written approval of the Majority Preferred Holders and the Board (including the approval of the Series A Director, the Series B Director and the Series C Director), each of the Founders and/or the Founder Holdcos shall not, directly or indirectly, pledge, mortgage, encumber or otherwise dispose of any of his/her/its shares in the Company or equity interest in the HK Subsidiary, Offshore Subsidiaries or the PRC Subsidiaries. Each of the Founders, the Founder Holdcos, the HK Subsidiary, the Offshore Subsidiaries and the PRC Subsidiaries hereby agrees that it will not effect any transfer in violation of this Section 15.6 nor will it treat any alleged transferee as the holder of such shares or equity interest. The Founders shall not cause to, the Offshore Subsidiaries, the HK Subsidiary, the PRC Subsidiaries and the Founder Holdcos shall not, issue to any person any new shares or equity securities or any options or warrants for, or any other securities exchangeable for or convertible into, such shares or equity securities of any Subsidiary, unless with the prior written approval of the Board (including the approval of the Series A Director, the Series B Director and the Series C Director).

 

15.7                         Covenants of the Founders and Zhu .

 

(a)                                  As long as there are shareholders holding Preferred Shares, if any Founder or Zhu loses the capacity for civil rights or loses the capacity for civil conduct or cannot exercise his/her capacity for civil conduct for three (3) months or more, the shareholders of the Company holding Preferred Shares shall be entitled to purchase the shares of such person at the price equivalent to the estimated value of the Group Companies at that time on a pro-rata basis.

 

(b)                                  Unless otherwise agreed by the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D Investors and the Series D-1 Investor, each Founder, by signing this Agreement, hereby undertakes to the Company, the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D Investors and the Series D-1 Investor that he/she will devote his/her full time and attention to the business of the Group Companies and will use his/her best efforts to develop the business and interests of the Group Companies. Unless otherwise agreed by the Board of Directors (including the Series A Director, the Series B Director and the Series C Director), except for the Group Companies, each Founder shall not, and shall cause his/her Affiliate or associate not to, directly or indirectly, own, manage, engage in, operate, control, work for, consult with, render services for, do business with, maintain any interest in (proprietary, financial or otherwise) or participate in the ownership, management,

 

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operation or control of, any business, whether in corporate, proprietorship or partnership form or otherwise, that is the same, related to, similar to, or otherwise competes with the principal business of any member of the Group Companies (a “ Restricted Business ”); provided, however , that the restrictions contained in this Section 15.7 shall not restrict the acquisition by such Founder, directly or indirectly, of no more than one percent (1%) of the outstanding share capital of any publicly traded company.

 

(c)                                   Unless otherwise agreed by the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D Investors and the Series D-1 Investor, each Founder undertakes to the Company, the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D Investors and the Series D-1 Investor that for the later of a period of at least two (2) years after he/she ceases to be (x) employed by the Group Companies or (y) a shareholder in the Group Companies, he/she will not, without the prior written consent of the Board (including the consent of the Series A Director, the Series B Director and the Series C Director), either on his/her own account or through any of his/her Affiliates, or in conjunction with or on behalf of any other person: (i) invest or be engaged or interested directly or indirectly in any other corporate or entity which carries out any Restricted Business, or otherwise carry out any Restricted Business; (ii) act as the shareholder, director, employee, partner, consultant, agent or representative of any entity described in subsection (i) above; (iii) solicit or entice away or attempt to solicit or entice away from any member of the Group Companies, any person, firm, company or organization who is a customer, client, representative, agent or correspondent of such member of the Group Companies or in the habit of dealing with such member of the Group Companies, provided that the Founder will be compensated in accordance with the agreement entered into by and between a member of the Group Companies and such Founder pursuant to the applicable Laws. Each Founder undertakes to the Company, the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D Investors and the Series D-1 Investor that he/she shall have entered into an inventions assignment, non-competition and confidentiality agreement with a PRC Subsidiary satisfactory to the Majority Preferred Holders.

 

(d)                                  Each Founder undertakes that he/she will not resign from his/her current position in the Group Companies before June 30, 2020, unless otherwise approved by the Board of Directors. In the event that any Founder terminates his/her labor relationship with the corresponding member of the Group Companies or works for any other entity or company before December 31, 2018, the shares of such founder shall be subject to the restrictions under the Restricted Share Agreement (as defined in the Initial Series B Purchase Agreement).

 

(e)                                   In the event that any Founder or Key Employee does any action that will or may adversely affect the interests of the Group Companies as determined by the Board, as required by the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D Investors or the Series D-1 Investor, the corresponding member of the Group Companies shall terminate the employment with such person. The other shareholders of the Group Companies (in which such Founder or Key Employee holds any shares) shall be entitled to purchase the shares held by such person at a price equivalent to a fraction, the numerator is the net assets of the Group Companies when the labor relationship is terminated multiplied by the share percentage of such person in the corresponding member of the Group Companies and the denominator is two (2) on a pro-rata basis. If any shareholder does not exercise his/her/its right to purchase the shares from such

 

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Founder or Key Employee, the other shareholder(s) shall be entitled to purchase the remaining shares on a pro-rata basis. The Parties hereto agree to the restrictions set forth above and will provide all the necessary assistance for such share transfer. The actions that will adversely affect the interests of the Group Companies in this Section 15.7(c)  include but not limited to (i) engaging in the Restricted Business directly or indirectly (outside of the Group); (ii) defalcating any Group Company’s money without authorization or stealing any Group Company’s properties; (iii) misusing or misappropriating the confidential information or intellectual properties of the Group Companies; or (iv) other material breach of his/her obligations under the Transaction Documents, joint venture contract, articles of association of the Group Companies, labor contracts, inventions assignment, non-competition and confidentiality agreement which will let the Group Companies suffer significant losses.

 

15.8                                 Protective Provisions .

 

(a)                                  For so long as the Series D-1 Preferred Shares, the Series D Preferred Shares, the Series C Preferred Shares, Series B Preferred Shares, the Series B-1Preferred Shares or Series A Preferred Shares (as the case may be) remain issued and outstanding, in addition to any requirements set forth in the Restated Articles or by the Laws of the Cayman Islands, the Company and each member of the Group Companies shall not, and the Company and the Founders shall cause each member of the Group Companies and the Founder Holdcos not to (by way of shareholders resolutions, board resolutions or other means), without (i) the prior approval of the Series A Investors who hold at least a majority of the then issued and outstanding Series A Preferred Shares; (ii) the prior approval of the Series B Investors who hold at least a majority of the then issued and outstanding Series B Preferred Shares; (iii) the prior approval of the Series B-1 Investors who hold at least a majority of the then issued and outstanding Series B-1 Preferred Shares; (iv) the prior approval of the Series C Investors who hold at least a majority of the then issued and outstanding Series C Preferred Shares; and (v) the prior approval of the Series D and Series D-1 Investors who hold at least a majority of the then issued and outstanding Series D and Series D-1 Preferred Shares, take any action that would (for the purpose of this Section 15.8 , the term for the Company below shall also include the members of the Group Companies):

 

(i)                                      alter, amend or change the rights, preferences or privileges of, or the restrictions provided for the benefit of, the Preferred Shares, whether such amendment or change is absolute or in relation to other classes of shares, including without limitation, the authorization of creation or issuance (by reclassification, subsequent financing or otherwise) of any new class or series of shares that have rights, preferences or privileges senior to or on a parity with the Preferred Shares;

 

(ii)                                   create or authorize the creation of or issue (by reclassification or otherwise) any new class or series of shares or any other security convertible into or exercisable for any equity security having rights, preferences or privileges senior to or on parity with the Preferred Shares, or increase the authorized number of the Preferred Shares;

 

(iii)                                result in any new issuance of any equity securities of the Company and/or any of its Subsidiaries to the Founders or to any third party, excluding (1) any issuance of

 

41



 

Ordinary Shares upon conversion of the Preferred Shares, and (2) the issuance of Ordinary Shares (or options or warrants therefor) under employee equity incentive plans approved by the Board;

 

(iv)                               result in the payment or declaration of any dividend on any Shares of the Company;

 

(v)                                  purchase or redeem or pay any dividend on any shares prior to the Preferred Shares, excluding the shares repurchased from former employees or consultants in connection with the cessation of their employment/services, at the lower of fair market value or cost;

 

(vi)                               create or authorize the creation of any debt security that is not already included in a Board-approved budget (other than equipment leases or bank lines of credit) unless such debt security has received the prior approval of the Board of Directors (including the approval of the Series A Director, the Series B Director and the Series C Director); and

 

(vii)                                    increase or decrease the size of the Board of Directors.

 

(b)                                  In respect of the following act of Company which is required under the statue of the Cayman Islands to be taken by a special resolution of the shareholders may be effected by a special resolution of the shareholders, provided , the holder(s) of Series A Preferred Shares who hold at least a majority of the then issued and outstanding Series A Preferred Shares and vote against the resolution, holder(s) of Series B Preferred Shares who hold at least a majority of the then issued and outstanding Series B Preferred Shares and vote against the resolution, holder(s) of Series B-1 Preferred Shares who hold at least a majority of the then issued and outstanding Series B-1 Preferred Shares and vote against the resolution, holder(s) of Series C Preferred Shares who hold at least a majority of the then issued and outstanding Series C Preferred Shares and vote against the resolution, or holder(s) of Series D and Series D-1 Preferred Shares who hold at least a majority of the then issued and outstanding Series D and Series D-1 Preferred Shares and vote against the resolution, as the case may be, shall have the number of votes equal to (i) the votes of all shareholders who vote in favor of the resolution, plus (ii) one:

 

(i)                                      amend or waive any provision of the Company’s Restated Articles in a manner that would alter, amend or change the rights, preferences or privileges of, or the restrictions provided for the benefit of, the Preferred Shares;

 

(ii)                                   increase, reduce or cancel the registered capital of Company and/or any of its Subsidiaries or carrying a right of subscription in respect of equity interest or issue any options rights or warrants or which may require the change of shareholding in the future or do any act which has the effect of diluting or reducing the effective shareholding of the Series A Investors, the Series B Investors, the Series B-1 Investors, the Series C Investors, the Series D Investors or the Series D-1 Investor in the Company;

 

(iii)                                pass any resolution for the liquidation, dissolution or winding up of the Company and/or any of its Subsidiaries or undertake any merger, reconstruction or liquidation exercise concerning the Company and/or any Subsidiary or apply for the appointment of a receiver,

 

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manager or judicial manager or like officer, or effect any Deemed Liquidation Event (as defined in the Restated Articles).

 

(c)                                   Without the consent of the Board of Directors, including the Series A Director, the Series B Director and the Series C Director, the Company and/or any of its Subsidiaries shall not effect or validate any of the following actions (either directly or by amendment, merger, consolidation, or otherwise):

 

(i)                                      cease to conduct or carry on the business of the Company and/or any of its Subsidiaries substantially as now conducted, change any part of its business activities, or conduct or carry on any new business;

 

(ii)                                   sell or dispose of the whole or a substantial part of the undertaking goodwill or the assets of the Company and/or any of its Subsidiaries;

 

(iii)                                borrow any money or obtain any financial facilities except pursuant to trade facilities obtained from banks or other financial institutions in the ordinary course of business;

 

(iv)                               make any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity which exceeds US$500,000 each, unless it is wholly owned by the Company;

 

(v)                                  make any loan or advance to any individual Person, including any employee or director of the Group Companies, which exceeds US$500,000, except those advances or similar expenditures in the ordinary course of business or under the terms of an employee stock or option plan approved by the Board of Directors;

 

(vi)                               incorporate Subsidiaries and branches, make investment in exceeding of US$200,000 within twelve (12) consecutive months, purchase fixed assets or build real estates, and acquire all or part of the equity interest of other companies by the Company and/or any of its Subsidiaries;

 

(vii)                            appoint, fire, change the compensation of, or settle the terms of appointment of any president (general manager), vice president (deputy general manager), chief financial officer (financial controller and/or financial manager) or any other senior managers ranked as the vice president level or above (including but not limited to the chief executive officer, chief operating officer, chief financial officer, chief technology officer and chief marketing officer), including approving any option plan;

 

(viii)                         approve or make adjustments or modifications to terms of transactions involving the interest of any director or shareholder of the Company and/or any of its Subsidiaries, including but not limited to the making of any loans or advances, whether directly or indirectly, or the provision of any guarantee, indemnity or security for or in connection with any indebtedness of liabilities of any director or shareholder of the Company and/or any of its Subsidiaries;

 

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(ix)                               guarantee any indebtedness which exceeds US$500,000 each except for trade accounts of the Company or any of its Subsidiaries arising in the ordinary course of business;

 

(x)                                  incur any aggregate indebtedness in excess of US$500,000 each that is not already included in a Board-approved budget, other than trade credit incurred in the ordinary course of business;

 

(xi)                               enter into or be a party to any transaction or series of transactions between each Group Company and any shareholder, director, senior manager or employee of each Group Company or any Affiliate of any Group Company or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any Group Company, or between each Group Company and any shareholder, director, senior manager or employees of the Affiliate in an amount more than US$50,000 within twelve (12) consecutive months, except transactions made in the ordinary course of business and pursuant to reasonable requirements of the Company’s business and upon fair and reasonable terms that are approved by a majority of the Board of Directors;

 

(xii)                            approve the annual operation plan and budget of the Company and/or any of its Subsidiaries or any material change of such annual operation plan, budget or the business scope of the Company and/or any of its Subsidiaries;

 

(xiii)                         establish the employee equity incentive plans for the management and/or employees of the Company and/or any of its Subsidiaries;

 

(xiv)                        make any investment other than investments in prime commercial paper, money market funds, certificates of deposit in any international bank having a net worth in excess of US$100,000,000 or obligations issued or guaranteed by the United States or other sovereign government, in each case having a maturity not in excess of two years;

 

(xv)                           sell, transfer, license, pledge or encumber technology or intellectual property, other than the licenses granted in the ordinary course of business; and

 

(xvi)                                any matters that shall be unanimously approved by all the Board of the Company according to applicable Laws.

 

15.9                                 Publicity .

 

Subject to specific disclosures required by applicable Laws, without the prior written consent of Alibaba, each of the Group Companies and each shareholder (other than Alibaba) shall not, and each foregoing person shall cause any of its Affiliates to not, (i) use in advertising, publicity, announcements, or otherwise, the name of Alibaba or any Affiliate of Alibaba, either alone or in combination of, including, without limitation, “ 阿里巴巴 ” (Chinese equivalent for “Alibaba”), “ ” (Chinese equivalent for “Taobao”), “ 阿里 ” (Chinese equivalent for “Ali”), “ 全球速卖通 ” (Chinese brand for “AliExpress”), “ ” (Chinese equivalent for “Tao”), “ 天猫 ” (Chinese equivalent for “Tmall”), “ 一淘 ” (Chinese equivalent for “eTao”), “ 聚划 ”z (Chinese equivalent for “Juhuasuan”), “ 阿里旅行 ” (Chinese equivalent for “Alitrip”), “ 阿里妈妈 ” (Chinese equivalent for

 

44



 

“Alimama”), “ 阿里云 ” (Chinese equivalent for “Alibaba Cloud”), “ 万网 ” (Chinese brand for  “HiChina”), “ 口碑 ” (Chinese equivalent for “Koubei’), “ 虾米 ” (Chinese equivalent for “Xiami”), “ 蚂蚁金服 ” (Chinese brand for “Ant Financial”), “ 蚂蚁 ” (Chinese equivalent for “Ant”), “ 支付宝 ” (Chinese brand for “Alipay”), “ 小微金服 ” (Chinese equivalent for “Xiao Wei Jin Fu”), “1688”, “ 达通 ” (Chinese brand for “OneTouch”), “ 友盟 ” (Chinese equivalent for “Umeng”), “ 阿里音乐 (Chinese equivalent for “Alibaba Music”), “ 阿里星球 ” (Chinese equivalent for “Alibaba Planet”),  “ 优视 ” (Chinese equivalent for “UC/UCWeb”), “ 高德地图 ” (Chinese brand for “AMAP”), “ 钉钉 ” (Chinese brand for “DingTalk”), “ 余额宝 ” (Chinese equivalent for “Yu’e Bao”), “ 招财宝 ” (Chinese equivalent for “Zhaocaibao”), “ 芝麻信用 ” (Chinese equivalent for “Zhima Credit”), “ 网商银行   (Chinese brand for “MYbank”), “ 阿里通信 ” (Chinese equivalent for “AliTelecom”), “Alibaba”,  “Taobao”, “Ali”, “AliExpress”, “Tao”, “Tmall”, “eTao”, “Juhuasuan”, “Alitrip”, “Alimama”, “Alibaba Cloud”, “YunOS”, “HiChina”, “Koubei”, “Xiami”, “Ant Financial”, “Ant”, “Alipay”, “Xiao Wei Jin Fu”, “OneTouch”, “Umeng”, “Alibaba Music”, “Alibaba Planet”, “UCWeb”, “UC”, “AMAP”, “DingTalk”, “Yu’e Bao”, “Zhaocaibao”, “Zhima Credit”, “MYbank”, “AliTelecom”, the associated devices and logos of the above brands (including but not limited to the smiling face device of Alibaba Group, the cow device of Alibaba.com, the ant device of Taobao, the Tao doll device of Taobao, the cat device of Tmall, the Ju doll device of Juhuasuan, the wing device and the Ding device of Dingtalk, the ant device of Ant Financial, the lion device and the Zhixiaobao device of Alipay, the ingot device of Zhaocaibao, the sesame device of Zhima Credit together with the Gaoxiaode device and the paper aeroplane device of AutoNavi, or any company name, trade name, trademark, service mark, domain name, device, design, symbol or any abbreviation, contraction or simulation thereof owned or used by Alibaba or any of its Affiliates, or (ii) represent, directly or indirectly, that any product or services provided by any Group Company has been approved or endorsed by Alibaba or any of its Affiliates. The rights and obligations of each Group Company and each shareholder under this Section 15.9 shall survive the termination of this Agreement.

 

15.10                  Confidentiality .

 

(a)                                  Disclosure of Terms.     The terms and conditions of the Transaction Documents (collectively, the “ Financing Terms ”), including their existence, shall be considered confidential information and shall not be disclosed by any of the Parties to any other Person except in accordance with the provisions set forth below.

 

(b)                                  Permitted Disclosures.     Notwithstanding the foregoing, (i) each Party, as appropriate, may disclose any of the Financing Terms to its current or bona fide prospective investors, employees, investment bankers, lenders, accountants and attorneys, in each case only where such Persons are under appropriate nondisclosure obligations; (ii) each Party may disclose any of the Financing Terms to the fund manager, the employees, the directors and officers of such Party or such Party’s Affiliates, and (iii) each Party may disclose any of the Financing Terms to its potential or actual transferees or assignees with respect to the shares in the Company or the rights under the Transaction Documents, thereof so long as such Persons are under appropriate nondisclosure obligations.

 

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(c)                                   Legally Compelled Disclosure.    In the event that any Party is requested or becomes legally compelled (including without limitation, pursuant to securities Laws and stock exchange rules) to disclose the existence or content of any of the Financing Terms hereof in contravention of the provisions of this Section 15.10 , such Party (the “Disclosing Party”) shall to the extent permissible under law promptly provide the other Parties with written notice of that fact so that such other Parties may seek a protective order, confidential treatment or other appropriate remedy. In such event, the Disclosing Party shall furnish only that portion of the information that is legally required and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be given to such information to the extent reasonably requested by the other Parties.

 

(d)                                  Other Exceptions.    Notwithstanding any other provision of this Section 15.10 , the confidentiality obligations of the Parties shall not apply to: (i) information which a restricted Party learns from a third party having the right to make the disclosure, provided the restricted Party complies with any restrictions imposed by the third party; or which a restricted Party independently developed by itself; (ii) information which is in the restricted Party’s possession prior to the time of disclosure by the protected Party and not acquired by the restricted Party under a confidentiality obligation; (iii) information which enters the public domain without breach of confidentiality by the restricted Party; (iv) disclosures to a Party’s accountants, attorneys or other professional advisors so long as they agree to keep such disclosures confidential.

 

15.11                  Liquidation; Redemption; PRC Subsidiaries.

 

The Parties agree that Articles 18 (Redemption) and 127 (Liquidation Preference) of the Restated Articles shall be incorporated herein by reference and shall be binding on all the Parties. The PRC Subsidiaries shall, and the Company, the Founders, the Founder Holdcos and Zhu shall cause the PRC Subsidiaries to, take, or cause to be taken, such action, to execute and deliver, or cause to be executed and delivered, such documents and instruments and to do, or cause to be done, all things necessary, proper or advisable to ensure that the terms set forth in this Agreement and the Restated Articles are complied with, including to enable the Company to (i) redeem the Preferred Shares in accordance with Article 18 of the Restated Articles or (ii) pay the liquidation preferences to the holders of the Preferred Shares in full in accordance with Article 127 of the Restated Articles. None of the Founders and Zhu shall transfer any equity interest in any of the Domestic Companies without the consent of each of the Series A Investors, Series B Investors, Series B-1 Investors, Series C Investors, Series D Investors and Series D-1 Investor.

 

The right of Redemption shall terminate upon QIPO.

 

15.12                  Professional Agency for Public Listing

 

If the Company pursues a private or public offering of equity or debt securities, including the Company’s IPO in Hong Kong Securities Exchange or similar market in Hong Kong, the Company will consider to retain CCBI or its Affiliates as a sponsor, underwriter, book runner, global coordinator or any other proper agent of such offering, and on the same terms and conditions, CCBI or its Affiliates shall have the right of first offer. If the Company pursues a listing in Hong Kong securities or similar markets in Hong Kong in a way other than IPO, the Company will consider to retain CCBI or

 

46



 

its Affiliates as the financial advisor of such transaction on the same terms and conditions, CCBI or its Affiliates shall have the right of first offer.

 

15.13                  Repayment of the Domestic Loan

 

All parties agree and covenant that, unless otherwise agreed in this Agreement, Restated Articles and Domestic Loan Agreement, WFOE shall not be obligated to repay any part of the Domestic Loan prior to the consummation of the Deferred Payment of Purchase Price.

 

16                                   Miscellaneous.

 

16.1                         Governing Law.

 

This Agreement shall be governed by and construed in accordance with the Laws of Hong Kong as to matters within the scope thereof and without regard to its principles of conflicts of Laws.

 

16.2                         Dispute Resolution.

 

(a)                             Negotiation between Parties; Mediations . The Parties agree to negotiate in good faith to resolve any dispute between them regarding this Agreement. If the negotiations do not resolve the dispute to the reasonable satisfaction of the relevant Parties, then each Party to the dispute that is a company shall nominate one authorized officer as its representative. The relevant Parties or their representatives, as the case may be, shall, within thirty (30) days of a written request by either Party to call such a meeting, meet in person and alone (except for one assistant for each Party) and shall attempt in good faith to resolve the dispute. If the disputes cannot be resolved by such authorized officer(s) in such meeting, the Parties agree that they shall, if requested in writing by either Party, meet within thirty (30) days after such written notification for one (1) day with an impartial mediator and consider dispute resolution alternatives other than formal arbitration. If an alternative method of dispute resolution is not agreed upon within thirty (30) days after the one (1) day mediation, either Party to the dispute may request formal arbitration proceedings to be conducted in accordance with subsection (b) below. This procedure shall be a prerequisite to taking any additional action hereunder.

 

(b)                             Arbitration . In the event the Parties are unable to settle a dispute between them regarding this Agreement in accordance with subsection (i) above, such dispute shall be referred to and finally settled by arbitration at the Hong Kong International Arbitration Centre (the “Center”) in accordance with Hong Kong International Arbitration Center Administered Arbitration Rules (the “Arbitration Rules”) in effect, which rules are deemed to be incorporated by reference into this subsection (b):

 

i.                                                     The arbitration shall be conducted in Hong Kong under the Hong Kong International Arbitration Centre Administered Arbitration Rules in force when the Notice of Arbitration is submitted in accordance with the said Rules. The number of arbitrators shall be three. The arbitration shall be conducted in the English language.

 

ii.                                                  Each Party shall cooperate with the other in making full disclosure of and providing complete access to all information and documents requested by the other as permitted by

 

47



 

applicable disclosure rules under the Arbitration Rules in connection with such arbitration proceedings, subject only to any doctrine of legal privilege or any confidentiality obligations binding on such Party.

 

iii.                                                   The costs of arbitration shall be borne by the losing Party, unless otherwise determined by the arbitration tribunal.

 

iv.                                                  When any dispute occurs and when any dispute is under arbitration, except for the matters in dispute, the Parties shall continue to fulfill their respective obligations and shall be entitled to exercise their rights under this Agreement.

 

v.                                                     Regardless of anything else contained herein, any Party shall be entitled to seek preliminary injunctive relief from any court of competent jurisdiction pending the conclusion of the arbitration.

 

(c)                              Award . The award of the arbitration tribunal shall be final and binding upon the disputing Parties, and any Party to the dispute may apply to a court of competent jurisdiction for enforcement of such award.

 

16.3                    Counterparts.

 

This Agreement may be executed in eight (8) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Facsimile and e-mailed copies of signatures shall be deemed to be originals for purposes of the effectiveness of this Agreement.

 

16.4                    Notices.

 

Any notice required or permitted pursuant to this Agreement shall be given in writing and shall be given either personally or by next-day or second-day courier service, fax, electronic mail or similar means to the address as shown below the signature of such Party on the signature page of this Agreement (or at such other address as such Party may designate by fifteen (15) days’ advance written notice to the other Parties to this Agreement given in accordance with this Section 16 ). Where a notice is sent by next-day or second-day courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending by next-day or second-day service through an internationally-recognized courier a letter containing the notice, with a confirmation of delivery, and by two days having passed after the letter containing the same is sent as aforesaid. Where a notice is sent by fax or electronic mail, service of the notice shall be deemed to be effected on the same day on which it is properly addressed and sent through a transmitting organization with a reasonable confirmation of delivery.

 

16.5                    Headings and Titles.

 

Headings and titles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

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16.6                    Expenses.

 

If any action at Law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing Party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such Party may be entitled.

 

16.7                    Entire Agreement; Amendments and Waivers.

 

This Agreement constitutes the full and entire understanding and agreement among the Parties with regard to the subjects hereof and thereof. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of (a) the Company, (b) the Founder Holdcos, (c) the Founders, (d) the Series A Investors, (e) the Series B Investors, (f) the Series B-1 Investors, (g) the Series C Investors, (h) the Series D Investors and (j) the Series D-1 Investor. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities, each future holder of all such Registrable Securities, and the Company.

 

This Agreement shall supersede any prior agreement or arrangement entered into or made by the Parties (or any Party) in relation to any matter under this Agreement (other than the related Transaction Documents), including the Prior Agreement, and such agreements or arrangements (if any) shall be null and void from the date hereof.

 

16.8                    Severability.

 

If a provision of this Agreement is held to be unenforceable under applicable Laws, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

 

16.9                    Further Instruments and Actions.

 

The Parties agree to execute such further instruments and to take such further actions as may be reasonably necessary to carry out the intent of this Agreement. Each Party agrees to cooperate affirmatively with the other Parties, to the extent reasonably requested by another Party, to enforce rights and obligations pursuant hereto.

 

16.10             Rights Cumulative.

 

Each and all of the various rights, powers and remedies of a Party hereto will be considered to be cumulative with and in addition to any other rights, powers and remedies which such Party may have at Law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such Party.

 

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16.11             No Waiver.

 

Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be deemed a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance with, any right, power or remedy power hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or remedy at any other time or times.

 

16.12             Conflict with Restated Articles.

 

In the event of any conflict or inconsistency between the provisions of this Agreement and the provisions of the Company’s Restated Articles or other constitutional documents, the terms of this Agreement shall prevail as between the Parties only, other than the Company. The Parties shall, notwithstanding the conflict or inconsistency, act so as to effect the intent of this Agreement to the greatest extent possible under the circumstances and shall promptly amend the conflicting constitutional documents to conform to this Agreement to the greatest extent possible.

 

16.13             No Presumption.

 

The Parties acknowledge that any applicable Law that would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it has no application and is expressly waived. If any claim is made by a Party relating to any conflict, omission or ambiguity in the provisions of this Agreement, no presumption or burden of proof or persuasion will be implied because this Agreement was prepared by or at the request of any Party or its counsel.

 

16.15             Rights of Third Parties.

 

Except as otherwise provided in this Agreement and subject to such exceptions as may be specifically set forth in the Disclosure Schedule, the provisions of this Agreement are intended solely to benefit the Parties of this Agreement and, to the extent not prohibited by Applicable Law (including without limitation to the Contracts (Rights of Third Parties) Ordinance), shall not be construed as conferring any benefit upon any creditor of the Parties (and no such creditor shall be a third party beneficiary of this Agreement), or any other Person shall have any duty or obligation to any creditor of the Parties, nor shall any party other than the Parties to rely on the Applicable Law to claim for any rights thereunder. Notwithstanding any other term of this Agreement, the consent of any person who is not a party to this Agreement is not required for any variation of, amendment to, or release, rescission, or termination of, this Agreement.

 

16.16             Binding Effect.

 

This Agreement shall be duly executed and delivered by the Parties and this Agreement constitutes a legal, valid and binding obligation, enforceable against the Parties in accordance with its terms upon the closing of the issuance and purchase of the Series D-1 Preferred Shares, i.e. the Initial Closing under the Share Purchase Agreement.

 

[The remainder of this page has been intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholder’s Agreement as of the date first written above.

 

COMPANY:

 

COOTEK (CAYMAN) INC.

 

 

 

 

By:

/s/ ZHANG KAN

 

Name: ZHANG KAN ( 张瞰 )

Title: Director

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

FOUNDER-1:

 

ZHANG KAN ( 张瞰 )

 

 

 

By:

/s/ ZHANG KAN

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

FOUNDER-2:

 

WANG JIALIANG ( 王佳梁 )

 

 

 

 

By:

/s/ WANG JIALIANG

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

FOUNDER-3:

 

LI QIAOLING ( 李巧玲 )

 

 

 

 

By:

/s/ LI QIAOLING

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

FOUNDER-4:

 

WANG JIAN ( 王健 )

 

 

 

 

By:

/s/ WANG JIAN

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 


 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

FOUNDER HOLDCO-1:

 

 

KAN’S GLOBAL COOLSTUFF INVESTMENT INC.

 

 

 

By:

/s/ ZHANG KAN

 

 

Name:

ZHANG KAN ( 张瞰 )

 

Title:

Director

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

FOUNDER HOLDCO-2:

 

 

 

JIALIANG’S GLOBAL CREATIVITY INVESTMENT INC.

 

 

 

 

 

 

 

By:

/s/ WANG JIALIANG

 

 

Name:

WANG JIALIANG ( 王佳梁 )

 

Title:

Director

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

FOUNDER HOLDCO-3:

 

 

LQL GLOBAL INNOVATION INVESTMENT INC.

 

 

 

 

 

 

 

By:

/s/ LI QIAOLING

 

 

Name:

LI QIAOLING (李巧玲 )

 

Title:

Director

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

FOUNDER HOLDCO-4:

 

 

JIAN’S GLOBAL COOLSTUFF INVESTMENT INC.

 

 

 

 

 

 

 

By:

/s/ WANG JIAN

 

 

Name:

WANG JIAN (王健)

 

Title:

Director

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

HK SUBSIDIARY:

 

 

COOTEK HONGKONG LIMITED

 

 

 

 

 

By:

/s/ ZHANG KAN

 

 

Name:

ZHANG KAN ( 张瞰 )

 

Title:

Director

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 


 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

OFFSHORE SUBSIDIARY:

 

TOUCHPAL, INC.

 

By:

/s/ LI QIAOLING

 

Name:

LI QIAOLING

Title:

President

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

OFFSHORE SUBSIDIARY:

 

TOUCHPAL HK CO., LIMITED

 

By:

/s/ ZHANG KAN

 

Name:

ZHANG KAN

Title:

Director

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

WFOE:

 

SHANGHAI CHU LE (COOTEK) INFORMATION TECHNOLOGY CO., LTD.

(上海触乐信息科技有限公司)

 

By:

/s/ ZHANG KAN

 

Name:

ZHANG KAN  ( 张瞰 )

Title:

Legal Representative

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

DOMESTIC COMPANY-1:

 

SHANGHAI HAN XIANG (COOTEK) INFORMATION TECHNOLOGY CO., LTD.

(上海汉翔信息技术有限公司)

 

 

By:

/s/ ZHANG KAN

 

Name:

ZHANG KAN

Title:

Legal Representative

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

DOMESTIC COMPANY-2:

 

SHANGHAI CHU BAO (COOTEK) INFORMATION TECHNOLOGY CO., LTD.

 

By:

/s/ ZHANG KAN

 

Name:

ZHANG KAN

Title:

Legal Representative

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 


 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

HAIYAN’S HOLDCO:

 

HAIYAN’S GLOBAL CREATIVITY INVESTMENT INC.

 

By:

/s/ ZHU HAIYAN

 

Name: ZHU HAIYAN (朱海燕)

 

Title: Director

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

ZHU HAIYAN (朱海燕)

 

By:

/s/ ZHU HAIYAN

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

QIMING VENTURE PARTNERS II, L.P.

 

By: QIMING GP II , L.P. a Cayman Islands exempted limited partnership

Its: General Partner

 

By: QIMING CORPORATE GP II, LTD. a Cayman Islands corporation

Its: General Partner

 

 

 

By:

/s/ Robert Headly

 

Its:

Managing Director

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

QIMING VENTURE PARTNERS II-C, L.P.

 

By: QIMING GP II, L.P. a Cayman Islands exempted limited partnership

Its: General Partner

 

By: QIMING CORPORATE GP II, LTD. a Cayman Islands corporation

Its: General Partner

 

 

 

By:

/s/ Robert Headly

 

Its:

Managing Director

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

QIMING MANAGING DIRECTORS FUND II, L.P.

 

By: QIMING CORPORATE GP II, LTD., a Cayman Islands corporation

 

 

 

 

By:

/s/ Robert Headly

 

Its:

Managing Director

 

 

 

 

Address:

 

 

Attention:

Robert Headly

 

Tel:

 

 

Fax No.:

 

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 


 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

ORANGE CAPITAL MANAGEMENT

 

By:

/s/ Fabien Inglese

 

Name:

Fabien Inglese

 

Title:

Chief Executive Officer

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

QUALCOMM INTERNATIONAL INC.

 

 

By:

/s/ Adam Schwenker

 

Name:

Adam Schwenker

 

Title:

Authorized Signatory

 

 

 

 

 

 

 

Address:

 

 

Attention:

James Shen

 

Tel:

 

 

Fax No.:

 

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

SIG CHINA INVESTMENTS MASTER FUND III, LLLP

 

By SIG ASIA INVESTMENT, LLLP,

 

 

its authorized agent

 

By HEIGHTS CAPITAL MANAGEMENT, INC.,
its authorized agent

 

By:

/s/ Michael Spolan

 

 

Name: Michael Spolan
Title: General Counsel

 

 

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

SYCAMORE CAPITAL HOLDINGS LIMITED

 

By:

/s/ Zheng Gang

 

Name:

Zheng Gang Title: Director

 

 

 

 

Address:

 

 

Attention:

Scott Zheng

 

Tel:

 

 

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

ALIBABA INVESTMENT LIMITED

 

By:

/s/ Liang Wang

 

Name: Liang Wang

 

Title: Authorized Signatory

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 


 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

Sequoia Capital China GF Holdco III-A, Ltd.

 

 

 

 

 

By:

/s/ Kok Wai Yee

 

Name: Kok Wai Yee

 

Title: Authorized signatory

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

CHANCE TALENT MANAGEMENT LIMITED

 

 

 

 

 

By:

/s/ Li Yuezhong

 

Name: Li Yuezhong

 

Title: Director

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

New Alliance CC Limited

 

 

 

 

 

By:

/s/ Qu Lie Feng

 

Name: Qu Lie Feng

 

Title: Director

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

TRANQUILITY COMMUNICATIONS LIMITED ( 静康通讯有限公司)

 

 

 

 

By:

/s/ Xing Jin

 

Name: Xing Jin

 

Title: Director

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties hereto have executed this Fifth Amended and Restated Shareholders’ Agreement as of the date first written above.

 

HG Qiandao Limited

 

 

 

 

 

By:

/s/ Lu Binghui

 

Name: Lu Binghui

 

Title: Director

 

 

 

Address:

 

 

Attention:

WANG BAOHUA

 

Tel:

 

 

SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 



 

Exhibit A

 

FORM OF DEED OF ADHERENCE

 

[I/We], [ · ] whose registered [office/address] is at [ · ] intend(s) to become a shareholder of CooTek (Cayman) Inc. (the “ Company ”) holding [ · ] [Ordinary/Series A Preferred/Series B Preferred/Seires C Preferred/Series D Preferred] Shares/Series D-1 Preferred Shares. [I/We] hereby agree(s) with each of the holders of Ordinary Shares and holders of Preferred Shares of the Company to comply with  and  to  be  bound  by  all  the  provisions  of  a  Fifth  Amended  and  Restated  Shareholders’ Agreement (the “ Shareholders Agreement ”) dated [ · ] entered into among the Company and [ · ], in all respects as if [I/we] were a party to the Shareholders Agreement and were named therein as a holder of the [Ordinary Shares/Series  A  Preferred  Shares/Series  B Preferred  Shares/Series  B-1 Preferred Shares/Series C Preferred Shares/Series D Preferred Shares/Series D-1 Preferred Shares], and on the basis that references therein to a holder of the [Ordinary Shares/Series A Preferred Shares/Series B Preferred Shares/Series B-1 Preferred Shares/Series C Preferred Shares/ Series D Preferred Shares/Series D-1 Preferred Shares] shall include a separate reference to us.

 

For the purpose of Section 16.4 of the Shareholders Agreement, the address, fax number and other details of communications of us are as follows:

 

To :

[Name]

 

[Address]

Attention:

[ · ]

Tel:

[ · ]

Fax:

[ · ]

 

This Deed of Adherence is governed by the laws of the Hong Kong Special Administrative Region of the People’s Republic of China.

 

IN WITNESS WHEREOF this Deed of Adherence has been executed by us and delivered on the [ · ].

 

[NAME OF NEW SHAREHOLDER]

 

 

 

 

 

By:

 

 

Name:

 

 



 

Exhibit B

 

COMPETITORS

 




Exhibit 5.1

 

Our ref

VSL/675748-000005/13211330v2

 

CooTek (Cayman) Inc.

2nd Floor, Block 7

No.2008 Hongmei Road, Xuhui District

Shanghai, 201103

People’s Republic of China

 

16 August 2018

 

Dear Sirs

 

CooTek (Cayman) Inc.

 

We have acted as Cayman Islands legal advisers to CooTek (Cayman) Inc. (the “ Company ”) in connection with the Company’s registration statement on Form F-1, including all amendments or supplements thereto (the “ Registration Statement ”), filed with the Securities and Exchange Commission under the U.S. Securities Act of 1933, as amended to date relating to the offering by the Company of certain American depositary shares (the “ ADSs ”) representing the Company’s Class A ordinary shares of par value US$0.00001 each (the “ Shares ”).

 

We are furnishing this opinion as Exhibits 5.1, 8.1 and 23.2 to the Registration Statement.

 

1                                          Documents Reviewed

 

For the purposes of this opinion, we have reviewed only originals, copies or final drafts of the following documents:

 

1.1                                The certificate of incorporation of the Company dated 5 March 2012 issued by the Registrar of Companies in the Cayman Islands.

 

1.2                                The sixth amended and restated memorandum and articles of association of the Company as adopted by special resolution passed on 10 January 2017 (the “ Pre-IPO Memorandum and Articles ”).

 

1.3                                The seventh amended and restated memorandum and articles of association of the Company as conditionally adopted by a special resolution passed on 8 August 2018 and effective immediately prior to the completion of the Company’s initial public offering of the ADSs representing the Shares (the “ IPO Memorandum and Articles ”).

 

1.4                                The written resolutions of the directors of the Company dated 8 August 2018 (the “ Directors’ Resolutions ”).

 

1.5                                The written resolutions of the shareholders of the Company dated 8 August 2018 (the “ Shareholders’ Resolutions ”).

 

1.6                                A certificate from a director of the Company, a copy of which is attached hereto (the “ Director’s Certificate ”).

 



 

1.7                                A certificate of good standing dated 15 August 2018, issued by the Registrar of Companies in the Cayman Islands (the “ Certificate of Good Standing ”).

 

1.8                                The Registration Statement.

 

2                                          Assumptions

 

The following opinions are given only as to, and based on, circumstances and matters of fact existing and known to us on the date of this opinion letter.  These opinions only relate to the laws of the Cayman Islands which are in force on the date of this opinion letter.  In giving these opinions we have relied (without further verification) upon the completeness and accuracy, as of the date of this opinion letter, of the Director’s Certificate and the Certificate of Good Standing.  We have also relied upon the following assumptions, which we have not independently verified:

 

2.1                                Copies of documents, conformed copies or drafts of documents provided to us are true and complete copies of, or in the final forms of, the originals.

 

2.2                                All signatures, initials and seals are genuine.

 

2.3                                There is nothing contained in the minute book or corporate records of the Company (which we have not inspected) which would or might affect the opinions set out below.

 

2.4                                There is nothing under any law (other than the law of the Cayman Islands), which would or might affect the opinions set out below.

 

3                                          Opinion

 

Based upon the foregoing and subject to the qualifications set out below and having regard to such legal considerations as we deem relevant, we are of the opinion that:

 

3.1                                The Company has been duly incorporated as an exempted company with limited liability and is validly existing and in good standing with the Registrar of Companies under the laws of the Cayman Islands.

 

3.2                                The authorised share capital of the Company, with effect immediately prior to the completion of the Company’s initial public offering of the ADSs representing the Shares, will be US$150,000 divided into 15,000,000,000 shares comprising (i) 13,750,000,000 Class A Ordinary Shares of a par value of US$0.00001 each, (ii) 250,000,000 Class B Ordinary Shares of a par value of US$0.00001 each, and (iii) 1,000,000,000 shares of a par value of US$0.00001 each of such class or classes (however designated) as the board of directors may determine in accordance with the IPO Memorandum and Articles.

 

3.3                                The issue and allotment of the Shares have been duly authorised and when allotted, issued and paid for as contemplated in the Registration Statement, the Shares will be legally issued and allotted, fully paid and non-assessable. As a matter of Cayman law, a share is only issued when it has been entered in the register of members (shareholders).

 

3.4                                The statements under the caption “Taxation” in the prospectus forming part of the Registration Statement, to the extent that they constitute statements of Cayman Islands law, are accurate in all material respects and that such statements constitute our opinion.

 

2



 

4                                          Qualifications

 

In this opinion the phrase “non-assessable” means, with respect to the Shares in the Company, that a shareholder shall not, solely by virtue of its status as a shareholder, be liable for additional assessments or calls on the Shares by the Company or its creditors (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).

 

Except as specifically stated herein, we make no comment with respect to any representations and warranties which may be made by or with respect to the Company in any of the documents or instruments cited in this opinion or otherwise with respect to the commercial terms of the transactions, which are the subject of this opinion.

 

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our name under the headings “Enforceability of Civil Liabilities”, “Taxation” and “Legal Matters” and elsewhere in the prospectus included in the Registration Statement.  In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the Rules and Regulations of the Commission thereunder.

 

Yours faithfully

 

 

/s/ Maples and Calder (Hong Kong) LLP

 

Maples and Calder (Hong Kong) LLP

 

3




Exhibit 10.1

 

COOTEK (CAYMAN) INC.

 

20 1 2 STOCK INCENTIVE PLAN

 

1.               Purposes of the Plan .  The purposes of this Plan are to attract and retain the best available personnel, to provide additional incentives to selected Senior Managers, Key Persons and other Employees and to promote the success of the Company’s business.

 

2.               Definitions .  The following definitions shall apply as used herein and in the individual Award Agreements except as defined otherwise in an individual Award Agreement.  In the event a term is separately defined in an individual Award Agreement, such definition shall supersede the definition contained in this Section 2.

 

(a)                      Administrator ” means the Board or any of the Committees appointed to administer the Plan.

 

(b)                      Affiliate ” and “ Associate ” shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.

 

(c)                       Applicable Laws ” means the legal requirements relating to the Plan and the Awards under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any jurisdiction applicable to Awards granted to residents therein.

 

(d)                      Assumed ” means that pursuant to a Corporate Transaction either (i) the Award is expressly affirmed by the Company or (ii) the contractual obligations represented by the Award are expressly assumed (and not simply by operation of law) by the successor entity or its Parent in connection with the Corporate Transaction with appropriate adjustments to the number and type of securities of the successor entity or its Parent subject to the Award and the exercise or purchase price thereof which at least preserves the compensation element of the Award existing at the time of the Corporate Transaction as determined in accordance with the instruments evidencing the agreement to assume the Award.

 

(e)                       Award ” means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Share, Restricted Share Unit or other right or benefit under the Plan.

 

(f)                        Award Agreement ” means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto.

 

(g)                       Board ” means the Board of Directors of the Company.

 

(h)                      Cause ” means, with respect to the termination by the Company or a Related Entity of the Grantee’s Continuous Service, that such termination is for “Cause” as such term is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator, the Grantee’s: (i) performance of any act or failure to perform any act in bad faith and to the detriment of the Company or a Related Entity; (ii) dishonesty, intentional misconduct or material breach of any agreement with

 



 

the Company or a Related Entity; or (iii) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person.

 

(i)                          Change in Control ” means a change in ownership or control of the Company after the Registration Date effected through the following transactions: the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s shareholders which a majority of the Directors who are not Affiliates or Associates of the offeror do not recommend such shareholders accept.

 

(j)                         Code ” means the Internal Revenue Code of 1986, as amended.

 

(k)                      Committee ” means any committee composed of members of the Board appointed by the Board to administer the Plan.

 

(l)                          Ordinary Share ” means an ordinary share of the Company, par value of US$0.00001 per share, having the rights and restrictions set out in the Articles of Association of the Company, as amended from time to time.

 

(m)                  Company ” means CooTek (Cayman) Inc., a company incorporated under the laws of the Cayman Islands or any successor corporation that adopts the Plan in connection with a Corporate Transaction.

 

(n)                      Continuous Service ” means that the provision of services to the Company or a Related Entity in any capacity of the selected Senior Manager, Key Person or other Employee, is not interrupted or terminated.  In jurisdictions requiring notice in advance of an effective termination as a selected Senior Manager, Key Person or other Employee, Continuous Service shall be deemed terminated upon the actual cessation of providing services to the Company or a Related Entity notwithstanding any required notice period that must be fulfilled before a termination as a selected Senior Manager, Key Person or other Employee can be effective under Applicable Laws.  A Grantee’s Continuous Service shall be deemed to have terminated either upon an actual termination of Continuous Service or upon the entity for which the Grantee provides services ceasing to be a Related Entity.  Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entity, or any successor, in any capacity of selected Senior Manager, Key Person or other Employee, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of selected Senior Manager, Key Person or other Employee (except as otherwise provided in the Award Agreement).  An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

 

2



 

(o)                      Corporate Transaction ” means any of the following transactions, provided, however, that the Administrator shall determine under parts (iv) and (v) whether multiple transactions are related, and its determination shall be final, binding and conclusive:

 

(i)                                      a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated;

 

(ii)                                   the sale, transfer or other disposition of all or substantially all of the assets of the Company;

 

(iii)                                the complete liquidation or dissolution of the Company;

 

(iv)                               any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a reverse merger) in which the Company is the surviving entity but (A) the Ordinary Shares outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger or the initial transaction culminating in such merger, but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction; or

 

(v)                                  acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction.

 

(p)                      Director ” means a member of the Board or the board of directors of any Related Entity.

 

(q)                      Disability ” means as defined under the long-term disability policy of the Company or the Related Entity to which the Grantee provides services regardless of whether the Grantee is covered by such policy.  If the Company or the Related Entity to which the Grantee provides service does not have a long-term disability plan in place, “Disability” means that a Grantee is unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment for a period of not less than ninety (90) consecutive days.  A Grantee will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion.

 

(r)                         Dividend Equivalent Right ” means a right entitling the Grantee to compensation measured by dividends paid with respect to Ordinary Shares.

 

3



 

(s)                        Drag-Along Event ” means a merger, sale of control, sale or exclusive license of all or substantially all of the Company’s assets or any transaction in which 50% or more of the voting power of the Company is transferred to a bona fide third party.

 

(t)                         Employee ” means any person, including an Officer or Director, who is in the employ of the Company or any Related Entity, subject to the control and direction of the Company or any Related Entity as to both the work to be performed and the manner and method of performance.  The payment of a director’s fee by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company.

 

(u)                      Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

(v)                      Fair Market Value ” means, as of any date, the value of Ordinary Shares determined as follows:

 

(i)                                      If the Ordinary Shares are traded on a securities exchange, the value shall be deemed to be the average of the security’s closing prices on such exchange over the thirty (30) day period ending one (1) day prior to the distribution, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

 

(ii)                                   If the Ordinary Shares are traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the thirty (30) day period ending three (3) days prior to the distribution as reported in The Wall Street Journal or such other source as the Administrator deems reliable; and

 

(iii)                                In the absence of an established market for the Ordinary Shares of the type described in (i) and (ii), above, the Fair Market Value thereof shall be determined by the Administrator in good faith.

 

The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be adjusted to make an appropriate discount from the market value determined as above in sub-clauses (i), (ii) or (iii) to reflect the fair market value thereof as determined in good faith by the Administrator, or by a liquidator if one is appointed.

 

(w)                    Grantee ” means a selected Senior Manager, Key Person or other Employee who receives an Award under the Plan.

 

(x)                      IPO ” means the Company’s first firm commitment underwritten public offering of any of its securities to the general public pursuant to (a) a registration statement filed under the Securities Act of 1933, as amended, or (b) the securities laws applicable to an offering of securities in another jurisdiction pursuant to which such securities will be listed on an internationally-recognized securities exchange.

 

(y)                      Key Person(s) ” means the employees and advisors of the Company and the Related Entity, who engage in the research and development work or other important work concerning the business of the Company and the Related Entity.

 

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(z)                       Officer ” means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

 

(aa)               Option ” means an option to purchase Shares pursuant to an Award Agreement granted under the Plan.

 

(bb)               Parent ” means a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of the Code.

 

(cc)                 Plan ” means this 2012 Stock Incentive Plan.

 

(dd)               Qualified IPO ” shall mean the closing of the Company’s first firm commitment, underwritten public offering of Ordinary Shares or securities representing Ordinary Shares in connection with which Ordinary Shares or such securities (or the shares of a company of which the Company is a wholly owned subsidiary established for the purpose of listing (the “ Listco ”)) is listed and becomes publicly traded on an internationally recognized securities exchange (including the Stock Exchange of Hong Kong) or the NASDAQ National Market, provided, however, that such transaction or listing shall result in aggregate proceeds to the Company of at least US$50,000,000 (or the equivalent thereof in other currencies) (after deduction for underwriters’ commissions and expenses), and a valuation of the Company or the Listco immediately prior to such listing shall be at least US$200,000,000 (or the equivalent thereof in other currencies).

 

(ee)                 Registration Date ” means the first to occur of (i) the closing of the first sale to the general public pursuant to a registration statement filed with and declared effective by the U.S. Securities and Exchange Commission under the Securities Act of 1933, as amended, of (A) the Ordinary Shares or (B) the same class of securities of a successor corporation (or its Parent) issued pursuant to a Corporate Transaction in exchange for or in substitution of the Ordinary Shares; and (ii) in the event of a Corporate Transaction, the date of the consummation of the Corporate Transaction if the same class of securities of the successor corporation (or its Parent) issuable in such Corporate Transaction shall have been sold to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended, on or prior to the date of consummation of such Corporate Transaction.

 

(ff)                   Related Entity ” means any Parent or Subsidiary of the Company and any business, corporation, partnership, limited liability company or other entity in which the Company or a Parent or a Subsidiary of the Company holds a substantial ownership interest, directly or indirectly.

 

(gg)                 Replaced ” means that pursuant to a Corporate Transaction, the Award is replaced with a comparable share or stock award or a cash incentive program of the Company, the successor entity (if applicable) or Parent of either of them which preserves the compensation element of such Award existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same (or a more favorable) vesting schedule

 

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applicable to such Award.  The determination of Award comparability shall be made by the Administrator and its determination shall be final, binding and conclusive.

 

(hh)               Restricted Share ” means a Share issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator.

 

(ii)                       Restricted Share Units ” means an Award which may be earned in whole or in part upon the passage of time or the attainment of performance criteria established by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities as established by the Administrator.

 

(jj)                     SAR ” means a share appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Ordinary Shares.

 

(kk)               Senior Manager ( s ) ” means, with respect to the Company and Related Entity, the chief executive officer, the chief financial officer, the chief technology officer, the president, the general manager or any other manager with the title of “vice-president” or higher, of such entity.

 

(ll)                       Share ” means an Ordinary Share of the Company.

 

(mm)       Spin-off Transaction ” means a distribution by the Company to its shareholders of all or any portion of the securities of any Subsidiary of the Company.

 

(nn)               Subsidiary ” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

 

3.               Shares Subject to the Plan .

 

(a)                      Subject to the provisions of Section 10 below, the maximum aggregate number of Shares which may be issued pursuant to all Awards is 155,631,013 Shares (proportionally adjusted to reflect any share dividends, share splits, or similar transactions).

 

(b)                      Any Shares covered by an Award (or portion of an Award) which is forfeited, canceled or expires (whether voluntarily or involuntarily) shall be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under the Plan.  Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at the lower of their original purchase price or their Fair Market Value at the time of repurchase, such Shares shall become available for future grant under the Plan.  To the extent not prohibited by Section 422(b)(1) of the Code (and the corresponding regulations thereunder), the listing requirements of The Nasdaq National Market (or other established stock exchange or national market system on which the Ordinary Shares are traded) and Applicable Law, any Shares covered by an Award which are surrendered (i) in payment of the Award exercise or purchase

 

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price or (ii) in satisfaction of tax withholding obligations incident to the exercise of an Award shall be deemed not to have been issued for purposes of determining the maximum number of Shares which may be issued pursuant to all Awards under the Plan, unless otherwise determined by the Administrator.

 

4.               Administration of the Plan .

 

(a)                      Plan Administrator .

 

(i)                                      Administration .  The Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in accordance with the Applicable Laws.  Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board.  The Board may authorize one or more Officers to grant such Awards and may limit such authority as the Board determines from time to time.

 

(ii)                                   Administration Errors .  In the event an Award is granted in a manner inconsistent with the provisions of this subsection (a), such Award shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws.

 

(b)                      Powers of the Administrator .  Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion:

 

(i)                                      to select the Senior Manager, Key Person or other Employee to whom Awards may be granted from time to time hereunder;

 

(ii)                                   to determine whether and to what extent Awards are granted hereunder;

 

(iii)                                to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder;

 

(iv)                               to approve forms of Award Agreements for use under the Plan;

 

(v)                                  to determine the terms and conditions of any Award granted hereunder (including the vesting schedule set forth in the Notice of Stock Option Award);

 

(vi)                               to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that would adversely affect the Grantee’s rights under an outstanding Award shall not be made without the Grantee’s written consent;

 

(vii)                            to construe and interpret the terms of the Plan and Awards, including without limitation, any notice of award or Award Agreement, granted pursuant to the Plan; and

 

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(viii)                         to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate.

 

(c)                       Indemnification .  In addition to such other rights of indemnification as they may have as members of the Board or as Officers or Employees of the Company or a Related Entity, members of the Board and any Officers or Employees of the Company or a Related Entity to whom authority to act for the Board, the Administrator or the Company is delegated shall be defended and indemnified by the Company to the extent permitted by law on an after-tax basis against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any claim, investigation, action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any Award granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by the Company) or paid by them in satisfaction of a judgment in any such claim, investigation, action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such claim, investigation, action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct; provided, however, that within thirty (30) days after the institution of such claim, investigation, action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at the Company’s expense to defend the same.

 

5.               Eligibility .  Awards may be granted to the selected Senior Manager, Key Person or other Employee.  A selected Senior Manager, Key Person or other Employee who has been granted an Award may, if otherwise eligible, be granted additional Awards.

 

6.               Terms and Conditions of Awards .

 

(a)                      Types of Awards . The Administrator is authorized under the Plan to award any type of arrangement to a selected Senior Manager, Key Person or other Employee that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) cash or (iii) an Option, a SAR, or similar right with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions.  Such awards include, without limitation, Options, SARs, sales or bonuses of Restricted Share, Restricted Share Units or Dividend Equivalent Rights, and an Award may consist of one such security or benefit, or two (2) or more of them in any combination or alternative.

 

(b)                      Designation of Award .  Each Award shall be designated in the Award Agreement.

 

(c)                       Conditions of Award .  Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria.  The performance criteria established by the Administrator may be based on any one of, or combination of, the following: (i) increase

 

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in share price, (ii) earnings per share, (iii) total shareholder return, (iv) operating margin, (v) gross margin, (vi) return on equity, (vii) return on assets, (viii) return on investment, (ix) operating income, (x) net operating income, (xi) pre-tax profit, (xii) cash flow, (xiii) revenue, (xiv) expenses, (xv) earnings before interest, taxes and depreciation, (xvi) economic value added and (xvii) market share.  The performance criteria may be applicable to the Company, Related Entities and/or any individual business units of the Company or any Related Entity.  Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement.

 

(d)                      Acquisitions and Other Transactions .  The Administrator may issue Awards under the Plan in settlement, assumption or substitution for, outstanding awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, share purchase, asset purchase or other form of transaction.

 

(e)                       Deferral of Award Payment .  The Administrator may establish one or more programs under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award.  The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program.

 

(f)                        Separate Programs .  The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time.

 

(g)                       Early Exercise .  The Award Agreement may, but need not, include a provision whereby the Grantee may elect at any time while a selected Senior Manager, Key Person or other Employee to exercise any part or all of the Award prior to full vesting of the Award.  Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction the Administrator determines to be appropriate.

 

(h)                      Term of Award .  The term of each Award shall be the term stated in the Award Agreement.  Notwithstanding the foregoing, the specified term of any Award shall not include any period for which the Grantee has elected to defer the receipt of the Shares or cash issuable pursuant to the Award.

 

(i)                          Transferability of Awards .  Subject to the Applicable Laws, Awards shall be transferable (i) by will and by the laws of descent and distribution and (ii) during the lifetime of the Grantee, to the extent and in the manner authorized by the Administrator.  Notwithstanding the foregoing, the Grantee may designate one or more beneficiaries of the Grantee’s Award in

 

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the event of the Grantee’s death on a beneficiary designation form provided by the Administrator.

 

(j)                         Time of Granting Awards .  The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such other date as is determined by the Administrator.

 

7.               Award Exercise or Purchase Price, Consideration and Taxes .

 

(a)                      Exercise or Purchase Price .  The exercise or purchase price, if any, for an Award shall be determined by the Administrator.

 

Notwithstanding the foregoing provisions of this Section 7(a), in the case of an Award issued pursuant to Section 6( c), above, the exercise or purchase price for the Award shall be determined in accordance with the provisions of the relevant instrument evidencing the agreement to issue such Award.

 

(b)                      Consideration .  Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award, including the method of payment shall be determined by the Administrator.  In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following:

 

(i)                                      cash;

 

(ii)                                   check;

 

(iii)                                if the exercise or purchase occurs on or after the Registration Date, surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised, provided, however, that Shares acquired under the Plan or any other equity compensation plan or agreement of the Company must have been held by the Grantee for a period of more than six (6) months (and not used for another Award exercise by attestation during such period);

 

(iv)                               with respect to Options, if the exercise occurs on or after the Registration Date, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction; or

 

(v)                                  any combination of the foregoing methods of payment.

 

The Administrator may at any time or from time to time, by adoption of or by amendment to the standard forms of Award Agreement described in Section 4(b)(iv), or by other means, grant

 

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Awards which do not permit all of the foregoing forms of consideration to be used in payment for the Shares or which otherwise restrict one or more forms of consideration.

 

(c)                       Taxes .  No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of any income and employment tax withholding obligations under any Applicable Laws.  Upon exercise of an Award the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations.

 

8.               Exercise of Award .

 

(a)                      Procedure for Exercise; Rights as a Shareholder .

 

(i)                                      Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement.

 

(ii)                                   An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay the purchase price as provided in Section 7(b)(iv).

 

(b)                      Exercise of Award Following Termination of Continuous Service .

 

(i)                                      An Award may not be exercised after the termination date of such Award set forth in the Award Agreement and may be exercised following the termination of a Grantee’s Continuous Service only to the extent provided in the Award Agreement.

 

(ii)                                   Where the Award Agreement permits a Grantee to exercise an Award following the termination of the Grantee’s Continuous Service for a specified period, the Award shall terminate to the extent not exercised on the last day of the specified period or the last day of the original term of the Award, whichever occurs first.

 

9.               Conditions Upon Issuance of Shares .

 

(a)                      Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

 

(b)                      As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws.

 

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(c)                       As a condition to the exercise of an Award, the Grantee shall grant a power of attorney to the Board or any person designated by the Board to exercise the voting rights with respect to the Shares and the Company may require the person exercising such Award to acknowledge and agree to be bound by the provisions of the Shareholders Agreement entered into by and among the Company and the shareholders of the Company from time to time, as if the Grantee is a holder of Ordinary Shares thereunder.

 

10.        Adjustments Upon Changes in Capitalization .  Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, the exercise or purchase price of each such outstanding Award, the maximum number of Shares with respect to which Awards may be granted to any Grantee in any fiscal year of the Company, as well as any other terms that the Administrator determines require adjustment shall be proportionately adjusted for (i) any increase or decrease in the number of issued Shares resulting from a share split, reverse share split, share dividend, combination or reclassification of the Shares, or similar transaction affecting the Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or (iii) as the Administrator may determine in its discretion, any other transaction with respect to Ordinary Shares including a corporate merger, consolidation, acquisition of property or equity, separation (including a spin-off or other distribution of shares or property), reorganization, liquidation (whether partial or complete) or any similar transaction; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”  Such adjustment shall be made by the Administrator and its determination shall be final, binding and conclusive.  Except as the Administrator determines, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award.  In the event of a Spin-off Transaction, the Administrator may in its discretion make such adjustments and take such other action as it deems appropriate with respect to outstanding Awards under the Plan, including but not limited to: (i) adjustments to the number and kind of Shares, the exercise or purchase price per Share and the vesting periods of outstanding Awards, (ii) prohibit the exercise of Awards during certain periods of time prior to the consummation of the Spin-off Transaction, or (iii) the substitution, exchange or grant of Awards to purchase securities of the Subsidiary; provided that the Administrator shall not be obligated to make any such adjustments or take any such action hereunder.

 

11.        Corporate Transactions and Changes in Control .

 

(a)                      Termination of Award to the Extent Not Assumed in Corporate Transaction .  Effective upon the consummation of a Corporate Transaction, all outstanding Awards under the Plan shall terminate.  However, all such Awards shall not terminate to the extent they are Assumed in connection with the Corporate Transaction.

 

(b)                      Acceleration of Award Upon Corporate Transaction or Change in Control .

 

(i)                                      Corporate Transaction .  Except as provided otherwise in an individual Award Agreement, in the event of a Corporate Transaction, for the portion of each

 

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Award that is neither Assumed nor Replaced, such portion of the Award shall automatically become fully vested and exercisable and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at Fair Market Value) for all of the Shares at the time represented by such portion of the Award, immediately prior to the specified effective date of such Corporate Transaction, provided that the Grantee’s Continuous Service has not terminated prior to such date.  The portion of the Award that is not Assumed shall terminate under subsection (a) of this Section 11 to the extent not exercised prior to the consummation of such Corporate Transaction.

 

(ii)                                   Change in Control .  Except as provided otherwise in an individual Award Agreement, in the event of a Change in Control (other than a Change in Control which also is a Corporate Transaction), each Award which is at the time outstanding under the Plan automatically shall become fully vested and exercisable and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at Fair Market Value), immediately prior to the specified effective date of such Change in Control, for all of the Shares at the time represented by such Award, provided that the Grantee’s Continuous Service has not terminated prior to such date.

 

12.        Effective Date and Term of Plan .  The Plan shall become effective upon the later to occur of its adoption by the Board or its approval by the shareholders of the Company.  It shall continue in effect for a term of ten (10) years unless sooner terminated.  Subject to Applicable Laws, Awards may be granted under the Plan upon its becoming effective.

 

13.        Amendment, Suspension or Termination of the Plan .

 

(a)                      The Board may at any time amend, suspend or terminate the Plan; provided, however, that no such amendment shall be made without the approval of the Company’s shareholders to the extent such approval is required by Applicable Laws, or if such amendment would change any of the provisions of Section 4(b)(vi) or this Section 13(a).

 

(b)                      No Award may be granted during any suspension of the Plan or after termination of the Plan.

 

(c)                       No suspension or termination of the Plan (including termination of the Plan under Section 12, above) shall adversely affect any rights under Awards already granted to a Grantee.

 

14.        Reservation of Shares .

 

(a)                      The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

 

(b)                      The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

 

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15.        No Effect on Terms of Employment/Consulting Relationship .  The Plan shall not confer upon any Grantee any right with respect to the Grantee’s Continuous Service, nor shall it interfere in any way with his or her right or the right of the Company or any Related Entity to terminate the Grantee’s Continuous Service at any time, with or without Cause, and with or without notice.  The ability of the Company or any Related Entity to terminate the employment of a Grantee who is employed at will is in no way affected by its determination that the Grantee’s Continuous Service has been terminated for Cause for the purposes of this Plan.

 

16.        No Effect on Retirement and Other Benefit Plans .  Except as specifically provided in a retirement or other benefit plan of the Company or a Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation.  The Plan is not a “Retirement Plan” or “Welfare Plan” under the Employee Retirement Income Security Act of 1974, as amended.

 

17.        Vesting Schedule .  Except as unanimously approved by the Board, Options to be issued to the Grantees under the Plan shall be subject to a minimum five (5) year vesting schedule calling for vesting no faster than the following, counting from the applicable grant date with respect to the total issued Options: 20% of the Shares subject to the Option shall vest at the end of the first year after the execution date of the labor contract or service agreement, with remaining portions vesting in equal yearly installments over the next four years.

 

18.        Drag-Along Events .  The Award Agreement shall include a provision whereby in the event of a Drag-Along Event, the Grantees who hold any Shares upon exercise of the Award shall sell, transfer, convey or assign all of their Shares pursuant to, and so as to give effect to, the Drag-Along Event, and each of such Grantees shall grant to the then current chief executive officer of the Company or an authorized officer, a power of attorney to transfer his/her Shares and to do and carry out all other acts and to sign all other documents that are necessary or advisable to complete the Drag-Along Event.

 

19.        Qualified IPO.   The Award Agreement shall include a provision whereby in the case of a Qualified IPO, the Grantees shall enter into any agreements with any underwriter, coordinator, bankers or sponsor elected by the Company for the purpose of the Qualified IPO, and each of such Grantees shall grant to the then current chief executive officer or other authorized officer of the Company a power of attorney to enter into any agreements with any underwriter, coordinator, bankers or sponsor elected by the Company and to do and carry out all the acts and to sign all the documents that are necessary or advisable to complete the Qualified IPO.

 

20.        Unfunded Obligation .  Any amounts payable to Grantees pursuant to the Plan shall be unfunded and unsecured obligations for all purposes.  Neither the Company nor any Related Entity shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations.  The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder.  Any investments or the creation or maintenance of any trust or any Grantee account shall not create or constitute a trust or fiduciary

 

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relationship between the Administrator, the Company or any Related Entity and a Grantee, or otherwise create any vested or beneficial interest in any Grantee or the Grantee’s creditors in any assets of the Company or a Related Entity.  The Grantees shall have no claim against the Company or any Related Entity for any changes in the value of any assets that may be invested or reinvested by the Company with respect to the Plan.

 

21.                                Construction .  Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan.  Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular.  Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

 

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Exhibit 10.2

 

COOTEK (CAYMAN) INC

 

2018 SHARE INCENTIVE PLAN

 

ARTICLE 1

 

PURPOSE

 

The purpose of this 2018 Share Incentive Plan (the “ Plan ”) is to promote the success and enhance the value of CooTek (Cayman) Inc., an exempted company formed under the laws of the Cayman Islands (the “ Company ”), by linking the personal interests of the Directors, Employees, and Consultants to those of the Company’s shareholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to the Company’s shareholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of the Directors, Employees, and Consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.

 

ARTICLE 2

 

DEFINITIONS AND CONSTRUCTION

 

Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise.  The singular pronoun shall include the plural where the context so indicates.

 

2.1                                American Depository Share ” means American depository shares, evidenced by American depository receipts issuable upon deposit of the Shares, each representing certain number of Shares.

 

2.2                                Applicable Laws ” means the legal requirements relating to the Plan and the Awards under applicable provisions of the corporate, securities, tax and other laws, rules, regulations and government orders, and the rules of any applicable stock exchange or national market system, of any jurisdiction applicable to Awards granted to residents therein.

 

2.3                                Award ” means an Option, Restricted Share or Restricted Share Unit award , or other types of awards granted to a Participant pursuant to the Plan.

 

2.4                                Award Agreement ” means any written agreement, contract, or other instrument or document evidencing an Award, including through electronic medium.

 

2.5                                Board ” means the Board of Directors of the Company.

 

2.6                                Cause ” with respect to a Participant means (unless otherwise expressly provided in the applicable Award Agreement, or another applicable contract with the Participant that defines such term for purposes of determining the effect that a “for cause” termination has on the Participant’s Awards) a termination of employment or service based upon a finding by the Service Recipient, acting in good faith and based on its reasonable belief at the time, that the Participant:

 



 

(a)                                  has been negligent in the discharge of his or her duties to the Service Recipient, has refused to perform stated or assigned duties or is incompetent in or (other than by reason of a Disability or analogous condition) incapable of performing those duties;

 

(b)                                  has been dishonest or committed or engaged in an act of theft, embezzlement or fraud, a breach of confidentiality, an unauthorized disclosure or use of inside information, customer lists, trade secrets or other confidential information;

 

(c)                                   has breached a fiduciary duty, or willfully and materially violated any other duty, law, rule, regulation or policy of the Service Recipient; or has been convicted of, or plead guilty or nolo contendere to, a felony or misdemeanor (other than minor traffic violations or similar offenses);

 

(d)                                  has materially breached any of the provisions of any agreement with the Service Recipient;

 

(e)                                   has engaged in unfair competition with, or otherwise acted intentionally in a manner injurious to the reputation, business or assets of, the Service Recipient; or

 

(f)                                    has improperly induced a vendor or customer to break or terminate any contract with the Service Recipient or induced a principal for whom the Service Recipient acts as agent to terminate such agency relationship.

 

A termination for Cause shall be deemed to occur (subject to reinstatement upon a contrary final determination by the Committee) on the date on which the Service Recipient first delivers written notice to the Participant of a finding of termination for Cause.

 

2.7                                Code ” means the Internal Revenue Code of 1986 of the United States, as amended.

 

2.8                                Committee ” means a committee of the Board described in Article 10.

 

2.9                                Consultant ” means any consultant or adviser if: (a) the consultant or adviser renders bona fide services to a Service Recipient; (b) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and (c) the consultant or adviser is a natural person who has contracted directly with the Service Recipient to render such services.

 

2.10                         Corporate Transaction ”, unless otherwise defined in an Award Agreement, means any of the following transactions, provided , however , that the Committee shall determine under (d) and (e) whether multiple transactions are related, and its determination shall be final, binding and conclusive:

 

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(a)                                  an amalgamation, arrangement or consolidation or scheme of arrangement (i) in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the jurisdiction in which the Company is incorporated or (ii) following which the holders of the voting securities of the Company do not continue to hold more than 50% of the combined voting power of the voting securities of the surviving entity;

 

(b)                                  the sale, transfer or other disposition of all or substantially all of the assets of the Company;

 

(c)                                   the complete liquidation or dissolution of the Company;

 

(d)                                  any reverse takeover or series of related transactions culminating in a reverse takeover (including, but not limited to, a tender offer followed by a reverse takeover) in which the Company is the surviving entity but (A) the Company’s equity securities outstanding immediately prior to such takeover are converted or exchanged by virtue of the takeover into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such takeover or the initial transaction culminating in such takeover, but excluding any such transaction or series of related transactions that the Committee determines shall not be a Corporate Transaction; or

 

(e)                                   acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities but excluding any such transaction or series of related transactions that the Committee determines shall not be a Corporate Transaction.

 

2.11                         Director ”, means a member of the Board or a member of the board of directors of any Subsidiary of the Company.

 

2.12                         Disability ”, unless otherwise defined in an Award Agreement, means that the Participant qualifies to receive long-term disability payments under the Service Recipient’s long-term disability insurance program, as it may be amended from time to time, to which the Participant provides services regardless of whether the Participant is covered by such policy. If the Service Recipient to which the Participant provides service does not have a long-term disability plan in place, “Disability” means that a Participant is unable to carry out the responsibilities and functions of the position held by the Participant by reason of any medically determinable physical or mental impairment for a period of not less than ninety (90) consecutive days. A Participant will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Committee in its discretion.

 

2.13                         Effective Date ” shall have the meaning set forth in Section 11.1.

 

2.14                         Employee ” means any person, including an officer or a Director, who is in the employment of a Service Recipient, subject to the control and direction of the Service Recipient as to both the work to be performed and the manner and method of performance. The payment of a director’s fee by a Service Recipient shall not be sufficient to constitute “employment” by the Service Recipient.

 

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2.15                         Exchange Act ” means the Securities Exchange Act of 1934 of the United States, as amended.

 

2.16                         Fair Market Value ” means, as of any date, the value of Shares determined as follows:

 

(a)                                  If the Shares are listed on one or more established stock exchanges or national market systems, including without limitation, the New York Stock Exchange or the Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such shares (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Shares are listed (as determined by the Committee) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported on the website maintained by such exchange or market system or such other source as the Committee deems reliable;

 

(b)                                  If the Shares are regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such Shares as quoted on such system or by such securities dealer on the date of determination, but if selling prices are not reported, the Fair Market Value of a Share shall be the mean between the high bid and low asked prices for the Shares on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable; or

 

(c)                                   In the absence of an established market for the Shares of the type described in (a) and (b) above, the Fair Market Value thereof shall be determined by the Committee in good faith and in its discretion by reference to (i) the placing price of the latest private placement of the Shares and the development of the Company’s business operations and the general economic and market conditions since such latest private placement, (ii) other third party transactions involving the Shares and the development of the Company’s business operation and the general economic and market conditions since such transaction, (iii) an independent valuation of the Shares, or (iv) such other methodologies or information as the Committee determines to be indicative of Fair Market Value.

 

2.17                         Group Entity ” means any of the Company and Subsidiaries of the Company.

 

2.18                         Incentive Share Option ” means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

 

2.19                         Independent Director ” means (i) if the Shares or other securities representing the Shares are not listed on a stock exchange, a Director of the Company who is a Non-Employee Director; and (ii) if the Shares or other securities representing the Shares are listed on one or more stock exchange, a Director of the Company who meets the independence standards under the applicable corporate governance rules of the stock exchange(s).

 

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2.20                         IPO ” means the initial public offering of the Shares of the Company.

 

2.21                         Non-Employee Director ” means a member of the Board who qualifies as a “Non-Employee Director” as defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor definition adopted by the Board.

 

2.22                         Non-Qualified Share Option ” means an Option that is not intended to be an Incentive Share Option.

 

2.23                         Option ” means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of Shares at a specified price during specified time periods.  An Option may be either an Incentive Share Option or a Non-Qualified Share Option.

 

2.24                         Participant ” means a person who, as a Director, Consultant or Employee, has been granted an Award pursuant to the Plan.

 

2.25                         Parent ” means a parent corporation under Section 424(e) of the Code.

 

2.26                         Plan ” means this 2018 Share Incentive Plan of CooTek (Cayman) Inc., as amended and/or restated from time to time.

 

2.27                         Related Entity ” means any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or Subsidiary of the Company holds a substantial ownership interest, directly or indirectly, or controls through contractual arrangements and consolidates the financial results according to applicable accounting standards, but which is not a Subsidiary and which the Board designates as a Related Entity for purposes of the Plan.

 

2.28                         Restricted Share ” means a Share awarded to a Participant pursuant to Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture.

 

2.29                         Restricted Share Unit ” means an Award granted pursuant to Article 7.

 

2.30                         Securities Act ” means the Securities Act of 1933 of the United States, as amended.

 

2.31                         Service Recipient ” means the Company or Subsidiary of the Company to which a Participant provides services as an Employee, a Consultant or a Director.

 

2.32                         Share ” means the ordinary shares of the Company, par value US$0.00001 per share, and such other securities of the Company that may be substituted for Shares pursuant to Article 9.

 

2.33                         Subsidiary ” means any corporation or other entity of which a majority of the outstanding voting shares or voting power is beneficially owned directly or indirectly by the Company.

 

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2.34                         Trading Date ” means the closing of the first sale to the general public of the Shares pursuant to a registration statement filed with and declared effective by the U.S. Securities and Exchange Commission under the Securities Act.

 

ARTICLE 3

 

SHARES SUBJECT TO THE PLAN

 

3.1                                Number of Shares .

 

(a)                                  Subject to the provisions of Article 9 and Section 3.1(b), the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Share Options) (the “ Award Pool ”) shall initially be 2.0% of the total number of Shares issued and outstanding immediately following the completion of the IPO, plus an annual increase on the first day of each of the first five (5) complete fiscal years of the Company after the completion of the IPO and during the term of this Plan commencing with the fiscal year beginning January 1, 2019, by an amount equal to 2.0% of the total number of Shares issued and outstanding on the last day of the immediately preceding fiscal year (excluding issued shares reserved for future option exercise and restricted share unit vesting), and the size of the Award Pool shall be equitably adjusted in the event of any share dividend, subdivision, reclassification, recapitalization, split, reverse split, combination, consolidation or similar transactions.

 

(b)                                  To the extent that an Award terminates, expires, or lapses for any reason, any Shares subject to the Award shall again be available for the grant of an Award pursuant to the Plan.  To the extent permitted by Applicable Laws, Shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form or combination by a Group Entity shall not be counted against Shares available for grant pursuant to the Plan.  Shares delivered by the Participant or withheld by the Company upon the exercise of any Award under the Plan, in payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of Section 3.1(a).  If any Restricted Shares are forfeited by the Participant or repurchased by the Company, such Shares may again be optioned, granted or awarded hereunder, subject to the limitations of Section 3.1(a).  Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Share Option to fail to qualify as an incentive share option under Section 422 of the Code.

 

3.2                                Shares Distributed .  Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares, treasury Shares (subject to Applicable Laws) or Shares purchased on the open market.  Additionally, at the discretion of the Committee, any Shares distributed pursuant to an Award may be represented by American Depository Shares.  If the number of Shares represented by an American Depository Share is other than on a one-to-one basis, the limitations of Section 3.1 shall be adjusted to reflect the distribution of American Depository Shares in lieu of Shares.

 

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ARTICLE 4

 

ELIGIBILITY AND PARTICIPATION

 

4.1                                Eligibility . Persons eligible to participate in this Plan include Employees, Consultants, and Directors, as determined by the Committee.

 

4.2                                Participation .  Subject to the provisions of the Plan, the Committee may, from time to time, select from among all eligible individuals, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No individual shall have any right to be granted an Award pursuant to this Plan.

 

4.3                                Jurisdictions .  In order to assure the viability of Awards granted to Participants employed in various jurisdictions, the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy, or custom applicable in the jurisdiction in which the Participant resides, is employed, operates or is incorporated.  Moreover, the Committee may approve such supplements to, or amendments, restatements, or alternative versions of, the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however , that no such supplements, amendments, restatements, or alternative versions shall increase the share limitations contained in Section 3.1 of the Plan.  Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate any Applicable Laws.

 

ARTICLE 5

 

OPTIONS

 

5.1                                General .  The Committee is authorized to grant Options to Participants on the following terms and conditions:

 

(a)                                  Exercise Price .  The exercise price per Share subject to an Option shall be determined by the Committee and set forth in the Award Agreement which may be a fixed price or a variable price related to the Fair Market Value of the Shares.  The exercise price per Share subject to an Option may be amended or adjusted in the absolute discretion of the Committee, the determination of which shall be final, binding and conclusive.  For the avoidance of doubt, to the extent not prohibited by Applicable Laws or any exchange rule, a downward adjustment of the exercise prices of Options mentioned in the preceding sentence shall be effective without the approval of the Company’s shareholders or the approval of the affected Participants.

 

(b)                                  Time and Conditions of Exercise .  The Committee shall determine the time or times at which an Option may be exercised in whole or in part, including exercise prior to vesting; provided that the term of any Option granted under the Plan shall not exceed ten years, except as provided in Section 12.1.  The Committee shall also determine any conditions, if any, that must be satisfied before all or part of an Option may be exercised.

 

(c)                                   Payment .  The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation (i) cash or check denominated in U.S. Dollars, (ii) to the extent permissible under the Applicable Laws, cash or check in Chinese Renminbi, (iii) cash or check denominated in any other local currency as approved by the Committee, (iv) Shares held for such period of time as may be required by the Committee in order to avoid adverse financial accounting consequences and having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof, (v) after the Trading Date the delivery of a notice that the Participant has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company upon settlement of such sale, (vi) other property acceptable to the Committee with a Fair Market Value equal to the exercise price, or (vii) any combination of the foregoing.  Notwithstanding any other provision of the Plan to the contrary, no Participant who is a member of the Board or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an Option in any method which would violate Section 13(k) of the Exchange Act.

 

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(d)                                  Evidence of Grant .  All Options shall be evidenced by an Award Agreement between the Company and the Participant.  The Award Agreement shall include such additional provisions as may be specified by the Committee.

 

(e)                                   Effects of Termination of Employment or Service on Options .  Termination of employment or service shall have the following effects on Options granted to the Participants:

 

(i)                                      Dismissal for Cause . Unless otherwise provided in the Award Agreement, if a Participant’s employment by or service to the Service Recipient is terminated by the Service Recipient for Cause, the Participant’s Options will terminate upon such termination, whether or not the Option is then vested and/or exercisable;

 

(ii)                                   Death or Disability . Unless otherwise provided in the Award Agreement, if a Participant’s employment by or service to the Service Recipient terminates as a result of the Participant’s death or Disability:

 

(a)                                  the Participant (or his or her legal representative or beneficiary, in the case of the Participant’s Disability or death, respectively), will have until the date that is 12 months after the Participant’s termination of employment to exercise the Participant’s Options (or portion thereof) to the extent that such Options were vested and exercisable on the date of the Participant’s termination of employment on account of death or Disability;

 

(b)                                  the Options, to the extent not vested and exercisable on the date of the Participant’s termination of employment or service, shall terminate upon the Participant’s termination of employment or service on account of death or Disability; and

 

(c)                                   the Options, to the extent exercisable for the 12-month period following the Participant’s termination of employment or service and not exercised during such period, shall terminate at the close of business on the last day of the 12-month period.

 

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(iii)                                Other Terminations of Employment or Service . Unless otherwise provided in the Award Agreement, if a Participant’s employment by or service to the Service Recipient terminates for any reason other than a termination by the Service Recipient for Cause or because of the Participant’s death or Disability:

 

(a)                                  the Participant will have until the date that is 90 days after the Participant’s termination of employment or service to exercise his or her Options (or portion thereof) to the extent that such Options were vested and exercisable on the date of the Participant’s termination of employment or service;

 

(b)                                  the Options, to the extent not vested and exercisable on the date of the Participant’s termination of employment or service, shall terminate upon the Participant’s termination of employment or service; and

 

(c)                                   the Options, to the extent exercisable for the 90-day period following the Participant’s termination of employment or service and not exercised during such period, shall terminate at the close of business on the last day of the 90-day period.

 

5.2                                Incentive Share Options .  Incentive Share Options may be granted to Employees of the Company or a Subsidiary of the Company.  Incentive Share Options may not be granted to employees of a Related Entity or to Independent Directors or Consultants.  The terms of any Incentive Share Options granted pursuant to the Plan, in addition to the requirements of Section 5.1, must comply with the following additional provisions of this Section 5.2:

 

(a)                                  Individual Dollar Limitation .  The aggregate Fair Market Value (determined as of the time the Option is granted) of all Shares with respect to which Incentive Share Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision.  To the extent that Incentive Share Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Share Options.

 

(b)                                  Exercise Price .  The exercise price of an Incentive Share Option shall be equal to the Fair Market Value on the date of grant.  However, the exercise price of any Incentive Share Option granted to any individual who, at the date of grant, owns Shares possessing more than ten percent of the total combined voting power of all classes of shares of the Company or any Parent or Subsidiary of the Company may not be less than 110% of Fair Market Value on the date of grant and such Option may not be exercisable for more than five years from the date of grant.

 

(c)                                   Transfer Restriction .  The Participant shall give the Company prompt notice of any disposition of Shares acquired by exercise of an Incentive Share Option within (i) two years from the date of grant of such Incentive Share Option or (ii) one year after the transfer of such Shares to the Participant.

 

(d)                                  Expiration of Incentive Share Options .  No Award of an Incentive Share Option may be made pursuant to this Plan after the tenth anniversary of the Effective Date.

 

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(e)                                   Right to Exercise .  During a Participant’s lifetime, an Incentive Share Option may be exercised only by the Participant.

 

ARTICLE 6

 

RESTRICTED SHARES

 

6.1                                Grant of Restricted Shares .  The Committee, at any time and from time to time, may grant Restricted Shares to Participants as the Committee, in its sole discretion, shall determine.  The Committee, in its sole discretion, shall determine the number of Restricted Shares to be granted to each Participant.

 

6.2                                Restricted Shares Award Agreement .  Each Award of Restricted Shares shall be evidenced by an Award Agreement that shall specify the period of restriction, the number of Restricted Shares granted, and such other terms and conditions as the Committee, in its sole discretion, shall determine.  Unless the Committee determines otherwise, Restricted Shares shall be held by the Company as escrow agent until the restrictions on such Restricted Shares have lapsed.

 

6.3                                Issuance and Restrictions .  Restricted Shares shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Shares or the right to receive dividends on the Restricted Shares).  These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.

 

6.4                                Forfeiture/Repurchase .  Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Shares that are at that time subject to restrictions shall be forfeited or repurchased in accordance with the Award Agreement; provided, however , the Committee may (a) provide in any Restricted Share Award Agreement that restrictions or forfeiture and repurchase conditions relating to Restricted Shares will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture and repurchase conditions relating to Restricted Shares.

 

6.5                                Certificates for Restricted Shares .  Restricted Shares granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine.  If certificates representing Restricted Shares are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Shares, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.

 

6.6                                Removal of Restrictions .  Except as otherwise provided in this Article 6, Restricted Shares granted under the Plan shall be released from escrow as soon as practicable after the last day of the period of restriction.  The Committee, in its discretion, may accelerate the time at which any restrictions shall lapse or be removed.  After the restrictions have lapsed, the Participant shall be entitled to have any legend or legends under Section 6.5 removed from his or her Share certificate, and the Shares shall be freely transferable by the Participant, subject to applicable legal restrictions.  The Committee (in its discretion) may establish procedures regarding the release of Shares from escrow and the removal of legends, as necessary or appropriate to minimize administrative burdens on the Company.

 

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ARTICLE 7

 

RESTRICTED SHARE UNITS

 

7.1                                Grant of Restricted Share Units .  The Committee, at any time and from time to time, may grant Restricted Share Units to Participants as the Committee, in its sole discretion, shall determine.  The Committee, in its sole discretion, shall determine the number of Restricted Share Units to be granted to each Participant.

 

7.2                                Restricted Share Units Award Agreement .  Each Award of Restricted Share Units shall be evidenced by an Award Agreement that shall specify any vesting conditions, the number of Restricted Share Units granted, and such other terms and conditions as the Committee, in its sole discretion, shall determine.

 

7.3                                Form and Timing of Payment of Restricted Share Units .  At the time of grant, the Committee shall specify the date or dates on which the Restricted Share Units shall become fully vested and nonforfeitable.  Upon vesting, the Committee, in its sole discretion, may pay Restricted Share Units in the form of cash, Shares or a combination thereof.

 

7.4                                Forfeiture/Repurchase .  Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Share Units that are at that time unvested shall be forfeited or repurchased in accordance with the Award Agreement; provided, however , the Committee may (a) provide in any Restricted Share Unit Award Agreement that restrictions or forfeiture and repurchase conditions relating to Restricted Share Units will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture and repurchase conditions relating to Restricted Share Units.

 

ARTICLE 8

 

PROVISIONS APPLICABLE TO AWARDS

 

8.1                                Award Agreement .  Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award which may include the term of an Award, the provisions applicable in the event the Participant’s employment or service terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.

 

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8.2                                No Transferability; Limited Exception to Transfer Restrictions.

 

8.2.1                      Limits on Transfer. Unless otherwise expressly provided in (or pursuant to) this Section 8.2, by applicable law and by the Award Agreement, as the same may be amended:

 

(a)                                  all Awards are non-transferable and will not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge;

 

(b)                                  Awards will be exercised only by the Participant; and

 

(c)                                   amounts payable or shares issuable pursuant to an Award will be delivered only to (or for the account of), and, in the case of Shares, registered in the name of, the Participant.

 

In addition, the shares shall be subject to the restrictions set forth in the applicable Award Agreement.

 

8.2.2                      Further Exceptions to Limits on Transfer . The exercise and transfer restrictions in Section 8.2.1 will not apply to:

 

(a)                                  transfers to the Company or a Subsidiary;

 

(b)                                  transfers by gift to “immediate family” as that term is defined in SEC Rule 16a-1(e) promulgated under the Exchange Act;

 

(c)                                   the designation of a beneficiary to receive benefits if the Participant dies or, if the Participant has died, transfers to or exercises by the Participant’s beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution; or

 

(d)                                  if the Participant has suffered a Disability, permitted transfers or exercises on behalf of the Participant by the Participant’s duly authorized legal representative; or

 

(e)                                   subject to the prior approval of the Committee or an executive officer or director of the Company authorized by the Committee, transfer to one or more natural persons who are the Participant’s family members or entities owned and controlled by the Participant and/or the Participant’s family members, including but not limited to trusts or other entities whose beneficiaries or beneficial owners are the Participant and/or the Participant’s family members, or to such other persons or entities as may be expressly approved by the Committee, pursuant to such conditions and procedures as the Committee or may establish. Any permitted transfer shall be subject to the condition that the Committee receives evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes and on a basis consistent with the Company’s lawful issue of securities.

 

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Notwithstanding anything else in this Section 8.2.2 to the contrary, but subject to compliance with all Applicable Laws, Incentive Share Options, Restricted Shares and Restricted Share Units will be subject to any and all transfer restrictions under the Code applicable to such Awards or necessary to maintain the intended tax consequences of such Awards.  Notwithstanding clause (b) above but subject to compliance with all Applicable Laws, any contemplated transfer by gift to “immediate family” as referenced in clause (b) above is subject to the condition precedent that the transfer be approved by the share plan administrator in order for it to be effective.

 

8.3                                Beneficiaries .  Notwithstanding Section 8.2, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death.  A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee.  If the Participant is married and resides in a community property state, a designation of a person other than the Participant’s spouse as his or her beneficiary with respect to more than 50% of the Participant’s interest in the Award shall not be effective without the prior written consent of the Participant’s spouse.  If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant’s will or the laws of descent and distribution.  Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee.

 

8.4                                Performance Objectives and Other Terms . The Committee, in its discretion, shall set performance objectives or other vesting criteria which, depending on the extent to which they are met, will determine the number or value of the Awards that will be granted or paid out to the Participants.

 

8.5                                Share Certificates .

 

(a)                                  Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing the Shares pursuant to the exercise of any Award, unless and until the Committee has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all Applicable Laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the Shares are listed or traded.  All Share certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with all Applicable Laws, and the rules of any national securities exchange or automated quotation system on which the Shares are listed, quoted, or traded.  The Committee may place legends on any Share certificate to reference restrictions applicable to the Shares.  In addition to the terms and conditions provided herein, the Committee may require that a Participant make such reasonable covenants, agreements, and representations as the Committee, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Committee.

 

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(b)                                  Notwithstanding anything herein to the contrary, unless otherwise determined by the Committee or required by Applicable Laws, the Company shall not deliver to any Participant certificates evidencing Shares issued in connection with any Award and instead such Shares shall be recorded on the books of the Company or, as applicable, its transfer agent or share plan administrator.

 

8.6                                Paperless Administration .  Subject to Applicable Laws, the Committee may make Awards and provide applicable disclosure and procedures for exercise of Awards by an internet website or interactive voice response system for the paperless administration of Awards.

 

8.7                                Foreign Currency .  A Participant may be required to provide evidence that any currency used to pay the exercise price of any Award was acquired and taken out of the jurisdiction in which the Participant resides in accordance with Applicable Laws, including foreign exchange control laws and regulations.  In the event the exercise price for an Award is paid in Chinese Renminbi or other foreign currency, as permitted by the Committee, the amount payable will be determined by conversion from U.S. dollars at the official rate promulgated by the People’s Bank of China for Chinese Renminbi, or for jurisdictions other than the People’s Republic of China, the exchange rate as selected by the Committee on the date of exercise.

 

ARTICLE 9

 

CHANGES IN CAPITAL STRUCTURE

 

9.1                                Adjustments .  In the event of any dividend, share split, combination or exchange of Shares, amalgamation, arrangement or consolidation, spin-off, recapitalization or other distribution (other than normal cash dividends) of Company assets to its shareholders, or any other change affecting the shares of Shares or the share price of a Share, the Committee shall make such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change with respect to (a) the aggregate number and type of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1); (b) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (c) the grant or exercise price per share for any outstanding Awards under the Plan.

 

9.2                                Corporate Transactions .  Except as may otherwise be provided in any Award Agreement or any other written agreement entered into by and between the Company and a Participant, if the Committee anticipates the occurrence, or upon the occurrence, of a Corporate Transaction, the Committee may, in its sole discretion, provide for (i) any and all Awards outstanding hereunder to terminate at a specific time in the future and shall give each Participant the right to exercise the vested portion of such Awards during a period of time as the Committee shall determine, or (ii) the purchase of any Award for an amount of cash equal to the amount that could have been attained upon the exercise of such Award (and, for the avoidance of doubt, if as of such date the Committee determines in good faith that no amount would have been attained upon the exercise of such Award, then such Award may be terminated by the Company without payment), or (iii) the replacement of such Award with other rights or property selected by the Committee in its sole discretion or the assumption of or substitution of such Award by the successor or surviving corporation, or a Parent or Subsidiary thereof, with appropriate adjustments as to the number and kind of Shares and prices, or (iv) payment of such Award in cash based on the value of Shares on the date of the Corporate Transaction plus reasonable interest on the Award through the date as determined by the Committee when such Award would otherwise be vested or have been paid in accordance with its original terms, if necessary to comply with Section 409A of the Code.

 

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9.3                                Outstanding Awards — Other Changes .  In the event of any other change in the capitalization of the Company or corporate change other than those specifically referred to in this Article 9, the Committee may, in its absolute discretion, make such adjustments in the number and class of shares subject to Awards outstanding on the date on which such change occurs and in the per share grant or exercise price of each Award as the Committee may consider appropriate to prevent dilution or enlargement of rights.

 

9.4                                No Other Rights .  Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of Shares of any class, the payment of any dividend, any increase or decrease in the number of shares of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation.  Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, and no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to an Award or the grant or exercise price of any Award.

 

ARTICLE 10

 

ADMINISTRATION

 

10.1                         Committee .  The Plan shall be administered by the Board or a committee of one or more members of the Board (the “ Committee ”) to whom the Board shall delegate the authority to grant or amend Awards to Participants other than any of the Committee members, Independent Directors and executive officers of the Company. Reference to the Committee shall refer to the Board in absence of the Committee. Notwithstanding the foregoing, the full Board, acting by majority of its members in office, shall conduct the general administration of the Plan if required by Applicable Laws, and with respect to Awards granted to the Committee members, Independent Directors and executive officers of the Company and for purposes of such Awards the term “Committee” as used in the Plan shall be deemed to refer to the Board.

 

10.2                         Action by the Committee .  A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present, and acts approved unanimously in writing all members of the Committee in lieu of a meeting, shall be deemed the acts of the Committee.  Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of a Group Entity, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

 

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10.3                         Authority of the Committee .  Subject to any specific designation in the Plan, the Committee has the exclusive power, authority and discretion to:

 

(a)                                  designate Participants to receive Awards;

 

(b)                                  determine the type or types of Awards to be granted to each Participant;

 

(c)                                   determine the number of Awards to be granted and the number of Shares to which an Award will relate;

 

(d)                                  determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, and any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines;

 

(e)                                   determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

 

(f)                                    prescribe the form of each Award Agreement, which need not be identical for each Participant;

 

(g)                                   decide all other matters that must be determined in connection with an Award;

 

(h)                                  establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

 

(i)                                      interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement;

 

(j)                                     amend terms and conditions of Award Agreements; and

 

(k)                                  make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan, including design and adopt from time to time new types of Awards that are in compliance with Applicable Laws.

 

10.4                         Decisions Binding .  The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties.

 

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ARTICLE 11

 

EFFECTIVE AND EXPIRATION DATE

 

11.1                   Effective Date .  This Plan shall become effective as of the date on which the Board adopts the Plan (the “ Effective Date ”). The Plan shall be ratified by the shareholders of the Company by written resolutions or at a meeting duly held in accordance with the applicable provisions of the Company’s Memorandum of Association and Articles of Association.

 

11.2                         Expiration Date .  The Plan will expire on, and no Award may be granted pursuant to the Plan after, the tenth anniversary of the Effective Date.  Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.

 

ARTICLE 12

 

AMENDMENT, MODIFICATION, AND TERMINATION

 

12.1                         Amendment, Modification, a nd Termination .  At any time and from time to time, the Board may terminate, amend or modify the Plan; provided, however , that (a) to the extent necessary and desirable to comply with Applicable Laws or stock exchange rules, the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required, unless the Company decides to follow home country practice, and (b) unless the Company decides to follow home country practice, shareholder approval is required for any amendment to the Plan that (i) increases the number of Shares available under the Plan (other than any adjustment as provided by Article 9), or (ii) permits the Committee to extend the term of the Plan or the exercise period for an Option beyond ten years from the date of grant.

 

12.2                         Awards Previously Granted .  Except with respect to amendments made pursuant to Section 12.1, no termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant.

 

ARTICLE 13

 

GENERAL PROVISIONS

 

13.1                         No Rights to Awards .  No Participant, employee, or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is obligated to treat Participants, employees, and other persons uniformly.

 

13.2                         No Shareholders Rights .  No Award gives the Participant any of the rights of a shareholder of the Company unless and until Shares are in fact issued to such person in connection with such Award.

 

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13.3                         Taxes .  No Shares shall be delivered under the Plan to any Participant until such Participant has made arrangements acceptable to the Committee for the satisfaction of any income and employment tax withholding obligations under Applicable Laws.  The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy all applicable taxes (including the Participant’s payroll tax obligations) required or permitted by Applicable Laws to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan.  The Committee may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold Shares otherwise issuable under an Award (or allow the return of Shares) having a Fair Market Value equal to the sums required to be withheld.  Notwithstanding any other provision of the Plan, the number of Shares which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award after such Shares were acquired by the Participant from the Company) in order to satisfy any income and payroll tax liabilities applicable to the Participant with respect to the issuance, vesting, exercise or payment of the Award shall, unless specifically approved by the Committee, be limited to the number of Shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for the applicable income and payroll tax purposes that are applicable to such supplemental taxable income.

 

13.4                         No Right to Employment or Services .  Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Service Recipient to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employment or services of any Service Recipient.

 

13.5                         Unfunded Status of Awards .  The Plan is intended to be an “unfunded” plan for incentive compensation.  With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the relevant Group Entity.

 

13.6                         Indemnification .  To the extent allowable pursuant to Applicable Laws, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf.  The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Memorandum of Association and Articles of Association, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

 

13.7                         Relationship to Other Benefits .  No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the any Group Entity except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

 

13.8                         Expenses .  The expenses of administering the Plan shall be borne by the Group Entities.

 

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13.9                         Titles and Headings .  The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

 

13.10                  Fractional Shares .  No fractional Shares shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down as appropriate.

 

13.11                  Limitations Applicable to Section 16 Persons .  Notwithstanding anything herein to the contrary, the Plan, and any Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by the Applicable Laws, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

 

13.12                  Government and Other Regulations .  The obligation of the Company to make payment of awards in Shares or otherwise shall be subject to all Applicable Laws, and to such approvals by government agencies as may be required.  The Company shall be under no obligation to register any of the Shares paid pursuant to the Plan under the Securities Act or any other similar law in any applicable jurisdiction.  If the Shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act or other Applicable Laws, the Company may restrict the transfer of such Shares in such manner as it deems advisable to ensure the availability of any such exemption.

 

13.13                  Governing Law .  The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the Cayman Islands.

 

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13.14                  Section 409A .  To the extent that the Committee determines that any Award granted under the Plan is or may become subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code.  To the extent applicable, the Plan and the Award Agreements shall be interpreted in accordance with Section 409A of the Code and the U.S. Department of Treasury regulations and other interpretative guidance issued thereunder, including without limitation any such regulation or other guidance that may be issued after the Effective Date.  Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Committee determines that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Committee may adopt such amendments to the Plan and the applicable Award agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related U.S. Department of Treasury guidance.

 

13.15                  Appendices .  Subject to Section 12.1, the Committee may approve such supplements, amendments or appendices to the Plan as it may consider necessary or appropriate for purposes of compliance with Applicable Laws or otherwise and such supplements, amendments or appendices shall be considered a part of the Plan; provided, however, that no such supplements shall increase the share limitation contained in Section 3.1 of the Plan without the approval of the Board.

 

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Exhibit 10.3

 

INDEMNIFICATION AGREEMENT

 

THIS INDEMNIFICATION AGREEMENT (this “ Agreement ”) is made as of ____________, 2018 by and between CooTek (Cayman) Inc., an exempted company with limited liability incorporated and existing under the laws of the Cayman Islands (the “ Company ”), and                        ([Passport/ID] Number _________________) (the “ Indemnitee ”).

 

WHEREAS, the Indemnitee has agreed to serve as a director or executive officer of the Company and in such capacity will render valuable services to the Company; and

 

WHEREAS, in order to induce and encourage highly experienced and capable persons such as the Indemnitee to render valuable services to the Company, the board of directors of the Company (the “ Board of Directors ”) has determined that this Agreement is not only reasonable and prudent, but necessary to promote and ensure the best interests of the Company and its shareholders;

 

NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, and other good and valuable consideration, including, without limitation, the service of the Indemnitee, the receipt of which hereby is acknowledged, and in order to induce the Indemnitee to render valuable services the Company, the Company and the Indemnitee hereby agree as follows:

 

1.                                       Definitions. As used in this Agreement:

 

(a)                                  Change in Control ” shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar or successor schedule or form) promulgated under the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the “ Act ”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred (irrespective of the applicability of the initial clause of this definition) if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Act, but excluding any trustee or other fiduciary holding securities pursuant to an employee benefit or welfare plan or employee share plan of the Company or any subsidiary or affiliate of the Company, or any entity organized, appointed, established or holding securities of the Company with voting power for or pursuant to the terms of any such plan) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities without the prior approval of at least two-thirds of the Continuing Directors (as defined below) in office immediately prior to such person’s attaining such interest; (ii) the Company is a party to a merger, consolidation, scheme of arrangement, sale of assets or other reorganization, or a proxy contest, as a consequence of which Continuing Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors of the Company (or any successor entity) thereafter; or (iii) during any period of two (2) consecutive years, Continuing Directors cease for any reason to constitute at least a majority of the Board of Directors of the Company.

 



 

(b)                                  Continuing Director ” shall mean an individual (i) who served on the Board of Directors of the Company at the effective date of the Company’s registration statement on Form F-1 relating to the Company’s initial public offering; or (ii) whose election or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the Continuing Directors then in office.

 

(c)                                   Disinterested Director ” with respect to any request by the Indemnitee for indemnification or advancement of expenses hereunder shall mean a director of the Company who neither is nor was a party to the Proceeding (as defined below) in respect of which indemnification or advancement is being sought by the Indemnitee.

 

(d)                                  The term “ Expenses ” shall mean, without limitation, expenses of Proceedings, including attorneys’ fees, disbursements and retainers, accounting and witness fees, expenses related to preparation for service as a witness and to service as a witness, travel and deposition costs, expenses of investigations, judicial or administrative proceedings and appeals, amounts paid in settlement of a Proceeding by or on behalf of the Indemnitee, costs of attachment or similar bonds, any expenses of attempting to establish or establishing a right to indemnification or advancement of expenses, under this Agreement, the Company’s Memorandum of Association and Articles of Association as currently in effect (the “ Articles ”), applicable law or otherwise, and reasonable compensation for time spent by the Indemnitee in connection with the investigation, defense or appeal of a Proceeding or action for indemnification for which the Indemnitee is not otherwise compensated by the Company or any third party. The term “Expenses” shall not include the amount of judgments, fines, interest or penalties, which are actually levied against or sustained by the Indemnitee to the extent sustained after final adjudication.

 

(e)                                   The term “ Independent Legal Counsel ” shall mean any firm of attorneys reasonably selected by the Board of Directors of the Company, so long as such firm has not represented the Company, the Company’s subsidiaries or affiliates, the Indemnitee, any entity controlled by the Indemnitee, or any party adverse to the Company, within the preceding five (5) years. Notwithstanding the foregoing, the term “Independent Legal Counsel” shall not include any person who, under applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee’s right to indemnification or advancement of expenses under this Agreement, the Company’s Articles, applicable law or otherwise.

 

(f)                                    The term “ Proceeding ” shall mean any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, or other proceeding (including, without limitation, an appeal therefrom), formal or informal, whether brought in the name of the Company or otherwise, whether of a civil, criminal, administrative or investigative nature, and whether by, in or involving a court or an administrative, other governmental or private entity or body (including, without limitation, an investigation by the Company or its Board of Directors), by reason of (i) the fact that the Indemnitee is or was a director or officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, whether or not the Indemnitee is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement is to be provided under this Agreement, (ii) any actual or alleged act or omission or neglect or breach of duty, including, without limitation, any actual or alleged error or misstatement or misleading statement, which the Indemnitee commits or suffers while acting in any such capacity, or (iii) the Indemnitee attempting to establish or establishing a right to indemnification or advancement of expenses pursuant to this Agreement, the Company’s Articles, applicable law or otherwise.

 

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(g)                                  The phrase “ serving at the request of the Company as an agent of another enterprise ” or any similar terminology shall mean, unless the context otherwise requires, serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic. The phrase “serving at the request of the Company” shall include, without limitation, any service as a director/an executive officer of the Company which imposes duties on, or involves services by, such director/executive officer with respect to the Company or any of the Company’s subsidiaries, affiliates, employee benefit or welfare plans, such plan’s participants or beneficiaries or any other enterprise, foreign or domestic. In the event that the Indemnitee shall be a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, employee benefit or welfare plan or other enterprise, foreign or domestic, 50% or more of the ordinary shares, combined voting power or total equity interest of which is owned by the Company or any subsidiary or affiliate thereof, then it shall be presumed conclusively that the Indemnitee is so acting at the request of the Company.

 

2.                                       Services by the Indemnitee .  The Indemnitee agrees to serve as a director or officer of the Company under the terms of the Indemnitee’s agreement with the Company for so long as the Indemnitee is duly elected or appointed or until such time as the Indemnitee tenders a resignation in writing or is removed from the Indemnitee’s position; provided, however, that the Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or other obligation imposed by operation of law).

 

3.                                       Proceedings by or in the Right of the Company . The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that the Indemnitee is or was a director or officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, against all Expenses, judgments, fines, interest or penalties, which are actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such a Proceeding, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Company; except that no indemnification under this section shall be made in respect of any claim, issue or matter as to which such person shall have been adjudicated by final judgment by a court of competent jurisdiction to be liable to the Company for willful misconduct in the performance of his/her duty to the Company, unless and only to the extent that the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such amounts which such other court shall deem proper.

 

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4.                                       Proceeding Other Than a Proceeding by or in the Right of the Company . The Company shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to be made a party to or is otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Company) by reason of the fact that the Indemnitee is or was a director or officer of the Company, or is or was serving at the request of the Company as an agent of another enterprise, against all Expenses, judgments, fines, interest or penalties, which are actually and reasonably incurred by the Indemnitee in connection with such a Proceeding, to the fullest extent permitted by applicable law; provided, however, that any settlement of a Proceeding must be approved in advance in writing by the Company (which approval shall not be unreasonably withheld).

 

5.                                       Indemnification for Costs, Charges and Expenses of Witness or Successful Party . Notwithstanding any other provision of this Agreement (except as set forth in subparagraph 9(a) hereof), and without a requirement for determination as required by Paragraph 8 hereof, to the extent that the Indemnitee (a) has prepared to serve or has served as a witness in any Proceeding in any way relating to (i) the Company or any of the Company’s subsidiaries, affiliates, employee benefit or welfare plans or such plan’s participants or beneficiaries or (ii) anything done or not done by the Indemnitee as a director or officer of the Company or in connection with serving at the request of the Company as an agent of another enterprise, or (b) has been successful in defense of any Proceeding or in defense of any claim, issue or matter therein, on the merits or otherwise, including the dismissal of a Proceeding without prejudice or the settlement of a Proceeding without an admission of liability, the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee in connection therewith to the fullest extent permitted by applicable law.

 

6.                                       Partial Indemnification .  If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of the Expenses, judgments, fines, interest or penalties, which are actually and reasonably incurred by the Indemnitee in the investigation, defense, appeal or settlement of any Proceeding, but not, however, for the total amount of the Indemnitee’s Expenses, judgments, fines, interest or penalties, then the Company shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, fines, interest or penalties to which the Indemnitee is entitled.

 

7.                                       Advancement of Expenses .  The Expenses incurred by the Indemnitee in any Proceeding shall be paid promptly by the Company in advance of the final disposition of the Proceeding at the written request of the Indemnitee, to the fullest extent permitted by applicable law; provided, however, that the Indemnitee shall set forth in such request reasonable evidence that such Expenses have been incurred by the Indemnitee in connection with such Proceeding, a statement that such Expenses do not relate to any matter described in subparagraph 9(a) of this Agreement, and an undertaking in writing to repay any advances if it is ultimately determined as provided in subparagraph 8(b) of this Agreement that the Indemnitee is not entitled to indemnification under this Agreement.

 

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8.                                       Indemnification Procedure; Determination of Right to Indemnification .

 

(a)                                  Promptly after receipt by the Indemnitee of notice of the commencement of any Proceeding, the Indemnitee shall, if a claim for indemnification or advancement of Expenses in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof in writing. The failure and delay to so notify the Company will not relieve the Company from any liability which the Company may have to the Indemnitee under this Agreement unless the Company shall have lost significant substantive or procedural rights with respect to the defense of any Proceeding as a result of such omission to so notify.

 

(b)                                  The Indemnitee shall be conclusively presumed to have met the relevant standards of conduct, if any, as defined by applicable law, for indemnification pursuant to this Agreement and shall be absolutely entitled to such indemnification, unless a determination is made that the Indemnitee has not met such standards by (i) the Board of Directors by a majority vote of a quorum thereof consisting of Disinterested Directors, (ii) the shareholders of the Company by majority vote of a quorum thereof consisting of shareholders who are not parties to the Proceeding due to which a claim for indemnification is made under this Agreement, (iii) Independent Legal Counsel as set forth in a written opinion (it being understood that such Independent Legal Counsel shall make such determination only if the quorum of Disinterested Directors referred to in clause (i) of this subparagraph 8(b) is not obtainable or if the Board of Directors of the Company by a majority vote of a quorum thereof consisting of Disinterested Directors so directs), or (iv) a court of competent jurisdiction; provided, however, that if a Change in Control shall have occurred and the Indemnitee so requests in writing, such determination shall be made only by a court of competent jurisdiction.

 

(c)                                   If a claim for indemnification or advancement of Expenses under this Agreement is not paid by the Company within thirty (30) days after receipt by the Company of written notice thereof, the rights provided by this Agreement shall be enforceable by the Indemnitee in any court of competent jurisdiction. Such judicial proceeding shall be made de novo. The burden of proving that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the directors or shareholders of the Company or Independent Legal Counsel to have made a determination prior to the commencement of such action that indemnification or advancement of Expenses is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, if any, nor an actual determination by the directors or shareholders of the Company or Independent Legal Counsel that the Indemnitee has not met the applicable standard of conduct shall be a defense to an action by the Indemnitee or create a presumption for the purpose of such an action that the Indemnitee has not met the applicable standard of conduct. The termination of any Proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself (i) create a presumption that the Indemnitee did not act in good faith and in a manner which he reasonably believed to be in the best interests of the Company and/or its shareholders, and, with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that his conduct was unlawful or (ii) otherwise adversely affect the rights of the Indemnitee to indemnification or advancement of Expenses under this Agreement, except as may be provided herein.

 

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(d)                                  If a court of competent jurisdiction shall determine that the Indemnitee is entitled to any indemnification or advancement of Expenses hereunder, the Company shall pay all Expenses actually and reasonably incurred by the Indemnitee in connection with such adjudication (including, but not limited to, any appellate proceedings).

 

(e)                                   With respect to any Proceeding for which indemnification or advancement of Expenses is requested, the Company will be entitled to participate therein at its own expense and, except as otherwise provided below, to the extent that it may wish, the Company may assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee. After notice from the Company to the Indemnitee of its election to assume the defense of a Proceeding, the Company will not be liable to the Indemnitee under this Agreement for any Expenses subsequently incurred by the Indemnitee in connection with the defense thereof, other than as provided below. The Company shall not settle any Proceeding in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitee’s written consent. The Indemnitee shall have the right to employ his/her own counsel in any Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense of the Proceeding shall be at the expense of the Indemnitee, unless (i) the employment of counsel by the Indemnitee has been authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of a Proceeding, or (iii) the Company shall not in fact have employed counsel to assume the defense of a proceeding, in each of which cases the fees and expenses of the Indemnitee’s counsel shall be advanced by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Indemnitee has reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee.

 

9.                                       Limitations on Indemnification .  No payments pursuant to this Agreement shall be made by the Company:

 

(a)                                  To indemnify or advance funds to the Indemnitee for Expenses with respect to (i) Proceedings initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under applicable law or (ii) Expenses incurred by the Indemnitee in connection with preparing to serve or serving as a witness in cooperation with any party or entity who or which has threatened or commenced any action or proceeding against the Company, or any director, officer, employee, trustee, agent, representative, subsidiary, parent corporation or affiliate of the Company, but such indemnification or advancement of Expenses in each such case may be provided by the Company if the Board of Directors finds it to be appropriate;

 

(b)                                  To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties sustained in any Proceeding for which payment is actually made to the Indemnitee under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance;

 

(c)                                   To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties sustained in any Proceeding for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Act or similar provisions of any foreign or United States federal, state or local statute or regulation;

 

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(d)                                  To indemnify the Indemnitee for any Expenses, judgments, fines, interest or penalties for which the Indemnitee is indemnified by the Company otherwise than pursuant to this Agreement;

 

(e)                                   To indemnify the Indemnitee for any Expenses (including without limitation any Expenses relating to a Proceeding attempting to enforce this Agreement), judgments, fines, interest or penalties on account of the Indemnitee’s conduct if such conduct shall be finally adjudged to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct, including, without limitation, breach of the duty of loyalty; or

 

(f)                                    If a court of competent jurisdiction finally determines that any indemnification hereunder is unlawful. In this respect, the Company and the Indemnitee have been advised that the Securities and Exchange Commission takes the position that indemnification for liabilities arising under securities laws is against public policy and is, therefore, unenforceable;

 

(g)                                  To indemnify the Indemnitee in connection with Indemnitee’s personal tax matter; or

 

(h)                                  To indemnify the Indemnitee with respect to any claim related to any dispute or breach arising under any contract or similar obligation between the Company or any of its subsidiaries or affiliates and such Indemnitee.

 

10.                                Continuation of Indemnification . All agreements and obligations of the Company contained herein shall continue during the period that the Indemnitee is a director or officer of the Company (or is or was serving at the request of the Company as an agent of another enterprise, foreign or domestic) and shall continue thereafter so long as the Indemnitee shall be subject to any possible Proceeding by reason of the fact that the Indemnitee was a director or officer of the Company or serving in any other capacity referred to in this Paragraph 10.

 

11.                                Indemnification Hereunder Not Exclusive .  The indemnification provided by this Agreement shall not be deemed to be exclusive of any other rights to which the Indemnitee may be entitled under the Company’s Articles, any agreement, vote of shareholders or vote of Disinterested Directors, provisions of applicable law, or otherwise, both as to action or omission in the Indemnitee’s official capacity and as to action or omission in another capacity on behalf of the Company while holding such office.

 

12.                                Successors and Assigns .

 

(a)                                  This Agreement shall be binding upon the Indemnitee, and shall inure to the benefit of, the Indemnitee and the Indemnitee’s heirs, executors, administrators and assigns, whether or not the Indemnitee has ceased to be a director or officer, and the Company and its successors and assigns. Upon the sale of all or substantially all of the business, assets or share capital of the Company to, or upon the merger of the Company into or with, any corporation, partnership, joint venture, trust or other person, this Agreement shall inure to the benefit of and be binding upon both the Indemnitee and such purchaser or successor person. Subject to the foregoing, this Agreement may not be assigned by either party without the prior written consent of the other party hereto.

 

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(b)                                  If the Indemnitee is deceased and is entitled to indemnification under any provision of this Agreement, the Company shall indemnify the Indemnitee’s estate and the Indemnitee’s spouse, heirs, executors, administrators and assigns against, and the Company shall, and does hereby agree to assume, any and all Expenses actually and reasonably incurred by or for the Indemnitee or the Indemnitee’s estate, in connection with the investigation, defense, appeal or settlement of any Proceeding. Further, when requested in writing by the spouse of the Indemnitee, and/or the Indemnitee’s heirs, executors, administrators and assigns, the Company shall provide appropriate evidence of the Company’s agreement set out herein to indemnify the Indemnitee against and to itself assume such Expenses.

 

13.                                Subrogation .  In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

 

14.                                Severability .  Each and every paragraph, sentence, term and provision of this Agreement is separate and distinct so that if any paragraph, sentence, term or provision thereof shall be held to be invalid, unlawful or unenforceable for any reason, such invalidity, unlawfulness or unenforceability shall not affect the validity, unlawfulness or enforceability of any other paragraph, sentence, term or provision hereof. To the extent required, any paragraph, sentence, term or provision of this Agreement may be modified by a court of competent jurisdiction to preserve its validity and to provide the Indemnitee with the broadest possible indemnification permitted under applicable law. The Company’s inability, pursuant to a court order or decision, to perform its obligations under this Agreement shall not constitute a breach of this Agreement.

 

15.                                Savings Clause .  If this Agreement or any paragraph, sentence, term or provision hereof is invalidated on any ground by any court of competent jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any Expenses, judgments, fines, interest or penalties, which are incurred with respect to any Proceeding to the fullest extent permitted by any (a) applicable paragraph, sentence, term or provision of this Agreement that has not been invalidated or (b) applicable law.

 

16.                                Interpretation; Governing Law .  This Agreement shall be construed as a whole and in accordance with its fair meaning and any ambiguities shall not be construed for or against either party. Headings are for convenience only and shall not be used in construing meaning. This Agreement shall be governed and interpreted in accordance with the laws of the State of New York.

 

17.                                Amendments .  No amendment, waiver, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by the party against whom enforcement is sought. The indemnification rights afforded to the Indemnitee hereby are contract rights and may not be diminished, eliminated or otherwise affected by amendments to the Company’s Articles, or by other agreements, including directors’ and officers’ liability insurance policies, of the Company.

 

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18.                                Counterparts .  This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to the other.

 

19.                                Notices .  Any notice required to be given under this Agreement shall be directed to the Chief Financial Officer of the Company at 2 nd  Floor, Building 7, No. 2007 Hongmei Road, Xuhui District, Shanghai, People’s Republic of China, and to the Indemnitee at __________________ __________________ _________________ _______________ or to such other address as either shall designate to the other in writing.

 

[The remainder of this page is intentionally left blank.]

 

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IN WITNESS WHEREOF, the parties have executed this Indemnification Agreement as of the date first written above.

 

 

INDEMNITEE

 

 

 

 

 

Name:

 

 

 

 

 

COOTEK (CAYMAN) INC.

 

 

 

 

 

By:

 

 

Name:

Karl Kan Zhang

 

Title:

Chairman of the Board of Directors and Chief Architect

 

[ Signature Page to Indemnification Agreement ]

 




Exhibit 10.4

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (the “ Agreement ”) is entered into as of _________, 20___ by and between CooTek (Cayman) Inc., an exempted company incorporated and existing under the laws of the Cayman Islands (the “ Company ”) and ____________, an individual with _______ [passport/ID number] __________________ (the “ Executive ”).

 

RECITALS

 

WHEREAS, the Company desires to employ the Executive and to assure itself of the services of the Executive during the term of Employment (as defined below) and under the terms and conditions of the Agreement;

 

WHEREAS, the Executive desires to be employed by the Company during the term of Employment and under the terms and conditions of the Agreement;

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the Company and the Executive agree as follows:

 

1.                                       EMPLOYMENT

 

The Company hereby agrees to employ the Executive and the Executive hereby accepts such employment, on the terms and conditions hereinafter set forth (the “ Employment ”).

 

2.                                       TERM

 

Subject to the terms and conditions of the Agreement, the initial term of the Employment shall be ___________years, commencing on _________, 20___ (the “ Effective Date ”) and ending on_________, 20___(the “ Initial Term ”), unless terminated earlier pursuant to the terms of the Agreement. Upon expiration of the Initial Term of the Employment, the Employment shall be automatically extended for successive periods of _______ months each (each, an “ Extension Period ”) unless either party shall have given 60 days advance written notice to the other party, in the manner set forth in Section 19 below, prior to the end of the Extension Period in question, that the term of this Agreement that is in effect at the time such written notice is given is not to be extended or further extended, as the case may be (the period during which this Agreement is effective being referred to hereafter as the “ Term ”).

 

3.                                       POSITION AND DUTIES

 

(a)                                  During the Term, the Executive shall serve as _________________ of the Company or in such other position or positions with a level of duties and responsibilities consistent with the foregoing with the Company and/or its subsidiaries and affiliated entities as the board of directors of the Company (the “ Board ”) may specify from time to time and shall have the duties, responsibilities and obligations customarily assigned to individuals serving in the position or positions in which the Executive serves hereunder and as assigned by the Board, or with the Board’s authorization, by the Company’s Chief Architect.

 



 

(b)                                  The Executive agrees to serve without additional compensation, if elected or appointed thereto, as a director of the Company or any subsidiaries or affiliated entities of the Company (collectively, the “ Group ”) and as a member of any committees of the board of directors of any such entity, provided that the Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is currently provided to any other director of any member of the Group.

 

(c)                                   The Executive agrees to devote all of his/her working time and efforts to the performance of his/her duties for the Company and to faithfully and diligently serve the Company in accordance with the Agreement and the guidelines, policies and procedures of the Company approved from time to time by the Board.

 

4.                                       NO BREACH OF CONTRACT

 

The Executive hereby represents to the Company that: (i) the execution and delivery of the Agreement by the Executive and the performance by the Executive of the Executive’s duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any other agreement or policy to which the Executive is a party or by which the Executive is otherwise bound, except that the Executive does not make any representation with respect to agreements required to be entered into by and between the Executive and any member of the Group pursuant to the applicable law of the jurisdiction in which the Executive is based, if any; (ii) that the Executive is not in possession of any information (including, without limitation, confidential information and trade secrets) the knowledge of which would prevent the Executive from freely entering into the Agreement and carrying out his/her duties hereunder; and (iii) that the Executive is not bound by any confidentiality, trade secret or similar agreement with any person or entity other than any member of the Group.

 

5.                                       LOCATION

 

The Executive will be based in ___________ or any other location as requested by the Company during the Term.

 

6.                                       COMPENSATION AND BENEFITS

 

(a)                                  Cash Compensation .  As compensation for the performance by the Executive of his/her obligations hereunder, during the Term, the Company shall pay the Executive cash compensation (inclusive of the statutory benefit contributions that the Company is required to set aside for the Executive under applicable law) pursuant to Schedule A hereto, subject to annual review and adjustment by the Board or any committee designated by the Board.

 

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(b)                                  Equity Incentives .  During the Term, the Executive shall be eligible to participate, at a level comparable to similarly situated executives of the Company, in such long-term compensation arrangements as may be authorized from time to time by the Board, including any share incentive plan the Company may adopt from time to time in its sole discretion.

 

(c)                                   Benefits .  During the Term, the Executive shall be entitled to participate in all of the employee benefit plans and arrangements made available by the Company to its similarly situated executives, including, but not limited to, any retirement plan, medical insurance plan and travel/holiday policy, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements.

 

7.                                       TERMINATION OF THE AGREEMENT

 

The Employment may be terminated as follows:

 

(a)                                  Death .  The Employment shall terminate upon the Executive’s death.

 

(b)                                  Disability .  The Employment shall terminate if the Executive has a disability, including any physical or mental impairment which, as reasonably determined by the Board, renders the Executive unable to perform the essential functions of his/her position at the Company, even with reasonable accommodation that does not impose an undue burden on the Company, for more than 180 days in any 12-month period, unless a longer period is required by applicable law, in which case that longer period shall apply.

 

(c)                                   Cause .  The Company may terminate the Executive’s employment hereunder for Cause. The occurrence of any of the following, as reasonably determined by the Company, shall be a reason for Cause, provided that, if the Company determines that the circumstances constituting Cause are curable, then such circumstances shall not constitute Cause unless and until the Executive has been  informed by the Company of the existence of Cause and given an opportunity of ten business days to cure, and such Cause remains uncured at the end of such ten-day period:

 

(1)                                  continued failure by the Executive to satisfactorily perform his/her duties;

 

(2)                                  willful misconduct or gross negligence by the Executive in the performance of his/her duties hereunder, including insubordination;

 

(3)                                  the Executive’s conviction or entry of a guilty or nolo contendere plea of any felony or any misdemeanor involving moral turpitude;

 

(4)                                  the Executive’s commission of any act involving dishonesty that results in material financial, reputational or other harm, monetary or otherwise, to any member of the Group, including but not limited to an act constituting misappropriation or embezzlement of the property of any member of the Group as determined in good faith by the Board; or

 

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(5)                                  any material breach by the Executive of this Agreement.

 

(d)                                  Good Reason .  The Executive may terminate his/her employment hereunder for “Good Reason” upon the occurrence, without the written consent of the Executive, of an event constituting a material breach of this Agreement by the Company that has not been fully cured within ten business days after written notice thereof has been given by the Executive to the Company setting forth in sufficient detail the conduct or activities the Executive believes constitute grounds for Good Reason, including but not limited to: the failure by the Company to pay to the Executive any portion of the Executive’s current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within twenty business days of the date such compensation is due.

 

(e)                                   Without Cause by the Company; Without Good Reason by the Executive .  The Company may terminate the Executive’s employment hereunder at any time without Cause upon 60-day prior written notice to the Executive. The Executive may terminate the Executive’s employment voluntarily for any reason or no reason at any time by giving 60-day prior written notice to the Company.

 

(f)                                    Notice of Termination .  Any termination of the Executive’s employment under the Agreement shall be communicated by written notice of termination (“ Notice of Termination ”) from the terminating party to the other party. The notice of termination shall indicate the specific provision(s) of the Agreement relied upon in effecting the termination.

 

(g)                                   Date of Termination .  The “ Date of Termination ” shall mean (i) the date specified in the Notice of Termination, or (ii) if the Executive’s employment is terminated by the Executive’s death, the date of his/her death.

 

(h)                                  Compensation upon Termination .

 

(1)                                  Death .  If the Executive’s employment is terminated by reason of the Executive’s death, the Company shall have no further obligations to the Executive under this Agreement and the Executive’s benefits shall be determined under the Company’s retirement, insurance and other benefit and compensation plans or programs then in effect in accordance with the terms of such plans and programs.

 

(2)                                  By Company without Cause or by the Executive for Good Reason .  If the Executive’s employment is terminated by the Company other than for Cause or by the Executive for Good Reason, the Company shall (i) continue to pay and otherwise provide to the Executive, during any notice period, all compensation, base salary and previously earned but unpaid incentive compensation, if any, and shall continue to allow the Executive to participate in any benefit plans in accordance with the terms of such plans during such notice period; and (ii) pay to the Executive, in lieu of benefits under any severance plan or policy of the Company, any such amount as may be agreed between the Company and the Executive.

 

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(3)                                  By Company for Cause or by the Executive other than for Good Reason .  If the Executive’s employment shall be terminated by the Company for Cause or by the Executive other than for Good Reason, the Company shall pay the Executive his/her base salary at the rate in effect at the time Notice of Termination is given through the Date of Termination, and the Company shall have no additional obligations to the Executive under this Agreement.

 

(i)                                      Return of Company Property .  The Executive agrees that following the termination of the Executive’s employment for any reason, or at any time prior to the Executive’s termination upon the request of the Company, he/she shall return all property of the Group that is then in or thereafter comes into his/her possession, including, but not limited to, any Confidential Information (as defined below) or Intellectual Property (as defined below), or any other documents, contracts, agreements, plans, photographs, projections, books, notes, records, electronically stored data and all copies, excerpts or summaries of the foregoing, as well as any automobile or other materials or equipment supplied by the Group to the Executive, if any.

 

(j)                                     Requirement for a Release .  Notwithstanding the foregoing, the Company’s obligations to pay or provide any benefits shall (1) cease as of the date the Executive breaches any of the provisions of Sections 8, 9 and 11 hereof, and (2) be conditioned on the Executive signing the Company’s customary release of claims in favor of the Group and the expiration of any revocation period provided for in such release.

 

8.                                       CONFIDENTIALITY AND NONDISCLOSURE

 

(a)                                  Confidentiality and Non-Disclosure .

 

(1)                                  The Executive acknowledges and agrees that: (A) the Executive holds a position of trust and confidence with the Company and that his/her employment by the Company will require that the Executive have access to and knowledge of valuable and sensitive information, material, and devices relating to the Company and/or its business, activities, products, services, customers and vendors, including, but not limited to, the following, regardless of the form in which the same is accessed, maintained or stored: the identity of the Company’s actual and prospective customers and, as applicable, their representatives; prior, current or future research or development activities of the Company; the products and services provided or offered by the Company to customers or potential customers and the manner in which such services are performed or to be performed; the product and/or service needs of actual or prospective customers; pricing and cost information; information concerning the development, engineering, design, specifications, acquisition or disposition of products and/or services of the Company; user base personal data, programs, software and source codes, licensing information, personnel information, advertising client information, vendor information, marketing plans and techniques, forecasts, and other trade secrets (“ Confidential Information ”); and (B) the direct and indirect disclosure of any such Confidential Information would place the Company at a competitive disadvantage and would do damage, monetary or otherwise, to the Company’s business.

 

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(2)                                  During the Term and at all times thereafter, the Executive shall not, directly or indirectly, whether individually, as a director, stockholder, owner, partner, employee, consultant, principal or agent of any business, or in any other capacity, publish or make known, disclose, furnish, reproduce, make available, or utilize any of the Confidential Information without the prior express written approval of the Company, other than in the proper performance of the duties contemplated herein, unless and until such Confidential Information is or shall become general public knowledge through no fault of the Executive.

 

(3)                                  In the event that the Executive is required by law to disclose any Confidential Information, the Executive agrees to give the Company prompt advance written notice thereof and to provide the Company with reasonable assistance in obtaining an order to protect the Confidential Information from public disclosure.

 

(4)                                  The failure to mark any Confidential Information as confidential shall not affect its status as Confidential Information under this Agreement.

 

(b)                                  Third Party Information in the Executive’s Possession .  The Executive agrees that he/she shall not, during the Term, (i) improperly use or disclose any proprietary information or trade secrets of any former employer or other person or entity with which the Executive has an agreement or duty to keep in confidence information acquired by Executive, if any, or (ii) bring into the premises of Company any document or confidential or proprietary information belonging to such former employer, person or entity unless consented to in writing by such former employer, person or entity. The Executive will indemnify the Company and hold it harmless from and against all claims, liabilities, damages and expenses, including reasonable attorneys’ fees and costs of litigation, arising out of or in connection with any violation of the foregoing.

 

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(c)                                   Third Party Information in the Company’s Possession .  The Executive recognizes that the Company may have received, and in the future may receive, from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. The Executive agrees that the Executive owes the Company and such third parties, during the Term and thereafter, a duty to hold all such confidential or proprietary information in strict confidence and not to disclose such information to any person or firm, or otherwise use such information, in a manner inconsistent with the limited purposes permitted by the Company’s agreement with such third party.

 

This Section 8 shall survive the termination of the Agreement for any reason. In the event the Executive  breaches this Section 8, the Company shall have right to seek remedies permissible under applicable law.

 

9.                                       INTELLECTUAL PROPERTY

 

(a)                                  Prior Inventions .  The Executive has attached hereto, as Schedule B , a list describing all inventions, ideas, improvements, designs and discoveries, whether or not patentable and whether or not reduced to practice, original works of authorship and trade secrets made or conceived by or belonging to the Executive (whether made solely by the Executive or jointly with others) that (i) were developed by Executive prior to the Executive’s employment by the Company (collectively, “ Prior Inventions ”), (ii) relate to the Company’ actual or proposed business, products or research and development, and (iii) are not assigned to the Company hereunder; or, if no such list is attached, the Executive represents that there are no such Prior Inventions. Except to the extent set forth in Schedule B , the Executive hereby acknowledges that, if in the course of his/her service for the Company, the Executive incorporates into a Company product, process or machine a Prior Invention owned by the Executive or in which he/she has an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide right and license (which may be freely transferred by the Company to any other person or entity) to make, have made, modify, use, sell, sublicense and otherwise distribute such Prior Invention as part of or in connection with such product, process or machine.

 

(b)                                  Assignment of Intellectual Property .  The Executive hereby assigns to the Company or its designees, without further consideration and free and clear of any lien or encumbrance, the Executive’s entire right, title and interest (within the United States and all foreign jurisdictions) to any and all inventions, discoveries, improvements, developments, works of authorship, concepts, ideas, plans, specifications, software, formulas, databases, designees, processes and contributions to Confidential Information created, conceived, developed or reduced to practice by the Executive (alone or with others) during the Term which (i) are related to the Company’s current or anticipated business, activities, products, or services, (ii) result from any work performed by Executive for the Company, or (iii) are created, conceived, developed or reduced to practice with the use of Company property, including any and all Intellectual Property Rights (as defined below) therein (“ Work Product ”). Any Work Product which falls within the definition of “work made for hire”, as such term is defined in the U.S. Copyright Act, shall be considered a “work made for hire”, the copyright in which vests initially and exclusively in the Company. The Executive waives any rights to be attributed as the author of any Work Product and any “droit morale” (moral rights) in Work Product. The Executive agrees to immediately disclose to the Company all Work Product. For purposes of this Agreement, “ Intellectual Property ” shall mean any patent, copyright, trademark or service mark, trade secret, or any other proprietary rights protection legally available.

 

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(c)                                   Patent and Copyright Registration .  The Executive agrees to execute and deliver any instruments or documents and to do all other things reasonably requested by the Company in order to more fully vest the Company with all ownership rights in the Work Product. If any Work Product is deemed by the Company to be patentable or otherwise registrable, the Executive shall assist the Company (at the Company’s expense) in obtaining letters of patent or other applicable registration therein and shall execute all documents and do all things, including testifying (at the Company’s expense) as necessary or appropriate to apply for, prosecute, obtain, or enforce any Intellectual Property right relating to any Work Product. Should the Company be unable to secure the Executive’s signature on any document deemed necessary to accomplish the foregoing, whether due to the Executive’s disability or other reason, the Executive hereby irrevocably designates and appoints the Company and each of its duly authorized officers and agents as the Executive’s agent and attorney-in-fact to act for and on the Executive’s behalf and stead to take any of the actions required of Executive under the previous sentence, with the same effect as if executed and delivered by the Executive, such appointment being coupled with an interest.

 

This Section 9 shall survive the termination of the Agreement for any reason. In the event the Executive breaches this Section 9, the Company shall have right to seek remedies permissible under applicable law.

 

10.                                CONFLICTING EMPLOYMENT.

 

The Executive hereby agrees that, during the Term, he/she will not engage in any other employment, occupation, consulting or other business activity related to the business in which the Company is now involved or becomes involved during the Term, nor will the Executive engage in any other activities that conflict with his/her obligations to the Company without the prior written consent of the Company.

 

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11.                                NON-COMPETITION AND NON-SOLICITATION

 

(a)                                  Non-Competition .  In consideration of the compensation provided to the Executive by the Company hereunder, the adequacy of which is hereby acknowledged by the parties hereto, the Executive agree that during the Term and for a period of one year following the termination of the Employment for whatever reason, the Executive shall not engage in Competition (as defined below) with the Group. For purposes of this Agreement, “Competition” by the Executive shall mean the Executive’s engaging in, or otherwise directly or indirectly being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting the Executive’s name to be used in connection with the activities of, any other business or organization which competes, directly or indirectly, with the Group in the Business; provided , however , it shall not be a violation of this Section 11(a) for the Executive to become the registered or beneficial owner of up to five percent (5%) of any class of the capital stock of a publicly traded corporation in Competition with the Group, provided that the Executive does not otherwise participate in the business of such corporation.

 

For purposes of this Agreement, “ Business ” means operation of mobile applications and mobile advertising services, and any other business which the Group engages in, or is preparing to become engaged in, during the Term.

 

(b)                                  Non-Solicitation; Non-Interference .  During the Term and for a period of one year following the termination of the Executive’s employment for any reason, the Executive agrees that he/she will not, directly or indirectly, for the Executive’s benefit or for the benefit of any other person or entity, do any of the following:

 

(1)                                  approach the suppliers, clients, direct or end customers or contacts or other persons or entities introduced to the Executive in his/her capacity as a representative of the Group for the purpose of doing business of the same or of a similar nature to the Business or doing business that will harm the business relationships of the Group with the foregoing persons or entities;

 

(2)                                  assume employment with or provide services to any competitors of the Group, or engage, whether as principal, partner, licensor or otherwise, any of the Group’s competitors, without the Group’s express consent; or

 

(3)                                  seek, directly or indirectly, to solicit the services of, or hire or engage, any person who is known to be employed or engaged by the Group; or

 

(4)                                  otherwise interfere with the business or accounts of the Group.

 

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(c)                                   Injunctive Relief; Indemnity of Company .  The Executive agrees that any breach or threatened breach of subsections (a) and (b) of this Section 11 would result in irreparable injury and damage to the Company for which an award of money to the Company would not be an adequate remedy. The Executive therefore also agrees that in the event of said breach or any reasonable threat of breach, the Company shall be entitled to seek an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including, but not limited to, remedies available under this Agreement and the recovery of damages. The Executive and the Company further agree that the provisions of this Section 11 are reasonable. The Executive agrees to indemnify and hold harmless the Company from and against all reasonable expenses (including reasonable fees and disbursements of counsel) which may be incurred by the Company in connection with, or arising out of, any violation of this Agreement by the Executive. This Section 11 shall survive the termination of the Agreement for any reason.

 

12.                                WITHHOLDING TAXES

 

Notwithstanding anything else herein to the contrary, the Company may withhold (or cause there to be withheld, as the case may be) from any amounts otherwise due or payable under or pursuant to the Agreement such national, state, provincial, local or any other income, employment, or other taxes as may be required to be withheld pursuant to any applicable law or regulation.

 

13.                                ASSIGNMENT

 

The Agreement is personal in its nature and neither of the parties hereto shall, without the consent of the other, assign or transfer the Agreement or any rights or obligations hereunder; provided, however, that the Company may assign or transfer the Agreement or any rights or obligations hereunder to any member of the Group without such consent. If the Executive should die while any amounts would still be payable to the Executive hereunder if the Executive had continued to live, all such amounts unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate. The Company will require any and all successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Company had terminated the Executive’s employment other than for Cause, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Section, “ Company ” shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

 

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14.                                SEVERABILITY

 

If any provision of the Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of the Agreement are declared to be severable.

 

15.                                ENTIRE AGREEMENT

 

The Agreement constitutes the entire agreement and understanding between the Executive and the Company regarding the terms of the Employment and supersedes all prior or contemporaneous oral or written agreements concerning such subject matter. The Executive acknowledges that he/she has not entered into the Agreement in reliance upon any representation, warranty or undertaking which is not set forth in the Agreement.

 

16.                                GOVERNING LAW

 

The Agreement shall be governed by and construed in accordance with the law of the State of New York.

 

17.                                AMENDMENT

 

The Agreement may not be amended, modified or changed (in whole or in part), except by a formal, definitive written agreement expressly referring to the Agreement, which agreement is executed by both of the parties hereto.

 

18.                                WAIVER

 

Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under the Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

 

19.                                NOTICES

 

All notices, requests, demands and other communications required or permitted under the Agreement shall be in writing and shall be deemed to have been duly given and made if (i) delivered by hand, (ii) otherwise delivered against receipt therefor, (iii) sent by a recognized courier with next-day or second-day delivery to the last known address of the other party; or (iv) sent by e-mail with confirmation of receipt.

 

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20.                                COUNTERPARTS

 

The Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which together shall constitute one and the same instrument. The Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose.

 

21.                                NO INTERPRETATION AGAINST DRAFTER

 

Each party recognizes that the Agreement is a legally binding contract and acknowledges that such party has had the opportunity to consult with legal counsel of choice. In any construction of the terms of the Agreement, the same shall not be construed against either party on the basis of that party being the drafter of such terms.

 

[ Remainder of the page intentionally left blank. ]

 

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IN WITNESS WHEREOF, the Agreement has been executed as of the date first written above.

 

COMPANY:

CooTek (Cayman) Inc.

 

a Cayman Islands exempted company

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

EXECUTIVE:

 

 

 

 

 

 

Name:

 

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SCHEDULE A

 

Cash Compensation

 

14



 

SCHEDULE B

 

Prior Inventions

 

15




Exhibit 10.5

 

Exclusive Business Cooperation Agreement

 

Exclusive Business Cooperation Agreement

 

This Exclusive Business Cooperation Agreement (“ this Agreement ”) is made and entered into by and between the following Parties on August 6, 2012 in Shanghai, the People’s Republic of China (“ China ” or “ PRC ”):

 

Party A:                                                 Shanghai Chu Le Information Technology Co., Ltd.

Address:

 

Party B:                                                 Shanghai Chu Bao Information Technology Co., Ltd.

Address:

 

Each of Party A and Party B shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.

 

Whereas,

 

1 .               Party A is a wholly-foreign-owned enterprise established in China, and has the necessary resources to provide technical and consulting services set forth hereunder;

 

2.               Party B is a domestic limited liability company established in China, and is entitled to engage in or propose engaging in information technology, computer, computer network engineering related technology development, technology consultation, technology service, technology assignment, business information consultation (excluding brokerage), sales of computer software and hardware (excluding specialized products for the security of computer information system), electronic products and telecommunication equipment (“ Principal Business ”);

 

Strictly Confidential

 

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3.               Party A is willing to provide Party B with exclusive technical, consulting and other services in relation to the Principal Business during the term of this Agreement utilizing its own advantages in human resources, technology and information, and Party B is willing to accept such services provided by Party A or Party A’s designee(s), each on the terms set forth herein.

 

Now, therefore, through mutual discussion, the Parties have reached the following agreements:

 

1                                          Services Provided by Party A

 

1.1                                Party B hereby appoints Party A as Party B’s exclusive services provider to provide Party B with complete business support and technical and consulting services during the term of this Agreement, in accordance with the terms and conditions of this Agreement and to the extent permitted by the currently effective laws of China, which may include all services within the business scope of Party B as may be determined from time to time by Party A, such as but not limited to technology services and technology consulting.

 

1.2                                Party B agrees to accept all the consultations and services provided by Party A. Party B further agrees that unless with Party A’s prior written consent, during the term of this Agreement, Party B shall not accept any similar consultations and/or services provided by any third party and shall not establish similar corporation relationship with any third party regarding the matters contemplated by this Agreement. Party A may appoint other parties, who may enter into certain agreements described in Section 1.3 with Party B, to provide Party B with the consultations and/or services under this Agreement.

 

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1.3                                Service Providing Methodology

 

1.3.1                      Party A and Party B agree that during the term of this Agreement, Party B may enter into further technical service agreements or consulting service agreements with Party A or any other party designated by Party A, which shall provide the specific contents, manner, personnel, and fees for the specific technical services and consulting services.

 

1.3.2                      To fulfill this Agreement, Party A and Party B agree that during the term of this Agreement, Party B may enter into equipment or property leases with Party A or any other party designated by Party A which shall permit Party B to use Party A’s relevant equipment or property based on the needs of the business of Party B.

 

2                                          The Calculation and Payment of the Service Fees

 

Both Parties agree that, in consideration of the services provided by Party A, Party B shall pay to Party A the fees (the “Service Fees”) equal to 100% of the net profit of Party B before Party B pays the Service Fees, provided that upon mutual discussion between the Parties and the prior written consent by Party A, the rate of Service Fees may be adjusted based on the services rendered by Party A in that month and the operational needs of Party B. The Service Fees shall be due and payable on a monthly basis; within thirty (30) days after the end of each month, Party B shall (a) deliver to Party A the management accounts and operating statistics of Party B for such month, including the net profit of Party B during such month (the “Monthly Net Profit”), and (b) pay 100% of such Monthly Net Profit, or other amount agreed by Party A, to Party A (each such payment, a “Monthly Payment”). Within ninety (90) days after the end of each fiscal year, Party B shall (a) deliver to Party A audited financial statements of Party B for such fiscal year, which shall be audited and certified by an independent certified public accountant approved by Party A, and (b) pay an amount to Party A equal to the shortfall, if any, of the net profit of Party B for such fiscal year, as shown in such audited financial statements, as compared to the aggregate amount of the Monthly Payments paid by Party B to Party A in such fiscal year.

 

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3                                          Intellectual Property Rights and Confidentiality Clauses

 

3.1                                Party A shall have exclusive and proprietary rights and interests in all rights, ownership, interests and intellectual properties arising out of or created during the performance of this Agreement, including but not limited to copyrights, patents, patent applications, software, technical secrets, trade secrets and others.

 

3.2                                Party B hereby assigns to Party A or any third party designated by Party A in writing any and all Intellectual Property Rights held by Party B or obtained by Party B during the term of this Agreement. To the extent any of the rights, titles or interests in and to any Intellectual Property Rights of Party B cannot be assigned by Party B to Party A under applicable laws and regulations, Party B hereby grants to Party A and/or any third party designated by Party A in writing an exclusive, royalty-free, transferable, irrevocable, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to practice such non-assignable rights, titles and interests. To the extent any of the rights, titles and interests in and to the Intellectual Property Rights of Party B can be neither assigned nor licensed by Party B to Party A under applicable laws and regulations, Party B hereby irrevocably waives and agrees never to assert such non-assignable and non-licensable rights, titles and interests against Party A or any of Party A’s successors.

 

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3.3                                Party B shall assign to Party A or any third party designated by Party A in writing any rights, titles and interests in and to any Intellectual Property Rights of Party B when such rights, titles and interests can be assigned to Party A or any third party designated by Party A in writing in accordance with applicable laws and regulations or when this Agreement expires or is terminated, whichever is earlier.

 

3.4                                Party B shall execute all appropriate documents, take all appropriate actions, submit all filings and/or applications, render all appropriate assistance and otherwise conduct whatever is necessary as deemed by Party A in its sole discretion for the purposes of securing, protecting and/or perfecting the rights, titles and interests of Party A in accordance with Sections 3.1, 3.2 and 3.3.

 

3.5                                The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

5



 

3.6                                The Parties agree that this Section shall survive changes to, and rescission or termination of, this Agreement.

 

4                                          Representations and Warranties

 

4.1                                Party A hereby represents and warrants as follows:

 

4.1.1                      Party A is a wholly foreign owned enterprise legally registered and validly existing in accordance with the laws of China.

 

4.1.2                      Party A’s execution and performance of this Agreement is within its corporate capacity and the scope of its business operations; Party A has taken necessary corporate actions and given appropriate authorization and has obtained the consent and approval from third parties and government agencies, and will not violate any restrictions in law or otherwise binding or having an impact on Party A.

 

4.1.3                      This Agreement constitutes Party A’s legal, valid and binding obligations, enforceable in accordance with its terms.

 

6



 

4.2                                Party B hereby represents and warrants as follows:

 

4.2.1                      Party B is a domestic limited liability company legally registered and validly existing in accordance with the laws of China.

 

4.2.2                      Party B’s execution and performance of this Agreement is within its corporate capacity and the scope of its business operations; Party B has taken necessary corporate actions and given appropriate authorization and has obtained the consent and approval from third parties and government agencies, and will not violate any restrictions in law or otherwise binding or having an impact on Party B.

 

4.2.3                      This Agreement constitutes Party B’s legal, valid and binding obligations, and shall be enforceable against it.

 

5                                          Effectiveness and Term

 

This Agreement is executed on the date first above written and shall take effect as of such date. This Agreement shall maintain effective unless terminated in accordance with Article 6.1 or was compelled to terminate under applicable PRC laws and regulations.

 

6                                          Termination

 

6.1                                During the term of this Agreement, unless Party A commits gross negligence, or a fraudulent act, against Party B, Party B shall not terminate this Agreement prior to its expiration date. Nevertheless, Party A shall have the right to terminate this Agreement upon giving 30 days’ prior written notice to Party B at any time.

 

7



 

6.2                                The rights and obligations of the Parties under Section 3, 7 and 8 shall survive the termination of this Agreement.

 

7                                          Governing Law and Resolution of Disputes

 

7.1                                The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of China.

 

7.2                                In the event of any dispute with respect to the construction and performance of the provisions of this Agreement, the Parties shall negotiate in good faith to resolve the dispute. In the event the Parties fail to reach an agreement on the resolution of such a dispute within 30 days after any Party’s request for resolution of the dispute through negotiations, any Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then-effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on both Parties.

 

7.3                                Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement.

 

8



 

8                                          Indemnification

 

Party B shall indemnify and hold Party A harmless from any losses, injuries, obligations or expenses caused by any lawsuit, claims or other demands against Party A arising from or caused by the consultations and services provided by Party A to Party B pursuant this Agreement, except where such losses, injuries, obligations or expenses arise from the gross negligence or willful misconduct of Party A.

 

9                                          Notices

 

9.1                                All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

9.1.1                      Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices.

 

9.1.2                      Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

9.2                                For the purpose of notices, the addresses of the Parties are as follows:

 

Party A:                            Shanghai Chu Le Information Technology Co., Ltd.

Address:

Attn:                                             Zhang Kan

Phone:

Facsimile:

 

9



 

Party B:                            Shanghai Chu Bao Information Technology Co., Ltd.

Address:

Attn:                                             Zhang Kan

Phone:

Facsimile:

 

9.3                                Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof.

 

10                                   Assignment

 

10.1                         Without Party A’s prior written consent, Party B shall not assign its rights and obligations under this Agreement to any third party.

 

10.2                         Party B agrees that Party A may assign its obligations and rights under this Agreement to any third party upon a prior written notice to Party B but without the consent of Party B.

 

11                                   Severability

 

In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any aspect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

10



 

12                                   Amendments and Supplements

 

Any amendments and supplements to this Agreement shall be in writing. The amendment agreements and supplementary agreements that have been signed by the Parties and that related to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.

 

13                                   Language and Counterparts

 

This Agreement is written in both Chinese and English language in two copies, each Party having one copy with equal legal validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

[The Remainder of this page is intentionally left blank]

 

11



 

IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Exclusive Business Cooperation Agreement as of the date first above written.

 

 

Party A:                    Shanghai Chu Le Information Technology Co., Ltd.

 

 

 

By:

/s/ Zhang Kan

Name:

Zhang Kan

Title:

Legal Representative

 

 

Party B:           Shanghai Chu Bao Information Technology Co., Ltd.

 

 

 

By:

/s/ Zhang Kan

Name:

Zhang Kan

Title:

Legal Representative

 

12




Exhibit 10.6

 

Amended and Restated Exclusive Purchase Option Agreement

 

Amended and Restated Exclusive Purchase Option Agreement

 

This Amended and Restated Exclusive Purchase Option Agreement (“ this Agreement ”) is executed by and among the Parties below as of October 30, 2012, in Shanghai, the People’s Republic of China (“ China ”):

 

Party A:                         Shanghai Chu Le Information Technology Co., Ltd. , a wholly foreign owned enterprise duly registered in China, with its address at ***;

 

Party B:                         Zhang Kan , a citizen of the China with Chinese identification No.: ***; and

 

Party C:                         Shanghai Chu Bao Information Technology Co., Ltd. , a limited liability company organized and existing under the laws of China, with its address at ***.

 

In this Agreement, each of Party A, Party B and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the “Parties”.

 

Whereas:

 

1.                       Party B is a shareholder of Party C and holds 25% of the equity interest in Party C;

 

2.                       Party A and Party B entered into a Loan Agreement on August 6, 2012 (the “ Loan Agreement ”);

 

3.                       Party A and Party B entered into an Exclusive Purchase Option Agreement on August 6, 2012 (the “ Prior Option Agreement ”), pursuant to which Party B agrees to grant Party A an exclusive right through this Contract, and Party A agrees to accept such exclusive right to purchase all or part equity interest held by Party B in Party C.

 

Strictly Confidential

 

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4.                       The Parties desire to amend, restate, supersede and replace in its entirety the Prior Option Agreement.

 

Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:

 

1.                       Sale and Purchase of Equity Interest

 

1.1                        Option Granted

 

In consideration of the payment of RMB10.00 by Party A, the receipt and adequacy of which is hereby acknowledged by Party B, Party B hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a “ Designee ”) to purchase the equity interests in Party C now or then held by Party B (regardless whether Party B’s capital contribution and/or percentage of shareholding is changed or not in the future) once or at multiple times at any time in part or in whole at Party A’s sole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the “ Equity Interest Purchase Option ”). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to Party A. The term “person” as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or any other type of economic entity.

 

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1.2                        Steps for Exercise of Equity Interest Purchase Option

 

Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written notice to Party B (the “ Equity Interest Purchase Option Notice ”), specifying: (a) Party A’s decision to exercise the Equity Interest Purchase Option; (b) the portion of equity interests to be purchased from Party B (the “ Optioned Interests ”); and (c) the date for purchasing the Optioned Interests.

 

1.3                        Equity Interest Purchase Price

 

The purchase price of the Optioned Interests (the “ Base Price ”) shall be RMB250,000. If appraisal is required by the laws of China at the time when Party A exercises the Equity Interest Purchase Option, the Parties shall negotiate in good faith and based on the appraisal result make necessary adjustment to the Equity Interest Purchase Price so that it complies with any and all then applicable laws of China (collectively, the “ Equity Interest Purchase Price ”).

 

1.4                        Transfer of Optioned Interests

 

For each exercise of the Equity Interest Purchase Option by Party A:

 

1.4.1                             Party B shall cause Party C to promptly convene a shareholders meeting, at which a resolution shall be adopted approving Party B’s transfer of the Optioned Interests to Party A and/or the Designee(s);

 

1.4.2                             Party B shall obtain written statements from the other shareholders of Party C giving consent to the transfer of the equity interest to Party A and/or the Designee(s) and waiving any right of first refusal related thereto;

 

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1.4.3                      Party B shall execute a share transfer contract with respect to each transfer with Party A and/or each Designee (whichever is applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned Interests;

 

1.4.4                      The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s), unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned Interests. For the purpose of this Section and this Agreement, “security interests” shall include securities, mortgages, third party’s rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements, but shall be deemed to exclude any security interest created by this Agreement and Party B’s Equity Pledge Agreement. “Party B’s Equity Pledge Agreement” as used in this Section and this Agreement shall refer to the Amended and Restated Equity Pledge Agreement (including any amendment from time to time, if any) executed by and among Party A, Party B and Party C on the date of this Agreement.

 

1.5                        Payment of the Equity Interest Purchase Price

 

The Parties have agreed in the Loan Agreement that any proceeds obtained by Party B through the transfer of its equity interests in Party C shall be used for repayment of the loan provided by Party A in accordance with the Loan Agreement. Accordingly, upon exercise of the Equity Interest Purchase Option, Party A may elect to make payment of the Equity Interest Purchase Price through cancellation of the outstanding amount of the loan owed by Party B to Party A, in which case Party A shall not be required to pay any additional Equity Interest Purchase Price to Party B.

 

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2.                       Covenants

 

2.1                        Covenants regarding Party C

 

Party B (as a shareholder of Party C) and Party C hereby covenant as follows:

 

2.1.1                      Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of association and bylaws of Party C, increase or decrease its registered capital, or change its structure of registered capital in other manners;

 

2.1.2                      They shall maintain Party C’s corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs;

 

2.1.3                      Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or dispose of in any manner any assets of Party C or legal or beneficial interest in the business or revenues of Party C, or allow the encumbrance thereon of any security interest;

 

2.1.4                      Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except for (i) debts incurred in the ordinary course of business other than through loans; and (ii) debts disclosed to Party A for which Party A’s written consent has been obtained;

 

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2.1.5                      They shall always operate all of Party C’s businesses during the ordinary course of business to maintain the asset value of Party C and refrain from any action/omission that may affect Party C’s operating status and asset value;

 

2.1.6                      Without the prior written consent of Party A, they shall not cause Party C to execute, materially amend or early terminate any major contract, except the contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB 100,000, or involves any material assets or intellectual property rights, or is entered into with any related party, shall be deemed a major contract);

 

2.1.7                      Without the prior written consent of Party A, they shall not cause Party C to provide any person with any loan or credit;

 

2.1.8                      They shall provide Party A with information on Party C’s business operations and financial condition at Party A’s request;

 

2.1.9                      If requested by Party A, they shall procure and maintain insurance in respect of Party C’s assets and business from an insurance carrier acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses;

 

2.1.10               Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire or invest in any person;

 

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2.1.11               They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Party C’s assets, business or revenue, and shall not reach any settlement in respect of such proceedings without the prior written consent of Party A;

 

2.1.12               To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

2.1.13               Without the prior written consent of Party A, they shall ensure that Party C shall not in any manner distribute dividends to its shareholders, provided that upon Party A’s written request, Party C shall immediately distribute all distributable profits to its shareholders; and

 

2.1.14               At the request of Party A, they shall appoint any persons designated by Party A as the director (or executive director) of Party C.

 

2.2                        Covenants of Party B and Party C

 

Party B hereby covenants as follows:

 

2.2.1                      Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage or dispose of in any other manner any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, except for the pledge placed on these equity interests in accordance with Party B’s Equity Pledge Agreement;

 

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2.2.2                      Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, without the prior written consent of Party A, except for the pledge placed on these equity interests in accordance with Party B’s Equity Pledge Agreement;

 

2.2.3                      Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C not to approve the merger or consolidation with any person, or the acquisition of or investment in any person, without the prior written consent of Party A;

 

2.2.4                      Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the equity interests in Party C held by Party B;

 

2.2.5                      Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C to vote their approval of the transfer of the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A;

 

2.2.6                      To the extent necessary to maintain Party B’s ownership in Party C, Party B shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

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2.2.7                      Party B shall appoint any designee of Party A as the director (or executive director) of Party C, at the request of Party A;

 

2.2.8                      At the request of Party A at any time, Party B shall promptly and unconditionally transfer its equity interests in Party C to Party A’s Designee(s) in accordance with the Equity Interest Purchase Option under this Agreement, and Party B hereby waives its right of first refusal (if any) to the share transfer by the other existing shareholder of Party C (if any); and

 

2.2.9                      Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party B, Party C and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability hereof and thereof. To the extent that Party B has any remaining rights with respect to the equity interests subject to this Agreement hereunder or under Party B’s Equity Pledge Agreement or under the Power of Attorney granted in favor of Party A, Party B shall not exercise such rights except in accordance with the written instructions of Party A.

 

3.                       Representations and Warranties

 

Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of the Optioned Interests, that:

 

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3.1                They have the authority to execute and deliver this Agreement and any share transfer contracts to which they are a party concerning the Optioned Interests to be transferred thereunder (each, a “ Transfer Contracts ”), and to perform their obligations under this Agreement and any Transfer Contracts. Party B and Party C agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party A’s exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which Party B and Party C are the parties constitute or will constitute their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof;

 

3.2                The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shall not: (i) cause any violation of any applicable laws of China; (ii) be inconsistent with the articles of association, bylaws or other organizational documents of Party C; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them;

 

3.3                Party B has a good and merchantable title to the equity interests in Party C he holds. Except for Party B’s Equity Pledge Agreement, Party B has not placed any security interest on such equity interests;

 

3.4                Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets;

 

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3.5                      Party C does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to Party A for which Party A’s written consent has been obtained;

 

3.6                      Party C has complied with all laws and regulations of China applicable to asset acquisitions; and

 

3.7                      There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party C, assets of Party C or Party C.

 

4.                       Effective Date

 

This Agreement shall become effective upon the date hereof, and maintain effective unless terminated in accordance with the provisions hereof, or was compelled to terminate under applicable PRC laws and regulations.

 

5.                       Governing Law and Resolution of Disputes

 

5.1                        Governing law

 

The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the formally published and publicly available laws of China. Matters not covered by formally published and publicly available laws of China shall be governed by international legal principles and practices.

 

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5.2                        Methods of Resolution of Disputes

 

In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.

 

6.                       Taxes and Fees

 

Each Party shall pay any and all transfer and registration tax, expenses and fees incurred thereby or levied thereon in accordance with the laws of China in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactions contemplated under this Agreement and the Transfer Contracts.

 

7.                       Notices

 

7.1                      All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

7.1.1                 Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices.

 

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7.1.2                 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

7.2                        For the purpose of notices, the addresses of the Parties are as follows:

 

Party A:                            Shanghai Chu Le Information Technology Co., Ltd.

Address:

Attn:                                             Zhang Kan

Phone:

Facsimile:

 

Party B:                            Zhang Kan

Address:

Facsimile:

 

Party C:                            Shanghai Chu Bao Information Technology Co., Ltd.

Address:

Attn:                                             Zhang Kan

Phone:

Facsimile:

 

7.3                      Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.

 

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8.                       Confidentiality

 

The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. Each Party shall maintain the confidentiality of all such information, and without obtaining the written consent of other Parties, it shall not disclose any relevant information to any third parties, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

9.                       Further Warranties

 

The Parties agree to promptly execute documents that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement and take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement.

 

10.                Miscellaneous

 

10.1                 Amendment, change and supplement

 

Any amendment, change and supplement to this Agreement shall require the execution of a written agreement by all of the Parties.

 

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10.2                 Entire agreement

 

Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supercede all prior oral and written consultations, representations and contracts reached with respect to the subject matter of this Agreement, including the Prior Option Agreement.

 

10.3                 Headings

 

The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the provisions of this Agreement.

 

10.4                 Language

 

This Agreement is written in both Chinese and English language in three copies, each Party having one copy with equal legal validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

10.5                 Severability

 

In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

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10.6                 Successors

 

This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such Parties.

 

10.7                 Survival

 

10.7.1               Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof.

 

10.7.2               The provisions of Section 5, 7, 8 and this Section 10.7 shall survive the termination of this Agreement.

 

10.8                 Waivers

 

Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver by such a Party with respect to any similar breach in other circumstances.

 

[The Remainder of this page is intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have executed, or caused their respective duly authorized representatives to execute, this Amended and Restated Exclusive Purchase Option Agreement as of the date first above written.

 

 

Party A:                              Shanghai Chu Le Information Technology Co., Ltd.

 

 

 

By:

/s/ Zhang Kan

Name:

Zhang Kan

Title:

Legal Representative

 

 

Party B:                              Zhang Kan

 

 

By:

/s/ Zhang Kan

 

 

 

Party C:                              Shanghai Chu Bao Information Technology Co.,  Ltd.

 

 

 

By:

/s/ Zhang Kan

Name:

Zhang Kan

Title:

Legal Representative

 

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Amended and Restated Exclusive Purchase Option Agreement

 

This Amended and Restated Exclusive Purchase Option Agreement (“ this Agreement ”) is executed by and among the Parties below as of October 30, 2012, in Shanghai, the People’s Republic of China (“ China ”):

 

Party A:                         Shanghai Chu Le Information Technology Co., Ltd. , a wholly foreign owned enterprise duly registered in China, with its address at ***;

 

Party B:                         Zhu Haiyan , a citizen of the China with Chinese identification No.: ***; and

 

Party C:                         Shanghai Chu Bao Information Technology Co., Ltd. , a limited liability company organized and existing under the laws of China, with its address at ***.

 

In this Agreement, each of Party A, Party B and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the “Parties”.

 

Whereas:

 

1.                               Party B is a shareholder of Party C and holds 18% of the equity interest in Party C;

 

2.                               Party A and Party B entered into a Loan Agreement on August 6, 2012 (the “ Loan Agreement ”);

 

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3.                       Party A and Party B entered into an Exclusive Purchase Option Agreement on August 6, 2012 (the “ Prior Option Agreement ”), pursuant to which Party B agrees to grant Party A an exclusive right through this Contract, and Party A agrees to accept such exclusive right to purchase all or part equity interest held by Party B in Party C.

 

4.                      The Parties desire to amend, restate, supersede and replace in its entirety the Prior Option Agreement.

 

Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:

 

1.                       Sale and Purchase of Equity Interest

 

1.1                        Option Granted

 

In consideration of the payment of RMB10.00 by Party A, the receipt and adequacy of which is hereby acknowledged by Party B, Party B hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a “ Designee ”) to purchase the equity interests in Party C now or then held by Party B (regardless whether Party B’s capital contribution and/or percentage of shareholding is changed or not in the future) once or at multiple times at any time in part or in whole at Party A’s sole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the “ Equity Interest Purchase Option ”). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to Party A. The term “person” as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or any other type of economic entity.

 

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1.2                        Steps for Exercise of Equity Interest Purchase Option

 

Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written notice to Party B (the “ Equity Interest Purchase Option Notice ”), specifying: (a) Party A’s decision to exercise the Equity Interest Purchase Option; (b) the portion of equity interests to be purchased from Party B (the “ Optioned Interests ”); and (c) the date for purchasing the Optioned Interests.

 

1.3                        Equity Interest Purchase Price

 

The purchase price of the Optioned Interests (the “ Base Price ”) shall be RMB180,000. If appraisal is required by the laws of China at the time when Party A exercises the Equity Interest Purchase Option, the Parties shall negotiate in good faith and based on the appraisal result make necessary adjustment to the Equity Interest Purchase Price so that it complies with any and all then applicable laws of China (collectively, the “ Equity Interest Purchase Price ”).

 

1.4                        Transfer of Optioned Interests

 

For each exercise of the Equity Interest Purchase Option by Party A:

 

1.4.1                 Party B shall cause Party C to promptly convene a shareholders meeting, at which a resolution shall be adopted approving Party B’s transfer of the Optioned Interests to Party A and/or the Designee(s);

 

1.4.2                 Party B shall obtain written statements from the other shareholders of Party C giving consent to the transfer of the equity interest to Party A and/or the Designee(s) and waiving any right of first refusal related thereto;

 

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1.4.3                 Party B shall execute a share transfer contract with respect to each transfer with Party A and/or each Designee (whichever is applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned Interests;

 

1.4.4                 The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s), unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned Interests. For the purpose of this Section and this Agreement, “security interests” shall include securities, mortgages, third party’s rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements, but shall be deemed to exclude any security interest created by this Agreement and Party B’s Equity Pledge Agreement. “Party B’s Equity Pledge Agreement” as used in this Section and this Agreement shall refer to the Amended and Restated Equity Pledge Agreement (including any amendment from time to time, if any) executed by and among Party A, Party B and Party C on the date of this Agreement.

 

1.5                        Payment of the Equity Interest Purchase Price

 

The Parties have agreed in the Loan Agreement that any proceeds obtained by Party B through the transfer of its equity interests in Party C shall be used for repayment of the loan provided by Party A in accordance with the Loan Agreement. Accordingly, upon exercise of the Equity Interest Purchase Option, Party A may elect to make payment of the Equity Interest Purchase Price through cancellation of the outstanding amount of the loan owed by Party B to Party A, in which case Party A shall not be required to pay any additional Equity Interest Purchase Price to Party B.

 

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2.                       Covenants

 

2.1                        Covenants regarding Party C

 

Party B (as a shareholder of Party C) and Party C hereby covenant as follows:

 

2.1.1                 Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of association and bylaws of Party C, increase or decrease its registered capital, or change its structure of registered capital in other manners;

 

2.1.2                 They shall maintain Party C’s corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs;

 

2.1.3                 Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or dispose of in any manner any assets of Party C or legal or beneficial interest in the business or revenues of Party C, or allow the encumbrance thereon of any security interest;

 

2.1.4                 Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except for (i) debts incurred in the ordinary course of business other than through loans; and (ii) debts disclosed to Party A for which Party A’s written consent has been obtained;

 

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2.1.5                 They shall always operate all of Party C’s businesses during the ordinary course of business to maintain the asset value of Party C and refrain from any action/omission that may affect Party C’s operating status and asset value;

 

2.1.6                 Without the prior written consent of Party A, they shall not cause Party C to execute, materially amend or early terminate any major contract, except the contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB 100,000, or involves any material assets or intellectual property rights, or is entered into with any related party, shall be deemed a major contract);

 

2.1.7                 Without the prior written consent of Party A, they shall not cause Party C to provide any person with any loan or credit;

 

2.1.8                 They shall provide Party A with information on Party C’s business operations and financial condition at Party A’s request;

 

2.1.9                 If requested by Party A, they shall procure and maintain insurance in respect of Party C’s assets and business from an insurance carrier acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses;

 

2.1.10          Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire or invest in any person;

 

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2.1.11          They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Party C’s assets, business or revenue, and shall not reach any settlement in respect of such proceedings without the prior written consent of Party A;

 

2.1.12          To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

2.1.13          Without the prior written consent of Party A, they shall ensure that Party C shall not in any manner distribute dividends to its shareholders, provided that upon Party A’s written request, Party C shall immediately distribute all distributable profits to its shareholders; and

 

2.1.14          At the request of Party A, they shall appoint any persons designated by Party A as the director (or executive director) of Party C.

 

2.2                        Covenants of Party B and Party C

 

Party B hereby covenants as follows:

 

2.2.1                 Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage or dispose of in any other manner any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, except for the pledge placed on these equity interests in accordance with Party B’s Equity Pledge Agreement;

 

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2.2.2                 Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, without the prior written consent of Party A, except for the pledge placed on these equity interests in accordance with Party B’s Equity Pledge Agreement;

 

2.2.3                 Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C not to approve the merger or consolidation with any person, or the acquisition of or investment in any person, without the prior written consent of Party A;

 

2.2.4                 Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the equity interests in Party C held by Party B;

 

2.2.5                 Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C to vote their approval of the transfer of the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A;

 

2.2.6                 To the extent necessary to maintain Party B’s ownership in Party C, Party B shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

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2.2.7                 Party B shall appoint any designee of Party A as the director (or executive director) of Party C, at the request of Party A;

 

2.2.8                 At the request of Party A at any time, Party B shall promptly and unconditionally transfer its equity interests in Party C to Party A’s Designee(s) in accordance with the Equity Interest Purchase Option under this Agreement, and Party B hereby waives its right of first refusal (if any) to the share transfer by the other existing shareholder of Party C (if any); and

 

2.2.9                 Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party B, Party C and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability hereof and thereof. To the extent that Party B has any remaining rights with respect to the equity interests subject to this Agreement hereunder or under Party B’s Equity Pledge Agreement or under the Power of Attorney granted in favor of Party A, Party B shall not exercise such rights except in accordance with the written instructions of Party A.

 

3.                       Representations and Warranties

 

Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of the Optioned Interests, that:

 

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3.1                They have the authority to execute and deliver this Agreement and any share transfer contracts to which they are a party concerning the Optioned Interests to be transferred thereunder (each, a “ Transfer Contracts ”), and to perform their obligations under this Agreement and any Transfer Contracts. Party B and Party C agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party A’s exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which Party B and Party C are the parties constitute or will constitute their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof;

 

3.2                The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shall not: (i) cause any violation of any applicable laws of China; (ii) be inconsistent with the articles of association, bylaws or other organizational documents of Party C; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them;

 

3.3                Party B has a good and merchantable title to the equity interests in Party C he holds. Except for Party B’s Equity Pledge Agreement, Party B has not placed any security interest on such equity interests;

 

3.4                Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets;

 

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3.5                Party C does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to Party A for which Party A’s written consent has been obtained;

 

3.6                Party C has complied with all laws and regulations of China applicable to asset acquisitions; and

 

3.7                There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party C, assets of Party C or Party C.

 

4.                       Effective Date

 

This Agreement shall become effective upon the date hereof, and maintain effective unless terminated in accordance with the provisions hereof, or was compelled to terminate under applicable PRC laws and regulations.

 

5.                       Governing Law and Resolution of Disputes

 

5.1                        Governing law

 

The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the formally published and publicly available laws of China. Matters not covered by formally published and publicly available laws of China shall be governed by international legal principles and practices.

 

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5.2                        Methods of Resolution of Disputes

 

In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.

 

6.                       Taxes and Fees

 

Each Party shall pay any and all transfer and registration tax, expenses and fees incurred thereby or levied thereon in accordance with the laws of China in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactions contemplated under this Agreement and the Transfer Contracts.

 

7.                       Notices

 

7.1                      All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

7.1.1                 Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices.

 

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7.1.2                 Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

7.2                        For the purpose of notices, the addresses of the Parties are as follows:

 

Party A:                            Shanghai Chu Le Information Technology Co., Ltd.

Address:

Attn:                                             Zhang Kan

Phone:

Facsimile:

 

Party B:                            Zhu Haiyan

Address:

Facsimile:

 

Party C:                           Shanghai Chu Bao Information Technology Co., Ltd.

Address:

Attn:                                             Zhang Kan

Phone:

Facsimile:

 

7.3                        Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.

 

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8.                       Confidentiality

 

The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. Each Party shall maintain the confidentiality of all such information, and without obtaining the written consent of other Parties, it shall not disclose any relevant information to any third parties, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

9.                       Further Warranties

 

The Parties agree to promptly execute documents that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement and take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement.

 

10.                Miscellaneous

 

10.1                 Amendment, change and supplement

 

Any amendment, change and supplement to this Agreement shall require the execution of a written agreement by all of the Parties.

 

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10.2                 Entire agreement

 

Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supercede all prior oral and written consultations, representations and contracts reached with respect to the subject matter of this Agreement, including the Prior Option Agreement.

 

10.3                 Headings

 

The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the provisions of this Agreement.

 

10.4                 Language

 

This Agreement is written in both Chinese and English language in three copies, each Party having one copy with equal legal validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

10.5                 Severability

 

In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

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10.6                 Successors

 

This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such Parties.

 

10.7                 Survival

 

10.7.1          Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof.

 

10.7.2          The provisions of Section 5, 7, 8 and this Section 10.7 shall survive the termination of this Agreement.

 

10.8                 Waivers

 

Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver by such a Party with respect to any similar breach in other circumstances.

 

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IN WITNESS WHEREOF, the Parties have executed, or caused their respective duly authorized representatives to execute, this Amended and Restated Exclusive Purchase Option Agreement as of the date first above written.

 

 

Party A:                    Shanghai Chu Le Information Technology Co.,  Ltd.

 

 

 

By:

/s/ Zhang Kan

Name:

Zhang Kan

Title:

Legal Representative

 

 

Party B:                    Zhu Haiyan

 

 

 

By:

/s/ Zhu Haiyan

 

 

 

 

Party C:                    Shanghai Chu Bao Information Technology Co., Ltd.

 

 

 

By:

/s/ Zhang Kan

Name:

Zhang Kan

Title:

Legal Representative

 


 

Amended and Restated Exclusive Purchase Option Agreement

 

This Amended and Restated Exclusive Purchase Option Agreement (“ this Agreement ”) is executed by and among the Parties below as of October 30, 2012, in Shanghai, the People’s Republic of China (“ China ”):

 

Party A:                         Shanghai Chu Le Information Technology Co., Ltd. , a wholly foreign owned enterprise duly registered in China, with its address at ***;

 

Party B:                         Li Qiaoling , a citizen of the China with Chinese identification No.: ***; and

 

Party C:                         Shanghai Chu Bao Information Technology Co., Ltd. , a limited liability company organized and existing under the laws of China, with its address at ***.

 

In this Agreement, each of Party A, Party B and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the “Parties”.

 

Whereas:

 

1.                      Party B is a shareholder of Party C and holds 21.94% of the equity interest in Party C;

 

2.                      Party A and Party B entered into a Loan Agreement on August 6, 2012 (the “ Loan Agreement ”);

 

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3.                       The Parties entered into an Exclusive Purchase Option Agreement on August 6, 2012 (the “ Prior Option Agreement ”), pursuant to which Party B agrees to grant Party A an exclusive right through this Contract, and Party A agrees to accept such exclusive right to purchase all or part equity interest held by Party B in Party C.

 

4.                      The Parties desire to amend, restate, supersede and replace in its entirety the Prior Option Agreement.

 

Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:

 

1.                       Sale and Purchase of Equity Interest

 

1.1                        Option Granted

 

In consideration of the payment of RMB10.00 by Party A, the receipt and adequacy of which is hereby acknowledged by Party B, Party B hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a “ Designee ”) to purchase the equity interests in Party C now or then held by Party B (regardless whether Party B’s capital contribution and/or percentage of shareholding is changed or not in the future) once or at multiple times at any time in part or in whole at Party A’s sole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the “ Equity Interest Purchase Option ”). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to Party A. The term “person” as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or any other type of economic entity.

 

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1.2                        Steps for Exercise of Equity Interest Purchase Option

 

Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written notice to Party B (the “ Equity Interest Purchase Option Notice ”), specifying: (a) Party A’s decision to exercise the Equity Interest Purchase Option; (b) the portion of equity interests to be purchased from Party B (the “ Optioned Interests ”); and (c) the date for purchasing the Optioned Interests.

 

1.3                        Equity Interest Purchase Price

 

The purchase price of the Optioned Interests (the “ Base Price ”) shall be RMB219,400. If appraisal is required by the laws of China at the time when Party A exercises the Equity Interest Purchase Option, the Parties shall negotiate in good faith and based on the appraisal result make necessary adjustment to the Equity Interest Purchase Price so that it complies with any and all then applicable laws of China (collectively, the “ Equity Interest Purchase Price ”).

 

1.4                        Transfer of Optioned Interests

 

For each exercise of the Equity Interest Purchase Option by Party A:

 

1.4.1                 Party B shall cause Party C to promptly convene a shareholders meeting, at which a resolution shall be adopted approving Party B’s transfer of the Optioned Interests to Party A and/or the Designee(s);

 

1.4.2                 Party B shall obtain written statements from the other shareholders of Party C giving consent to the transfer of the equity interest to Party A and/or the Designee(s) and waiving any right of first refusal related thereto;

 

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1.4.3                 Party B shall execute a share transfer contract with respect to each transfer with Party A and/or each Designee (whichever is applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned Interests;

 

1.4.4                 The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s), unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned Interests. For the purpose of this Section and this Agreement, “security interests” shall include securities, mortgages, third party’s rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements, but shall be deemed to exclude any security interest created by this Agreement and Party B’s Equity Pledge Agreement. “Party B’s Equity Pledge Agreement” as used in this Section and this Agreement shall refer to the Amended and Restated Equity Pledge Agreement (including any amendment from time to time, if any) executed by and among Party A, Party B and Party C on the date of this Agreement.

 

1.5                        Payment of the Equity Interest Purchase Price

 

The Parties have agreed in the Loan Agreement that any proceeds obtained by Party B through the transfer of its equity interests in Party C shall be used for repayment of the loan provided by Party A in accordance with the Loan Agreement. Accordingly, upon exercise of the Equity Interest Purchase Option, Party A may elect to make payment of the Equity Interest Purchase Price through cancellation of the outstanding amount of the loan owed by Party B to Party A, in which case Party A shall not be required to pay any additional Equity Interest Purchase Price to Party B.

 

4



 

2.                       Covenants

 

2.1                        Covenants regarding Party C

 

Party B (as a shareholder of Party C) and Party C hereby covenant as follows:

 

2.1.1                 Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of association and bylaws of Party C, increase or decrease its registered capital, or change its structure of registered capital in other manners;

 

2.1.2                 They shall maintain Party C’s corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs;

 

2.1.3                 Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or dispose of in any manner any assets of Party C or legal or beneficial interest in the business or revenues of Party C, or allow the encumbrance thereon of any security interest;

 

2.1.4                 Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except for (i) debts incurred in the ordinary course of business other than through loans; and (ii) debts disclosed to Party A for which Party A’s written consent has been obtained;

 

5



 

2.1.5                 They shall always operate all of Party C’s businesses during the ordinary course of business to maintain the asset value of Party C and refrain from any action/omission that may affect Party C’s operating status and asset value;

 

2.1.6                 Without the prior written consent of Party A, they shall not cause Party C to execute, materially amend or early terminate any major contract, except the contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB 100,000, or involves any material assets or intellectual property rights, or is entered into with any related party, shall be deemed a major contract);

 

2.1.7                 Without the prior written consent of Party A, they shall not cause Party C to provide any person with any loan or credit;

 

2.1.8                 They shall provide Party A with information on Party C’s business operations and financial condition at Party A’s request;

 

2.1.9                 If requested by Party A, they shall procure and maintain insurance in respect of Party C’s assets and business from an insurance carrier acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses;

 

2.1.10          Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire or invest in any person;

 

6



 

2.1.11               They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Party C’s assets, business or revenue, and shall not reach any settlement in respect of such proceedings without the prior written consent of Party A;

 

2.1.12               To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

2.1.13               Without the prior written consent of Party A, they shall ensure that Party C shall not in any manner distribute dividends to its shareholders, provided that upon Party A’s written request, Party C shall immediately distribute all distributable profits to its shareholders; and

 

2.1.14               At the request of Party A, they shall appoint any persons designated by Party A as the director (or executive director) of Party C.

 

2.2                        Covenants of Party B and Party C

 

Party B hereby covenants as follows:

 

2.2.1                      Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage or dispose of in any other manner any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, except for the pledge placed on these equity interests in accordance with Party B’s Equity Pledge Agreement;

 

7



 

2.2.2                      Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, without the prior written consent of Party A, except for the pledge placed on these equity interests in accordance with Party B’s Equity Pledge Agreement;

 

2.2.3                      Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C not to approve the merger or consolidation with any person, or the acquisition of or investment in any person, without the prior written consent of Party A;

 

2.2.4                      Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the equity interests in Party C held by Party B;

 

2.2.5                      Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C to vote their approval of the transfer of the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A;

 

2.2.6                      To the extent necessary to maintain Party B’s ownership in Party C, Party B shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

8


 

2.2.7                      Party B shall appoint any designee of Party A as the director (or executive director) of Party C, at the request of Party A;

 

2.2.8                      At the request of Party A at any time, Party B shall promptly and unconditionally transfer its equity interests in Party C to Party A’s Designee(s) in accordance with the Equity Interest Purchase Option under this Agreement, and Party B hereby waives its right of first refusal (if any) to the share transfer by the other existing shareholder of Party C (if any); and

 

2.2.9                      Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party B, Party C and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability hereof and thereof. To the extent that Party B has any remaining rights with respect to the equity interests subject to this Agreement hereunder or under Party B’s Equity Pledge Agreement or under the Power of Attorney granted in favor of Party A, Party B shall not exercise such rights except in accordance with the written instructions of Party A.

 

3.                       Representations and Warranties

 

Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of the Optioned Interests, that:

 

9



 

3.1                      They have the authority to execute and deliver this Agreement and any share transfer contracts to which they are a party concerning the Optioned Interests to be transferred thereunder (each, a “ Transfer Contracts ”), and to perform their obligations under this Agreement and any Transfer Contracts. Party B and Party C agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party A’s exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which Party B and Party C are the parties constitute or will constitute their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof;

 

3.2                      The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shall not: (i) cause any violation of any applicable laws of China; (ii) be inconsistent with the articles of association, bylaws or other organizational documents of Party C; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them;

 

3.3                      Party B has a good and merchantable title to the equity interests in Party C he holds. Except for Party B’s Equity Pledge Agreement, Party B has not placed any security interest on such equity interests;

 

3.4                      Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets;

 

10



 

3.5                      Party C does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to Party A for which Party A’s written consent has been obtained;

 

3.6                      Party C has complied with all laws and regulations of China applicable to asset acquisitions; and

 

3.7                      There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party C, assets of Party C or Party C.

 

4.                       Effective Date

 

This Agreement shall become effective upon the date hereof, and maintain effective unless terminated in accordance with the provisions hereof, or was compelled to terminate under applicable PRC laws and regulations.

 

5.                       Governing Law and Resolution of Disputes

 

5.1                        Governing law

 

The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the formally published and publicly available laws of China. Matters not covered by formally published and publicly available laws of China shall be governed by international legal principles and practices.

 

11



 

5.2                        Methods of Resolution of Disputes

 

In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.

 

6.                       Taxes and Fees

 

Each Party shall pay any and all transfer and registration tax, expenses and fees incurred thereby or levied thereon in accordance with the laws of China in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactions contemplated under this Agreement and the Transfer Contracts.

 

7.                       Notices

 

7.1                      All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

7.1.1            Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices.

 

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7.1.2            Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

7.2                        For the purpose of notices, the addresses of the Parties are as follows:

 

Party A:                            Shanghai Chu Le Information Technology Co., Ltd.

Address:                         

Attn:                                             Zhang Kan

Phone:                                  

Facsimile:                 

 

Party B:                            Li Qiaoling

Address:                         

Facsimile:                 

 

Party C:                            Shanghai Chu Bao Information Technology Co., Ltd.

Address:                         

Attn:                                             Zhang Kan

Phone:                                  

Facsimile:                 

 

7.3                      Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.

 

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8.                       Confidentiality

 

The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. Each Party shall maintain the confidentiality of all such information, and without obtaining the written consent of other Parties, it shall not disclose any relevant information to any third parties, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

9.                       Further Warranties

 

The Parties agree to promptly execute documents that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement and take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement.

 

10.                Miscellaneous

 

10.1                 Amendment, change and supplement

 

Any amendment, change and supplement to this Agreement shall require the execution of a written agreement by all of the Parties.

 

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10.2               Entire agreement

 

Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supercede all prior oral and written consultations, representations and contracts reached with respect to the subject matter of this Agreement, including the Prior Option Agreement.

 

10.3               Headings

 

The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the provisions of this Agreement.

 

10.4               Language

 

This Agreement is written in both Chinese and English language in three copies, each Party having one copy with equal legal validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

10.5               Severability

 

In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to 15 replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

15



 

10.6               Successors

 

This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such Parties.

 

10.7               Survival

 

10.7.1               Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof.

 

10.7.2               The provisions of Section 5, 7, 8 and this Section 10.7 shall survive the termination of this Agreement.

 

10.8               Waivers

 

Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver by such a Party with respect to any similar breach in other circumstances.

 

[The Remainder of this page is intentionally left blank]

 

16



 

IN WITNESS WHEREOF, the Parties have executed, or caused their respective duly authorized representatives to execute, this Amended and Restated Exclusive Purchase Option Agreement as of the date first above written.

 

 

Party A:                          Shanghai Chu Le Information Technology Co., Ltd.

 

 

 

 

 

By:

/s/ Zhang Kan

 

Name:

Zhang Kan

 

Title:

Legal Representative

 

 

 

 

 

 

Party B:                          Li Qiaoling

 

By:

/s/ Li Qiaoling

 

 

 

 

 

 

 

 

Party C:                          Shanghai Chu Bao Information Technology Co., Ltd.

 

By:

/s/ Zhang Kan

 

 

Name:

Zhang Kan

 

Title:

Legal Representative

 

 

 

 

 

 

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Amended and Restated Exclusive Purchase Option Agreement

 

This Amended and Restated Exclusive Purchase Option Agreement (“ this Agreement ”) is executed by and among the Parties below as of October 30, 2012, in Shanghai, the People’s Republic of China (“ China ”):

 

Party A:                         Shanghai Chu Le Information Technology Co., Ltd. , a wholly foreign owned enterprise duly registered in China, with its address at ***;

 

Party B:                         Wang Jialiang , a citizen of the China with Chinese identification No.: ***; and

 

Party C:                         Shanghai Chu Bao Information Technology Co., Ltd. , a limited liability company organized and existing under the laws of China, with its address at ***.

 

In this Agreement, each of Party A, Party B and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the “Parties”.

 

Whereas:

 

1.                             Party B is a shareholder of Party C and holds 21.94% of the equity interest in Party C;

 

2.                             Party A and Party B entered into a Loan Agreement on August 6, 2012 (the “Loan Agreement”);

 

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3.                             Party A and Party B entered into an Exclusive Purchase Option Agreement on August 6, 2012 (the “ Prior Option Agreement ”), pursuant to which Party B agrees to grant Party A an exclusive right through this Contract, and Party A agrees to accept such exclusive right to purchase all or part equity interest held by Party B in Party C.

 

4.                             The Parties desire to amend, restate, supersede and replace in its entirety the Prior Option Agreement.

 

Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:

 

1.                       Sale and Purchase of Equity Interest

 

1.1                        Option Granted

 

In consideration of the payment of RMB10.00 by Party A, the receipt and adequacy of which is hereby acknowledged by Party B, Party B hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a “ Designee ”) to purchase the equity interests in Party C now or then held by Party B (regardless whether Party B’s capital contribution and/or percentage of shareholding is changed or not in the future) once or at multiple times at any time in part or in whole at Party A’s sole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the “ Equity Interest Purchase Option ”). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to Party A. The term “person” as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or any other type of economic entity.

 

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1.2                      Steps for Exercise of Equity Interest Purchase Option

 

Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written notice to Party B (the “ Equity Interest Purchase Option Notice ”), specifying: (a) Party A’s decision to exercise the Equity Interest Purchase Option; (b) the portion of equity interests to be purchased from Party B (the “ Optioned Interests ”); and (c) the date for purchasing the Optioned Interests.

 

1.3                      Equity Interest Purchase Price

 

The purchase price of the Optioned Interests (the “ Base Price ”) shall be RMB219,400. If appraisal is required by the laws of China at the time when Party A exercises the Equity Interest Purchase Option, the Parties shall negotiate in good faith and based on the appraisal result make necessary adjustment to the Equity Interest Purchase Price so that it complies with any and all then applicable laws of China (collectively, the “ Equity Interest Purchase Price ”).

 

1.4                      Transfer of Optioned Interests

 

For each exercise of the Equity Interest Purchase Option by Party A:

 

1.4.1            Party B shall cause Party C to promptly convene a shareholders meeting, at which a resolution shall be adopted approving Party B’s transfer of the Optioned Interests to Party A and/or the Designee(s);

 

1.4.2                 Party B shall obtain written statements from the other shareholders of Party C giving consent to the transfer of the equity interest to Party A and/or the Designee(s) and waiving any right of first refusal related thereto;

 

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1.4.3            Party B shall execute a share transfer contract with respect to each transfer with Party A and/or each Designee (whichever is applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned Interests;

 

1.4.4            The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s), unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned Interests. For the purpose of this Section and this Agreement, “security interests” shall include securities, mortgages, third party’s rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements, but shall be deemed to exclude any security interest created by this Agreement and Party B’s Equity Pledge Agreement. “Party B’s Equity Pledge Agreement” as used in this Section and this Agreement shall refer to the Amended and Restated Equity Pledge Agreement (including any amendment from time to time, if any) executed by and among Party A, Party B and Party C on the date of this Agreement.

 

1.5                        Payment of the Equity Interest Purchase Price

 

The Parties have agreed in the Loan Agreement that any proceeds obtained by Party B through the transfer of its equity interests in Party C shall be used for repayment of the loan provided by Party A in accordance with the Loan Agreement. Accordingly, upon exercise of the Equity Interest Purchase Option, Party A may elect to make payment of the Equity Interest Purchase Price through cancellation of the outstanding amount of the loan owed by Party B to Party A, in which case Party A shall not be required to pay any additional Equity Interest Purchase Price to Party B.

 

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2.                       Covenants

 

2.1                        Covenants regarding Party C

 

Party B (as a shareholder of Party C) and Party C hereby covenant as follows:

 

2.1.1            Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of association and bylaws of Party C, increase or decrease its registered capital, or change its structure of registered capital in other manners;

 

2.1.2            They shall maintain Party C’s corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs;

 

2.1.3            Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or dispose of in any manner any assets of Party C or legal or beneficial interest in the business or revenues of Party C, or allow the encumbrance thereon of any security interest;

 

2.1.4            Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except for (i) debts incurred in the ordinary course of business other than through loans; and (ii) debts disclosed to Party A for which Party A’s written consent has been obtained;

 

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2.1.5            They shall always operate all of Party C’s businesses during the ordinary course of business to maintain the asset value of Party C and refrain from any action/omission that may affect Party C’s operating status and asset value;

 

2.1.6            Without the prior written consent of Party A, they shall not cause Party C to execute, materially amend or early terminate any major contract, except the contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB100,000, or involves any material assets or intellectual property rights, or is entered into with any related party, shall be deemed a major contract);

 

2.1.7            Without the prior written consent of Party A, they shall not cause Party C to provide any person with any loan or credit;

 

2.1.8            They shall provide Party A with information on Party C’s business operations and financial condition at Party A’s request;

 

2.1.9            If requested by Party A, they shall procure and maintain insurance in respect of Party C’s assets and business from an insurance carrier acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses;

 

2.1.10     Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire or invest in any person;

 

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2.1.11     They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Party C’s assets, business or revenue, and shall not reach any settlement in respect of such proceedings without the prior written consent of Party A;

 

2.1.12     To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

2.1.13     Without the prior written consent of Party A, they shall ensure that Party C shall not in any manner distribute dividends to its shareholders, provided that upon Party A’s written request, Party C shall immediately distribute all distributable profits to its shareholders; and

 

2.1.14     At the request of Party A, they shall appoint any persons designated by Party A as the director (or executive director) of Party C.

 

2.2                        Covenants of Party B and Party C

 

Party B hereby covenants as follows:

 

2.2.1            Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage or dispose of in any other manner any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, except for the pledge placed on these equity interests in accordance with Party B’s Equity Pledge Agreement;

 

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2.2.2            Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, without the prior written consent of Party A, except for the pledge placed on these equity interests in accordance with Party B’s Equity Pledge Agreement;

 

2.2.3            Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C not to approve the merger or consolidation with any person, or the acquisition of or investment in any person, without the prior written consent of Party A;

 

2.2.4            Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the equity interests in Party C held by Party B;

 

2.2.5            Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C to vote their approval of the transfer of the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A;

 

2.2.6            To the extent necessary to maintain Party B’s ownership in Party C, Party B shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

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2.2.7            Party B shall appoint any designee of Party A as the director (or executive director) of Party C, at the request of Party A;

 

2.2.8            At the request of Party A at any time, Party B shall promptly and unconditionally transfer its equity interests in Party C to Party A’s Designee(s) in accordance with the Equity Interest Purchase Option under this Agreement, and Party B hereby waives its right of first refusal (if any) to the share transfer by the other existing shareholder of Party C (if any); and

 

2.2.9            Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party B, Party C and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability hereof and thereof. To the extent that Party B has any remaining rights with respect to the equity interests subject to this Agreement hereunder or under Party B’s Equity Pledge Agreement or under the Power of Attorney granted in favor of Party A, Party B shall not exercise such rights except in accordance with the written instructions of Party A.

 

3.                       Representations and Warranties

 

Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of the Optioned Interests, that:

 

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3.1                      They have the authority to execute and deliver this Agreement and any share transfer contracts to which they are a party concerning the Optioned Interests to be transferred thereunder (each, a “ Transfer Contracts ”), and to perform their obligations under this Agreement and any Transfer Contracts. Party B and Party C agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party A’s exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which Party B and Party C are the parties constitute or will constitute their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof;

 

3.2                      The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shall not: (i) cause any violation of any applicable laws of China; (ii) be inconsistent with the articles of association, bylaws or other organizational documents of Party C; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them;

 

3.3                      Party B has a good and merchantable title to the equity interests in Party C he holds. Except for Party B’s Equity Pledge Agreement, Party B has not placed any security interest on such equity interests;

 

3.4                      Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets;

 

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3.5                      Party C does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to Party A for which Party A’s written consent has been obtained;

 

3.6                      Party C has complied with all laws and regulations of China applicable to asset acquisitions; and

 

3.7                      There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party C, assets of Party C or Party C.

 

4.                       Effective Date

 

This Agreement shall become effective upon the date hereof, and maintain effective unless terminated in accordance with the provisions hereof, or was compelled to terminate under applicable PRC laws and regulations.

 

5.                       Governing Law and Resolution of Disputes

 

5.1                        Governing law

 

The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the formally published and publicly available laws of China. Matters not covered by formally published and publicly available laws of China shall be governed by international legal principles and practices.

 

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5.2                      Methods of Resolution of Disputes

 

In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.

 

6.                       Taxes and Fees

 

Each Party shall pay any and all transfer and registration tax, expenses and fees incurred thereby or levied thereon in accordance with the laws of China in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactions contemplated under this Agreement and the Transfer Contracts.

 

7.                       Notices

 

7.1                      All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

7.1.1            Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices.

 

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7.1.2            Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

7.2                        For the purpose of notices, the addresses of the Parties are as follows:

 

Party A:         Shanghai Chu Le Information Technology Co., Ltd.

Address:       

Attn:               Zhang Kan

Phone:          

Facsimile:     

 

Party B:         Wang Jialiang

Address:       

Facsimile:     

 

Party C:         Shanghai Chu Bao Information Technology Co., Ltd.

Address:       

Attn:               Zhang Kan

Phone:          

Facsimile:     

 

7.3                      Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.

 

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8.                       Confidentiality

 

The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. Each Party shall maintain the confidentiality of all such information, and without obtaining the written consent of other Parties, it shall not disclose any relevant information to any third parties, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

9.                       Further Warranties

 

The Parties agree to promptly execute documents that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement and take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement.

 

10.                Miscellaneous

 

10.1                 Amendment, change and supplement

 

Any amendment, change and supplement to this Agreement shall require the execution of a written agreement by all of the Parties.

 

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10.2               Entire agreement

 

Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supercede all prior oral and written consultations, representations and contracts reached with respect to the subject matter of this Agreement, including the Prior Option Agreement.

 

10.3               Headings

 

The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the provisions of this Agreement.

 

10.4               Language

 

This Agreement is written in both Chinese and English language in three copies, each Party having one copy with equal legal validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

10.5                 Severability

 

In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

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10.6                 Successors

 

This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such Parties.

 

10.7                 Survival

 

10.7.1     Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof.

 

10.7.2     The provisions of Section 5, 7, 8 and this Section 10.7 shall survive the termination of this Agreement.

 

10.8                 Waivers

 

Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver by such a Party with respect to any similar breach in other circumstances.

 

[The Remainder of this page is intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have executed, or caused their respective duly authorized representatives to execute, this Amended and Restated Exclusive Purchase Option Agreement as of the date first above written.

 

 

Party A:       Shanghai Chu Le Information Technology Co., Ltd.

 

By:

/s/ Zhang Kan

 

 

Name:

Zhang Kan Legal Representative

 

Title:

Legal Representative

 

 

 

Party B:       Wang Jialiang

 

 

 

 

 

 

By:

/s/ Wang Jialiang

 

 

 

 

Party C:       Shanghai Chu Bao Information Technology Co., Ltd.

 

By:

/s/ Zhang Kan

 

 

Name:

Zhang Kan

 

Title:

Legal Representative

 

 

17


 

Amended and Restated Exclusive Purchase Option Agreement

 

This Amended and Restated Exclusive Purchase Option Agreement (“ this Agreement ”) is executed by and among the Parties below as of October 30, 2012, in Shanghai, the People’s Republic of China (“ China ”):

 

Party A:                         Shanghai Chu Le Information Technology Co., Ltd. , a wholly foreign owned enterprise duly registered in China, with its address at ***;

 

Party B:                         Wang Jian , a citizen of the China with Chinese identification No.: ***; and

 

Party C:                         Shanghai Chu Bao Information Technology Co., Ltd. , a limited liability company organized and existing under the laws of China, with its address at ***.

 

In this Agreement, each of Party A, Party B and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the “Parties”.

 

Whereas:

 

1.                             Party B is a shareholder of Party C and holds 13.12% of the equity interest in Party C;

 

2.                             Party A and Party B entered into a Loan Agreement on August 6, 2012 (the “ Loan Agreement ”);

 

3.                             Party A and Party B entered into an Exclusive Purchase Option Agreement on August 6, 2012 (the “ Prior Option Agreement ”), pursuant to which Party B agrees to grant Party A an exclusive right through this Contract, and Party A agrees to accept such exclusive right to purchase all or part equity interest held by Party B in Party C.

 

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4.          The Parties desire to amend, restate, supersede and replace in its entirety the Prior Option Agreement.

 

Now therefore, upon mutual discussion and negotiation, the Parties have reached the following agreement:

 

1.                       Sale and Purchase of Equity Interest

 

1.1                        Option Granted

 

In consideration of the payment of RMB10.00 by Party A, the receipt and adequacy of which is hereby acknowledged by Party B, Party B hereby irrevocably grants Party A an irrevocable and exclusive right to purchase, or designate one or more persons (each, a “ Designee ”) to purchase the equity interests in Party C now or then held by Party B (regardless whether Party B’s capital contribution and/or percentage of shareholding is changed or not in the future) once or at multiple times at any time in part or in whole at Party A’s sole and absolute discretion to the extent permitted by Chinese laws and at the price described in Section 1.3 herein (such right being the “ Equity Interest Purchase Option ”). Except for Party A and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the equity interests of Party B. Party C hereby agrees to the grant by Party B of the Equity Interest Purchase Option to Party A. The term “person” as used herein shall refer to individuals, corporations, partnerships, partners, enterprises, trusts or any other type of economic entity.

 

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1.2                        Steps for Exercise of Equity Interest Purchase Option

 

Subject to the provisions of the laws and regulations of China, Party A may exercise the Equity Interest Purchase Option by issuing a written notice to Party B (the “ Equity Interest Purchase Option Notice ”), specifying: (a) Party A’s decision to exercise the Equity Interest Purchase Option; (b) the portion of equity interests to be purchased from Party B (the “ Optioned Interests ”); and (c) the date for purchasing the Optioned Interests.

 

1.3                        Equity Interest Purchase Price

 

The purchase price of the Optioned Interests (the “ Base Price ”) shall be RMB131,200. If appraisal is required by the laws of China at the time when Party A exercises the Equity Interest Purchase Option, the Parties shall negotiate in good faith and based on the appraisal result make necessary adjustment to the Equity Interest Purchase Price so that it complies with any and all then applicable laws of China (collectively, the “ Equity Interest Purchase Price ”).

 

1.4                        Transfer of Optioned Interests

 

For each exercise of the Equity Interest Purchase Option by Party A:

 

1.4.1            Party B shall cause Party C to promptly convene a shareholders meeting, at which a resolution shall be adopted approving Party B’s transfer of the Optioned Interests to Party A and/or the Designee(s);

 

1.4.2                 Party B shall obtain written statements from the other shareholders of Party C giving consent to the transfer of the equity interest to Party A and/or the Designee(s) and waiving any right of first refusal related thereto;

 

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1.4.3            Party B shall execute a share transfer contract with respect to each transfer with Party A and/or each Designee (whichever is applicable), in accordance with the provisions of this Agreement and the Equity Interest Purchase Option Notice regarding the Optioned Interests;

 

1.4.4            The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits and take all necessary actions to transfer valid ownership of the Optioned Interests to Party A and/or the Designee(s), unencumbered by any security interests, and cause Party A and/or the Designee(s) to become the registered owner(s) of the Optioned Interests. For the purpose of this Section and this Agreement, “security interests” shall include securities, mortgages, third party’s rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership retention or other security arrangements, but shall be deemed to exclude any security interest created by this Agreement and Party B’s Equity Pledge Agreement. “Party B’s Equity Pledge Agreement” as used in this Section and this Agreement shall refer to the Amended and Restated Equity Pledge Agreement (including any amendment from time to time, if any) executed by and among Party A, Party B and Party C on the date of this Agreement.

 

1.5                        Payment of the Equity Interest Purchase Price

 

The Parties have agreed in the Loan Agreement that any proceeds obtained by Party B through the transfer of its equity interests in Party C shall be used for repayment of the loan provided by Party A in accordance with the Loan Agreement. Accordingly, upon exercise of the Equity Interest Purchase Option, Party A may elect to make payment of the Equity Interest Purchase Price through cancellation of the outstanding amount of the loan owed by Party B to Party A, in which case Party A shall not be required to pay any additional Equity Interest Purchase Price to Party B.

 

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2.                       Covenants

 

2.1                        Covenants regarding Party C

 

Party B (as a shareholder of Party C) and Party C hereby covenant as follows:

 

2.1.1            Without the prior written consent of Party A, they shall not in any manner supplement, change or amend the articles of association and bylaws of Party C, increase or decrease its registered capital, or change its structure of registered capital in other manners;

 

2.1.2            They shall maintain Party C’s corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs;

 

2.1.3            Without the prior written consent of Party A, they shall not at any time following the date hereof, sell, transfer, mortgage or dispose of in any manner any assets of Party C or legal or beneficial interest in the business or revenues of Party C, or allow the encumbrance thereon of any security interest;

 

2.1.4            Without the prior written consent of Party A, they shall not incur, inherit, guarantee or suffer the existence of any debt, except for (i) debts incurred in the ordinary course of business other than through loans; and (ii) debts disclosed to Party A for which Party A’s written consent has been obtained;

 

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2.1.5            They shall always operate all of Party C’s businesses during the ordinary course of business to maintain the asset value of Party C and refrain from any action/omission that may affect Party C’s operating status and asset value;

 

2.1.6            Without the prior written consent of Party A, they shall not cause Party C to execute, materially amend or early terminate any major contract, except the contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB100,000, or involves any material assets or intellectual property rights, or is entered into with any related party, shall be deemed a major contract);

 

2.1.7            Without the prior written consent of Party A, they shall not cause Party C to provide any person with any loan or credit;

 

2.1.8            They shall provide Party A with information on Party C’s business operations and financial condition at Party A’s request;

 

2.1.9            If requested by Party A, they shall procure and maintain insurance in respect of Party C’s assets and business from an insurance carrier acceptable to Party A, at an amount and type of coverage typical for companies that operate similar businesses;

 

2.1.10     Without the prior written consent of Party A, they shall not cause or permit Party C to merge, consolidate with, acquire or invest in any person;

 

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2.1.11     They shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Party C’s assets, business or revenue, and shall not reach any settlement in respect of such proceedings without the prior written consent of Party A;

 

2.1.12     To maintain the ownership by Party C of all of its assets, they shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

2.1.13     Without the prior written consent of Party A, they shall ensure that Party C shall not in any manner distribute dividends to its shareholders, provided that upon Party A’s written request, Party C shall immediately distribute all distributable profits to its shareholders; and

 

2.1.14     At the request of Party A, they shall appoint any persons designated by Party A as the director (or executive director) of Party C.

 

2.2                        Covenants of Party B and Party C

 

Party B hereby covenants as follows:

 

2.2.1            Without the prior written consent of Party A, Party B shall not sell, transfer, mortgage or dispose of in any other manner any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, except for the pledge placed on these equity interests in accordance with Party B’s Equity Pledge Agreement;

 

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2.2.2            Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interests in Party C held by Party B, or allow the encumbrance thereon of any security interest, without the prior written consent of Party A, except for the pledge placed on these equity interests in accordance with Party B’s Equity Pledge Agreement;

 

2.2.3            Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C not to approve the merger or consolidation with any person, or the acquisition of or investment in any person, without the prior written consent of Party A;

 

2.2.4            Party B shall immediately notify Party A of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the equity interests in Party C held by Party B;

 

2.2.5            Party B shall cause the shareholders’ meeting and/or the board of directors (or executive director) of Party C to vote their approval of the transfer of the Optioned Interests as set forth in this Agreement and to take any and all other actions that may be requested by Party A;

 

2.2.6            To the extent necessary to maintain Party B’s ownership in Party C, Party B shall execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims;

 

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2.2.7            Party B shall appoint any designee of Party A as the director (or executive director) of Party C, at the request of Party A;

 

2.2.8            At the request of Party A at any time, Party B shall promptly and unconditionally transfer its equity interests in Party C to Party A’s Designee(s) in accordance with the Equity Interest Purchase Option under this Agreement, and Party B hereby waives its right of first refusal (if any) to the share transfer by the other existing shareholder of Party C (if any); and

 

2.2.9            Party B shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and among Party B, Party C and Party A, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability hereof and thereof. To the extent that Party B has any remaining rights with respect to the equity interests subject to this Agreement hereunder or under Party B’s Equity Pledge Agreement or under the Power of Attorney granted in favor of Party A, Party B shall not exercise such rights except in accordance with the written instructions of Party A.

 

3.                       Representations and Warranties

 

Party B and Party C hereby represent and warrant to Party A, jointly and severally, as of the date of this Agreement and each date of transfer of the Optioned Interests, that:

 

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3.1                      They have the authority to execute and deliver this Agreement and any share transfer contracts to which they are a party concerning the Optioned Interests to be transferred thereunder (each, a “ Transfer Contracts ”), and to perform their obligations under this Agreement and any Transfer Contracts. Party B and Party C agree to enter into Transfer Contracts consistent with the terms of this Agreement upon Party A’s exercise of the Equity Interest Purchase Option. This Agreement and the Transfer Contracts to which Party B and Party C are the parties constitute or will constitute their legal, valid and binding obligations and shall be enforceable against them in accordance with the provisions thereof;

 

3.2                      The execution and delivery of this Agreement or any Transfer Contracts and the obligations under this Agreement or any Transfer Contracts shall not: (i) cause any violation of any applicable laws of China; (ii) be inconsistent with the articles of association, bylaws or other organizational documents of Party C; (iii) cause the violation of any contracts or instruments to which they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are binding on them; (iv) cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to either of them; or (v) cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to either of them;

 

3.3                      Party B has a good and merchantable title to the equity interests in Party C he holds. Except for Party B’s Equity Pledge Agreement, Party B has not placed any security interest on such equity interests;

 

3.4                      Party C has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets;

 

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3.5                      Party C does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to Party A for which Party A’s written consent has been obtained;

 

3.6                      Party C has complied with all laws and regulations of China applicable to asset acquisitions; and

 

3.7                      There are no pending or threatened litigation, arbitration or administrative proceedings relating to the equity interests in Party C, assets of Party C or Party C.

 

4.                       Effective Date

 

This Agreement shall become effective upon the date hereof, and maintain effective unless terminated in accordance with the provisions hereof, or was compelled to terminate under applicable PRC laws and regulations.

 

5.                       Governing Law and Resolution of Disputes

 

5.1                        Governing law

 

The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the formally published and publicly available laws of China. Matters not covered by formally published and publicly available laws of China shall be governed by international legal principles and practices.

 

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5.2                        Methods of Resolution of Disputes

 

In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.

 

6.                       Taxes and Fees

 

Each Party shall pay any and all transfer and registration tax, expenses and fees incurred thereby or levied thereon in accordance with the laws of China in connection with the preparation and execution of this Agreement and the Transfer Contracts, as well as the consummation of the transactions contemplated under this Agreement and the Transfer Contracts.

 

7.                       Notices

 

7.1                      All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such Party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

7.1.1                      Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices.

 

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7.1.2                      Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

7.2                        For the purpose of notices, the addresses of the Parties are as follows:

 

Party A:         Shanghai Chu Le Information Technology Co., Ltd.

Address:       

Attn:               Zhang Kan

Phone:          

Facsimile:     

 

Party B:         Wang Jian

Address:       

Facsimile:     

 

Party C:         Shanghai Chu Bao Information Technology Co., Ltd.

Address:       

Attn:               Zhang Kan

Phone:          

Facsimile:     

 

7.3                      Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.

 

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8.                       Confidentiality

 

The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. Each Party shall maintain the confidentiality of all such information, and without obtaining the written consent of other Parties, it shall not disclose any relevant information to any third parties, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

9.                       Further Warranties

 

The Parties agree to promptly execute documents that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement and take further actions that are reasonably required for or are conducive to the implementation of the provisions and purposes of this Agreement.

 

10.                Miscellaneous

 

10.1                 Amendment, change and supplement

 

Any amendment, change and supplement to this Agreement shall require the execution of a written agreement by all of the Parties.

 

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10.2                 Entire agreement

 

Except for the amendments, supplements or changes in writing executed after the execution of this Agreement, this Agreement shall constitute the entire agreement reached by and among the Parties hereto with respect to the subject matter hereof, and shall supercede all prior oral and written consultations, representations and contracts reached with respect to the subject matter of this Agreement, including the Prior Option Agreement.

 

10.3                 Headings

 

The headings of this Agreement are for convenience only, and shall not be used to interpret, explain or otherwise affect the meanings of the provisions of this Agreement.

 

10.4                 Language

 

This Agreement is written in both Chinese and English language in three copies, each Party having one copy with equal legal validity; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

10.5                 Severability

 

In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

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10.6                 Successors

 

This Agreement shall be binding on and shall inure to the interest of the respective successors of the Parties and the permitted assigns of such Parties.

 

10.7                 Survival

 

10.7.1               Any obligations that occur or that are due as a result of this Agreement upon the expiration or early termination of this Agreement shall survive the expiration or early termination thereof.

 

10.7.2               The provisions of Section 5, 7, 8 and this Section 10.7 shall survive the termination of this Agreement.

 

10.8                 Waivers

 

Any Party may waive the terms and conditions of this Agreement, provided that such a waiver must be provided in writing and shall require the signatures of the Parties. No waiver by any Party in certain circumstances with respect to a breach by other Parties shall operate as a waiver by such a Party with respect to any similar breach in other circumstances.

 

[The Remainder of this page is intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have executed, or caused their respective duly authorized representatives to execute, this Amended and Restated Exclusive Purchase Option Agreement as of the date first above written.

 

Party A:        Shanghai Chu Le Information Technology Co., Ltd.

 

By:

/s/ Zhang Kan

 

 

Name:

Zhang Kan

 

Title:

Legal Representative

 

 

 

Party B:        Wang Jian

 

By:

/s/ Wang Jian

 

 

 

 

Party C:        Shanghai Chu Bao Information Technology Co., Ltd.

 

By:

/s/ Zhang Kan

 

 

Name:

Zhang Kan

 

Title:

Legal Representative

 

 

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Exhibit  10.7

 

Amended and Restated Equity Pledge Agreement

 

Amended and Restated Equity Pledge Agreement

 

This Amended and Restated Equity Pledge Agreement (“ this Agreement ”) has been executed by and among the following parties on October 30, 2012 in Shanghai, the People’s Republic of China (the “ China ”):

 

Pledgee:                      Shanghai Chu Le Information Technology Co., Ltd. (“ Pledgee ” or “ Party A ”)

Address:                      ***

 

Pledgor:                      Zhang Kan (“ Pledgor ” or “ Party B ”)

ID No.:                        ***

 

Party C:                      Shanghai Chu Bao Information Technology Co., Ltd.

Address:                      ***

 

In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the “Parties”.

 

Whereas:

 

1.                       Pledgor is a citizen of China, and holds 25% of the equity interest in Party C. Party C is a limited liability company registered in Shanghai, China, engaging in the technology development, technology transfer and other related business. Pledgee is a wholly foreign-owned enterprise registered in China.

 

1.                       Pledgee and Party C executed an Exclusive Business Cooperation Agreement on August 6, 2012 in Shanghai, pursuant to which Pledgee exclusively provides technology and consultation service for Party C and Party C pays consulting and services fee to Pledgee as the consideration.

 

Strictly Confidential

 

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2.                       Pledgee, Pledgor and Party C executed an Equity Pledge Agreement (the “ Prior Pledge Agreement ”) on August 6, 2012 in Shanghai, pursuant to which, Pledgor pledges all its current and future equity interests in Party C (no matter whether the shareholding percentage changes or not) to secure its payment obligation under the Exclusive Business Cooperation Agreement.

 

3.                       Pledgee, Pledgor and Party C executed an Amended and Restated Exclusive Purchase Option Agreement on October 30, 2012 in Shanghai, pursuant to which Pledgor irrevocably grants Pledgee or any other entity or individual designated by Pledgee an exclusive option to directly or indirectly purchase all or part of equity interest owned by Pledgor in Party C.

 

4.                       Pledgor issued a Power of Attorney on October 30, 2012 to Pledgee which irrevocably authorized Pledgee to act on behalf of Pledgor to exercise all rights in connection with the equity interest held by Pledgor in Party C.

 

5.                       As the Parties desires to expand the security scope of Prior Pledge Agreement so as to secure all the obligations of Pledgor and Party C under the Exclusive Business Cooperation Agreement, the Amended and Restated Exclusive Purchase Option Agreement, the Loan Agreement and the Power of Attorney, the Parties desire to amend, restate, supersede and replace in its entirety the Prior Pledge Agreement.

 

To perform the provisions of the Transaction Documents, the Parties have mutually agreed to execute this Agreement upon the following terms.

 

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1.                       Definitions

 

Unless otherwise provided herein, the terms below shall have the following meanings:

 

1.1                      Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Article 2 of this Agreement, i.e., the right of Pledgee to be compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest.

 

1.2                      Equity Interest: shall refer to all of the equity interest lawfully now held and hereafter acquired by Pledgor in Party C (whether the percentage of the equity interest is changed or not in the future).

 

1.3                      Term of Pledge: shall refer to the term set forth in Section 3.2 of this Agreement.

 

1.4                      Transaction Documents: shall refer to the Exclusive Business Cooperation Agreement, Amended and Restated Exclusive Purchase Option Agreement, Loan Agreement and Power of Attorney (the Attachment 3, Attachment 4, Attachment 5 and Attachment 6 ).

 

1.5                      Event of Default: shall refer to any of the circumstances set forth in Article 7 of this Agreement.

 

1.6                      Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default.

 

2.                       The Pledge

 

As collateral security for the duly performance by Pledgor and Party C of their respective obligations under the Transaction Documents and the timely and complete payment when due (whether at stated maturity, by acceleration or otherwise) of any and all of the payments due by Party C under the Transaction Documents, including without limitation the consulting and services fees payable to the Pledgee under the Exclusive Business Cooperation Agreement, Pledgor hereby pledges to Pledgee a first security interest in all of Pledgor’s right, title and interest, whether now owned or hereafter acquired by Pledgor, in the Equity Interest of Party C.

 

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3.                       Term of Pledge

 

3.1                      The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with relevant administration for industry and commerce (the “ AIC ”). The Pledge shall be continuously valid until all payments due under the Transaction Documents have been fulfilled by Party C. Pledgor and Party C shall (1) register the Pledge in the shareholders’ register of Party C within three (3) working days following the execution of this Agreement, and (2) submit an application to the AIC for the registration of the Pledge of the Equity Interest contemplated herein within ten (10) working days following the execution of this Agreement. The parties covenant that for the purpose of registration of the Pledge (including re-registration of the Pledge when the percentage of equity interest the Pledgor holds in Party C changes), the parties hereto and all other shareholders of Party C shall submit to the AIC the Equity Interest Pledge Contract as set forth in the Attachment 7 of this Agreement in the form required by the AIC at the location of Party C which shall truly reflect the information of the Pledge hereunder (the “ AIC Pledge Contract ”). In case that there is any discrepancy between the AIC Pledge Contract and this Agreement, the provisions of this Agreement shall prevail. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC as soon as possible after filing.

 

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3.2                      During the Term of Pledge, in the event Party C fails to perform any of its obligations in accordance with the Transaction Documents, Pledgee shall have the right, but not the obligation, to dispose of the Pledge in accordance with the provisions of this Agreement.

 

4.                       Custody of Records for Equity Interest subject to Pledge

 

4.1                      During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgee’s custody the original capital contribution certificate for the Equity Interest (the Attachment 2 ) and the original shareholders’ register containing the Pledge (the Attachment 1 ) within five (5) working days from the execution of this Agreement or from completion of the re-registration of shareholding when percentage of equity interest changed (in that case, Pledgor shall deliver to Pledgee’s custody the updated original capital contribution certificate for the Equity Interest and the updated original shareholders’ register containing the Pledge as attachment to this Agreement). Pledgee shall have custody of such original documents during the entire Term of Pledge set forth in this Agreement.

 

4.2                      Pledgee shall have the right to collect dividends generated by the Equity Interest during the Term of Pledge.

 

5.                       Representations and Warranties of Pledgor

 

5.1                      Pledgor is the sole legal and beneficial owner of the Equity Interest.

 

5.2                      Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement.

 

5.3                      Upon execution, this Agreement shall constitute the Pledgor’s legal, valid and binding obligations in accordance with the provisions herein.

 

5.4                      Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest.

 

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5.5                      No third party consent or government approval or registration, except for the Registration of Pledge with the AIC, is required in connection with the execution and performance of this Agreement;

 

5.6                      There is no pending disputation or litigation proceeding related to the Equity Interest.

 

6.                       Covenants and Further Agreements of Pledgor

 

6.1                        Pledgor hereby covenants to the Pledgee, that during the term of this Agreement, Pledgor shall:

 

6.1.1                      not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity Interest, or disposal of the Equity Interest in any other means, without the prior written consent of Pledgee, except for the performance of the Transaction Documents executed by Pledgor, the Pledgee and Party C on the execution date of this Agreement;

 

6.1.2                      comply with the provisions of all laws and regulations applicable to the pledge of rights, and within five (5) working days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or submit objections and representations with respect to the aforementioned matters upon Pledgee’s reasonable request or upon consent of Pledgee;

 

6.1.3                      promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on Pledgee’s rights to the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and other obligations of Pledgor arising out of this Agreement.

 

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6.2                      Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings.

 

6.3                      To protect or perfect the security interest granted by this Agreement for Pledgor and Party C’s performance of obligations under the Transaction Documents, Pledgor hereby undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee.

 

6.4                      Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shall indemnify Pledgee for all losses resulting therefrom.

 

7.                       Event of Breach

 

7.1                        The following circumstances shall be deemed Event of Default:

 

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7.1.1            Party C fails to fully and timely fulfill any liabilities under the Transaction Documents, including without limitation failure to pay in full any of the payment payable under the Transaction Documents or breaches any other obligations of Party C thereunder;

 

7.1.2            Pledgor or Party C has committed a material breach of any provisions of this Agreement;

 

7.1.3            The Pledgor and Party C fail to register the Pledge in the shareholders’ register of Party C or fail to complete the Registration of Pledge stipulated in Section 3.1;

 

7.1.4            Except as expressly stipulated in Section 6.1.1, Pledgor abandons the Equity Interest pledged or transfers or purports to transfer the Equity Interest pledged without the written consent of Pledgee;

 

7.1.5            The successor or custodian of Party C is capable of only partially perform or refuses to perform the payment obligations under the Transaction Documents; and

 

7.1.6            Due to causes of the Pledgor or Party C, any other circumstances occur where the Pledgee is or may become unable to exercise its right with respect to the Pledge in accordance with applicable laws.

 

7.2                      Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section 7.1, Pledgor shall immediately notify Pledgee in writing accordingly.

 

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7.3                      Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee’s satisfaction within twenty (20) working days after the Pledgee delivers a notice to the Pledgor requesting ratification of such Event of Default, Pledgee may issue a Notice of Default to Pledgor in writing at any time thereafter, demanding the Pledgor to immediately dispose of the Pledge in accordance with the provisions of Article 8 of this Agreement.

 

8.                       Exercise of Pledge

 

8.1                      Prior to the full payment of the funds under the Transaction Documents, without the Pledgee’s written consent, Pledgor shall not assign the Pledge or the Equity Interest in Party C.

 

8.2                      Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge.

 

8.3                      Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at the time when, or at any time after, the issuance of the Notice of Default in accordance with Section 8.2. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests associated with the Equity Interest.

 

8.4                      In the event of default, Pledgee is entitled to dispose of the Equity Interest pledged in accordance with applicable PRC laws. Only to the extent permitted under applicable PRC laws, Pledgee has no obligation to account to Pledgor for proceeds of disposition of the Equity Interest, and Pledgor hereby waives any rights it may have to demand any such accounting from Pledgee; likewise, in such circumstance Pledgor shall have no obligation to Pledgee for any deficiency remaining after such disposition of the Equity Interest pledged.

 

8.5                      When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable Pledgee to enforce the Pledge in accordance with this Agreement.

 

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9.                       Assignment

 

9.1                      Without Pledgee’s prior written consent, Pledgor shall not have the right to assign or delegate its rights and obligations under this Agreement.

 

9.2                      This Agreement shall be binding on Pledgor and its successors and permitted assigns, and shall be valid with respect to Pledgee and each of its successors and assigns.

 

9.3                      At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents to its designee(s) (natural/legal persons), in which case the assigns shall have the rights and obligations of Pledgee under this Agreement, as if it were the original party to this Agreement. When the Pledgee assigns the rights and obligations under the Transaction Documents, upon Pledgee’s request, Pledgor shall execute relevant agreements or other documents relating to such assignment.

 

9.4                      In the event of a change in Pledgee due to an assignment, Pledgor shall, at the request of Pledgee, execute a new pledge agreement with the new pledgee on the same terms and conditions as this Agreement, and register for change of the same with the competent AIC.

 

9.5                      Pledgor shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto or any of them, including the Exclusive Purchase Option Agreement and the Power of Attorney granted to Pledgee, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee.

 

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10.                Termination

 

Upon the full payment of the funds under the Transaction Documents and upon termination of Party C’s obligations under the Transaction Documents, this Agreement shall be terminated, and Pledgee shall then cancel or terminate this Agreement as soon as reasonably practicable.

 

11.                Handling Fees and Other Expenses

 

All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other taxes and fees, shall be borne by Party C.

 

12.                Confidentiality

 

The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

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13.                Governing Law and Resolution of Disputes

 

13.1               The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of China.

 

13.2               In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.

 

13.3               Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement.

 

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14.                Notices

 

14.1               All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

14.2               Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices.

 

14.3               Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

14.4               For the purpose of notices, the addresses of the Parties are as follows:

 

Party A:                            Shanghai Chu Le Information Technology Co., Ltd.

Address:                         

Attn:                                             Zhang Kan

Phone:                                  

Facsimile:                 

 

Party B:                            Zhang Kan

Address:                         

Facsimile:                 

 

Party C:                            Shanghai Chu Bao Information Technology Co., Ltd.

Address:                         

Attn:                                             Zhang Kan

Phone:                                  

Facsimile:                 

 

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14.5               Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.

 

15.                Severability

 

In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

16.                Attachments

 

The attachments set forth herein shall be an integral part of this Agreement.

 

17.                Effectiveness

 

17.1               This Agreement shall come into effect upon execution by the Parties as of the date first above written. Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon the affixation of the signatures or seals of the Parties.

 

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17.2               This Agreement is written in Chinese and English in three copies. Pledgor, Pledgee and Party C shall hold one copy respectively. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

[The Remainder of this page is intentionally left blank]

 

15



 

IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Equity Pledge Agreement as of the date first above written.

 

 

Party A:                                                 Shanghai Chu Le Information Technology Co., Ltd.

 

By:

/s/ Zhang Kan

 

 

Name:

Zhang Kan

 

Title:

Legal Representative

 

 

 

Party B:                                             Zhang Kan

 

By:

/s/ Zhang Kan

 

 

 

 

Party C:                                                 Shanghai Chu Bao Information Technology Co., Ltd.

 

By:

/s/ Zhang Kan

 

 

Name:

Zhang Kan

 

Title:

Legal Representative

 

 

16


 

Amended and Restated Equity Pledge Agreement

 

This Amended and Restated Equity Pledge Agreement (“ this Agreement ”) has been executed by and among the following parties on October 30, 2012 in Shanghai, the People’s Republic of China (the “ China ”):

 

Pledgee:

 

Shanghai Chu Le Information Technology Co., Ltd. (“ Pledgee ” or “ Party A ”)

Address:

 

***

 

 

 

Pledgor:

 

Zhu Haiyan (“ Pledgor ” or “ Party B ”)

ID No.:

 

***

 

 

 

Party C:

 

Shanghai Chu Bao Information Technology Co., Ltd.

Address:

 

***

 

In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the “Parties”.

 

Whereas:

 

1.                       Pledgor is a citizen of China, and holds 18% of the equity interest in Party C. Party C is a limited liability company registered in Shanghai, China, engaging in the technology development, technology transfer and other related business. Pledgee is a wholly foreign-owned enterprise registered in China.

 

1.                       Pledgee and Party C executed an Exclusive Business Cooperation Agreement on August 6, 2012 in Shanghai, pursuant to which Pledgee exclusively provides technology and consultation service for Party C and Party C pays consulting and services fee to Pledgee as the consideration.

 

1



 

2.                       Pledgee, Pledgor and Party C executed an Equity Pledge Agreement (the “ Prior Pledge Agreement ”) on August 6, 2012 in Shanghai, pursuant to which, Pledgor pledges all its current and future equity interests in Party C (no matter whether the shareholding percentage changes or not) to secure its payment obligation under the Exclusive Business Cooperation Agreement.

 

3.                       Pledgee, Pledgor and Party C executed an Amended and Restated Exclusive Purchase Option Agreement on October 30, 2012 in Shanghai, pursuant to which Pledgor irrevocably grants Pledgee or any other entity or individual designated by Pledgee an exclusive option to directly or indirectly purchase all or part of equity interest owned by Pledgor in Party C.

 

4.                       Pledgor issued a Power of Attorney on October 30, 2012 to Pledgee which irrevocably authorized Pledgee to act on behalf of Pledgor to exercise all rights in connection with the equity interest held by Pledgor in Party C.

 

5.                       As the Parties desires to expand the security scope of Prior Pledge Agreement so as to secure all the obligations of Pledgor and Party C under the Exclusive Business Cooperation Agreement, the Amended and Restated Exclusive Purchase Option Agreement, the Loan Agreement and the Power of Attorney, the Parties desire to amend, restate, supersede and replace in its entirety the Prior Pledge Agreement.

 

To perform the provisions of the Transaction Documents, the Parties have mutually agreed to execute this Agreement upon the following terms.

 

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1.                       Definitions

 

Unless otherwise provided herein, the terms below shall have the following meanings:

 

1.1                      Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Article 2 of this Agreement, i.e., the right of Pledgee to be compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest.

 

1.2                      Equity Interest: shall refer to all of the equity interest lawfully now held and hereafter acquired by Pledgor in Party C (whether the percentage of the equity interest is changed or not in the future).

 

1.3                      Term of Pledge: shall refer to the term set forth in Section 3.2 of this Agreement.

 

1.4                      Transaction Documents: shall refer to the Exclusive Business Cooperation Agreement, Amended and Restated Exclusive Purchase Option Agreement, Loan Agreement and Power of Attorney (the Attachment 3, Attachment 4, Attachment 5 and Attachment 6 ).

 

1.5                      Event of Default: shall refer to any of the circumstances set forth in Article 7 of this Agreement.

 

1.6                      Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default.

 

2.                       The Pledge

 

As collateral security for the duly performance by Pledgor and Party C of their respective obligations under the Transaction Documents and the timely and complete payment when due (whether at stated maturity, by acceleration or otherwise) of any and all of the payments due by Party C under the Transaction Documents, including without limitation the consulting and services fees payable to the Pledgee under the Exclusive Business Cooperation Agreement, Pledgor hereby pledges to Pledgee a first security interest in all of Pledgor’s right, title and interest, whether now owned or hereafter acquired by Pledgor, in the Equity Interest of Party C.

 

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3.                       Term of Pledge

 

3.1                      The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with relevant administration for industry and commerce (the “ AIC ”). The Pledge shall be continuously valid until all payments due under the Transaction Documents have been fulfilled by Party C. Pledgor and Party C shall (1) register the Pledge in the shareholders’ register of Party C within three (3) working days following the execution of this Agreement, and (2) submit an application to the AIC for the registration of the Pledge of the Equity Interest contemplated herein within ten (10) working days following the execution of this Agreement. The parties covenant that for the purpose of registration of the Pledge (including re-registration of the Pledge when the percentage of equity interest the Pledgor holds in Party C changes), the parties hereto and all other shareholders of Party C shall submit to the AIC the Equity Interest Pledge Contract as set forth in the Attachment 7 of this Agreement in the form required by the AIC at the location of Party C which shall truly reflect the information of the Pledge hereunder (the “ AIC Pledge Contract ”). In case that there is any discrepancy between the AIC Pledge Contract and this Agreement, the provisions of this Agreement shall prevail. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC as soon as possible after filing.

 

4



 

3.2                      During the Term of Pledge, in the event Party C fails to perform any of its obligations in accordance with the Transaction Documents, Pledgee shall have the right, but not the obligation, to dispose of the Pledge in accordance with the provisions of this Agreement.

 

4.                       Custody of Records for Equity Interest subject to Pledge

 

4.1                      During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgee’s custody the original capital contribution certificate for the Equity Interest (the Attachment 2 ) and the original shareholders’ register containing the Pledge (the Attachment 1 ) within five (5) working days from the execution of this Agreement or from completion of the re-registration of shareholding when percentage of equity interest changed (in that case, Pledgor shall deliver to Pledgee’s custody the updated original capital contribution certificate for the Equity Interest and the updated original shareholders’ register containing the Pledge as attachment to this Agreement). Pledgee shall have custody of such original documents during the entire Term of Pledge set forth in this Agreement.

 

4.2                        Pledgee shall have the right to collect dividends generated by the Equity Interest during the Term of Pledge.

 

5.                       Representations and Warranties of Pledgor

 

5.1                      Pledgor is the sole legal and beneficial owner of the Equity Interest.

 

5.2                      Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement.

 

5.3                      Upon execution, this Agreement shall constitute the Pledgor’s legal, valid and binding obligations in accordance with the provisions herein.

 

5.4                      Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest.

 

5



 

5.5                      No third party consent or government approval or registration, except for the Registration of Pledge with the AIC, is required in connection with the execution and performance of this Agreement;

 

5.6                      There is no pending disputation or litigation proceeding related to the Equity Interest.

 

6.                       Covenants and Further Agreements of Pledgor

 

6.1                      Pledgor hereby covenants to the Pledgee, that during the term of this Agreement, Pledgor shall:

 

6.1.1            not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity Interest, or disposal of the Equity Interest in any other means, without the prior written consent of Pledgee, except for the performance of the Transaction Documents executed by Pledgor, the Pledgee and Party C on the execution date of this Agreement;

 

6.1.2            comply with the provisions of all laws and regulations applicable to the pledge of rights, and within five (5) working days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or submit objections and representations with respect to the aforementioned matters upon Pledgee’s reasonable request or upon consent of Pledgee;

 

6



 

6.1.3            promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on Pledgee’s rights to the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and other obligations of Pledgor arising out of this Agreement.

 

6.2                      Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings.

 

6.3                      To protect or perfect the security interest granted by this Agreement for Pledgor and Party C’s performance of obligations under the Transaction Documents, Pledgor hereby undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee.

 

6.4                      Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shall indemnify Pledgee for all losses resulting therefrom.

 

7.                       Event of Breach

 

7.1                        The following circumstances shall be deemed Event of Default:

 

7


 

7.1.1            Party C fails to fully and timely fulfill any liabilities under the Transaction Documents, including without limitation failure to pay in full any of the payment payable under the Transaction Documents or breaches any other obligations of Party C thereunder;

 

7.1.2            Pledgor or Party C has committed a material breach of any provisions of this Agreement;

 

7.1.3            The Pledgor and Party C fail to register the Pledge in the shareholders’ register of Party C or fail to complete the Registration of Pledge stipulated in Section 3.1;

 

7.1.4            Except as expressly stipulated in Section 6.1.1, Pledgor abandons the Equity Interest pledged or transfers or purports to transfer the Equity Interest pledged without the written consent of Pledgee;

 

7.1.5            The successor or custodian of Party C is capable of only partially perform or refuses to perform the payment obligations under the Transaction Documents; and

 

7.1.6            Due to causes of the Pledgor or Party C, any other circumstances occur where the Pledgee is or may become unable to exercise its right with respect to the Pledge in accordance with applicable laws.

 

7.2                      Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section 7.1, Pledgor shall immediately notify Pledgee in writing accordingly.

 

8



 

7.3                      Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee’s satisfaction within twenty (20) working days after the Pledgee delivers a notice to the Pledgor requesting ratification of such Event of Default, Pledgee may issue a Notice of Default to Pledgor in writing at any time thereafter, demanding the Pledgor to immediately dispose of the Pledge in accordance with the provisions of Article 8 of this Agreement.

 

8.                       Exercise of Pledge

 

8.1                      Prior to the full payment of the funds under the Transaction Documents, without the Pledgee’s written consent, Pledgor shall not assign the Pledge or the Equity Interest in Party C.

 

8.2                      Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge.

 

8.3                      Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at the time when, or at any time after, the issuance of the Notice of Default in accordance with Section 8.2. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests associated with the Equity Interest.

 

8.4                      In the event of default, Pledgee is entitled to dispose of the Equity Interest pledged in accordance with applicable PRC laws. Only to the extent permitted under applicable PRC laws, Pledgee has no obligation to account to Pledgor for proceeds of disposition of the Equity Interest, and Pledgor hereby waives any rights it may have to demand any such accounting from Pledgee; likewise, in such circumstance Pledgor shall have no obligation to Pledgee for any deficiency remaining after such disposition of the Equity Interest pledged.

 

8.5                      When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable Pledgee to enforce the Pledge in accordance with this Agreement.

 

9



 

9.                       Assignment

 

9.1                      Without Pledgee’s prior written consent, Pledgor shall not have the right to assign or delegate its rights and obligations under this Agreement.

 

9.2                      This Agreement shall be binding on Pledgor and its successors and permitted assigns, and shall be valid with respect to Pledgee and each of its successors and assigns.

 

9.3                      At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents to its designee(s) (natural/legal persons), in which case the assigns shall have the rights and obligations of Pledgee under this Agreement, as if it were the original party to this Agreement. When the Pledgee assigns the rights and obligations under the Transaction Documents, upon Pledgee’s request, Pledgor shall execute relevant agreements or other documents relating to such assignment.

 

9.4                      In the event of a change in Pledgee due to an assignment, Pledgor shall, at the request of Pledgee, execute a new pledge agreement with the new pledgee on the same terms and conditions as this Agreement, and register for change of the same with the competent AIC.

 

9.5                      Pledgor shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto or any of them, including the Exclusive Purchase Option Agreement and the Power of Attorney granted to Pledgee, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee.

 

10



 

10.                Termination

 

Upon the full payment of the funds under the Transaction Documents and upon termination of Party C’s obligations under the Transaction Documents, this Agreement shall be terminated, and Pledgee shall then cancel or terminate this Agreement as soon as reasonably practicable.

 

11.                Handling Fees and Other Expenses

 

All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other taxes and fees, shall be borne by Party C.

 

12.                Confidentiality

 

The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

11



 

13.                Governing Law and Resolution of Disputes

 

13.1               The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of China.

 

13.2               In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.

 

13.3               Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement.

 

12



 

14.             Notices

 

14.1               All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

14.2               Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices.

 

14.3               Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

14.4               For the purpose of notices, the addresses of the Parties are as follows:

 

Party A:

 

Shanghai Chu Le Information Technology Co., Ltd.

Address:

 

 

Attn:

 

Zhang Kan

Phone:

 

 

Facsimile:

 

 

 

 

 

Party B:

 

Zhu Haiyan

Address:

 

 

Zip Code:

 

 

Facsimile:

 

 

 

13



 

Party C:

 

Shanghai Chu Bao Information Technology Co., Ltd.

Address:

 

 

Attn:

 

Zhang Kan

Phone:

 

 

Facsimile:

 

 

 

14.5               Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.

 

15.                Severability

 

In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

16.                Attachments

 

The attachments set forth herein shall be an integral part of this Agreement.

 

17.                Effectiveness

 

17.1               This Agreement shall come into effect upon execution by the Parties as of the date first above written. Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon the affixation of the signatures or seals of the Parties.

 

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17.2               This Agreement is written in Chinese and English in three copies. Pledgor, Pledgee and Party C shall hold one copy respectively. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

[The Remainder of this page is intentionally left blank]

 

15



 

IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Equity Pledge Agreement as of the date first above written.

 

 

Party A:                                                 Shanghai Chu Le Information Technology Co., Ltd.

 

By:

/s/ Zhang Kan

 

 

Name:

Zhang Kan

 

Title:

Legal Representative

 

 

 

Party B:                                                 Zhu Haiyan

 

By:

/s/ Zhu Haiyan

 

 

 

 

Party C:                                                 Shanghai Chu Bao Information Technology Co., Ltd.

 

By:

/s/ Zhang Kan

 

 

Name:

Zhang Kan

 

Title:

Legal Representative

 

 


 

Amended and Restated Equity Pledge Agreement

 

This Amended and Restated Equity Pledge Agreement (“ this Agreement ”) has been executed by and among the following parties on October 30, 2012 in Shanghai, the People’s Republic of China (the “ China ”):

 

Pledgee:                                                                 Shanghai Chu Le Information Technology Co., Ltd. (“ Pledgee ” or “ Party A ”)

Address:                                                                  ***

 

Pledgor :                                                                Li Qiaoling (“ Pledgor ” or “ Party B ”)

ID No.:                                                                         ***

 

Party C:                                                                 Shanghai Chu Bao Information Technology Co., Ltd.

Address:                                                                  ***

 

In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the “Parties”.

 

Whereas:

 

1 .                       Pledgor is a citizen of China, and holds 21.94% of the equity interest in Party C. Party C is a limited liability company registered in Shanghai, China, engaging in the technology development, technology transfer and other related business. Pledgee is a wholly foreign-owned enterprise registered in China.

 

2 .                       Pledgee and Party C executed an Exclusive Business Cooperation Agreement on August 6, 2012 in Shanghai, pursuant to which Pledgee exclusively provides technology and consultation service for Party C and Party C pays consulting and services fee to Pledgee as the consideration.

 

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3.                       Pledgee, Pledgor and Party C executed an Equity Pledge Agreement (the “ Prior Pledge Agreement ”) on August 6, 2012 in Shanghai, pursuant to which, Pledgor pledges all its current and future equity interests in Party C (no matter whether the shareholding percentage changes or not) to secure its payment obligation under the Exclusive Business Cooperation Agreement.

 

4 .                       Pledgee, Pledgor and Party C executed an Amended and Restated Exclusive Purchase Option Agreement on October 30, 2012 in Shanghai, pursuant to which Pledgor irrevocably grants Pledgee or any other entity or individual designated by Pledgee an exclusive option to directly or indirectly purchase all or part of equity interest owned by Pledgor in Party C.

 

5 .                       Pledgor issued a Power of Attorney on October 30, 2012 to Pledgee which irrevocably authorized Pledgee to act on behalf of Pledgor to exercise all rights in connection with the equity interest held by Pledgor in Party C.

 

6 .                       As the Parties desire to expand the security scope of Prior Pledge Agreement so as to secure all the obligations of Pledgor and Party C under the Exclusive Business Cooperation Agreement, the Amended and Restated Exclusive Purchase Option Agreement, the Loan Agreement and the Power of Attorney, the Parties desire to amend, restate, supersede and replace in its entirety the Prior Pledge Agreement.

 

To perform the provisions of the Transaction Documents, the Parties have mutually agreed to execute this Agreement upon the following terms.

 

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1.                       Definitions

 

Unless otherwise provided herein, the terms below shall have the following meanings:

 

1.1                      Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Article 2 of this Agreement, i.e., the right of Pledgee to be compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest.

 

1.2                      Equity Interest: shall refer to all of the equity interest lawfully now held and hereafter acquired by Pledgor in Party C (whether the percentage of the equity interest is changed or not in the future).

 

1.3                      Term of Pledge: shall refer to the term set forth in Section 3.2 of this Agreement.

 

1.4                      Transaction Documents: shall refer to the Exclusive Business Cooperation Agreement, Amended and Restated Exclusive Purchase Option Agreement, Loan Agreement and Power of Attorney (the Attachment 3, Attachment 4, Attachment 5 and Attachment 6 ).

 

1.5                      Event of Default: shall refer to any of the circumstances set forth in Article 7 of this Agreement.

 

1.6                      Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default.

 

2.                       The Pledge

 

As collateral security for the duly performance by Pledgor and Party C of their respective obligations under the Transaction Documents and the timely and complete payment when due (whether at stated maturity, by acceleration or otherwise) of any and all of the payments due by Party C under the Transaction Documents, including without limitation the consulting and services fees payable to the Pledgee under the Exclusive Business Cooperation Agreement, Pledgor hereby pledges to Pledgee a first security interest in all of Pledgor’s right, title and interest, whether now owned or hereafter acquired by Pledgor, in the Equity Interest of Party C.

 

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3.                       Term of Pledge

 

3.1                      The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with relevant administration for industry and commerce (the “ AIC ”). The Pledge shall be continuously valid until all payments due under the Transaction Documents have been fulfilled by Party C. Pledgor and Party C shall (1) register the Pledge in the shareholders’ register of Party C within three (3) working days following the execution of this Agreement, and (2) submit an application to the AIC for the registration of the Pledge of the Equity Interest contemplated herein within ten (10) working days following the execution of this Agreement. The parties covenant that for the purpose of registration of the Pledge (including re-registration of the Pledge when the percentage of equity interest the Pledgor holds in Party C changes), the parties hereto and all other shareholders of Party C shall submit to the AIC the Equity Interest Pledge Contract as set forth in the Attachment 7 of this Agreement in the form required by the AIC at the location of Party C which shall truly reflect the information of the Pledge hereunder (the “ AIC Pledge Contract ”). In case that there is any discrepancy between the AIC Pledge Contract and this Agreement, the provisions of this Agreement shall prevail. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC as soon as possible after filing.

 

3.2                      During the Term of Pledge, in the event Party C fails to perform any of its obligations in accordance with the Transaction Documents, Pledgee shall have the right, but not the obligation, to dispose of the Pledge in accordance with the provisions of this Agreement.

 

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4.                       Custody of Records for Equity Interest subject to Pledge

 

4.1                      During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgee’s custody the original capital contribution certificate for the Equity Interest (the Attachment 2 ) and the original shareholders’ register containing the Pledge (the Attachment 1 ) within five (5) working days from the execution of this Agreement or from completion of the re-registration of shareholding when percentage of equity interest changed (in that case, Pledgor shall deliver to Pledgee’s custody the updated original capital contribution certificate for the Equity Interest and the updated original shareholders’ register containing the Pledge as attachment to this Agreement). Pledgee shall have custody of such original documents during the entire Term of Pledge set forth in this Agreement.

 

4.2                        Pledgee shall have the right to collect dividends generated by the Equity Interest during the Term of Pledge.

 

5.                       Representations and Warranties of Pledgor

 

5.1                      Pledgor is the sole legal and beneficial owner of the Equity Interest.

 

5.2                      Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement.

 

5.3                      Upon execution, this Agreement shall constitute the Pledgor’s legal, valid and binding obligations in accordance with the provisions herein.

 

5.4                      Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest.

 

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5.5                      No third party consent or government approval or registration, except for the Registration of Pledge with the AIC, is required in connection with the execution and performance of this Agreement;

 

5.6                      There is no pending disputation or litigation proceeding related to the Equity Interest.

 

6.                       Covenants and Further Agreements of Pledgor

 

6.1                      Pledgor hereby covenants to the Pledgee, that during the term of this Agreement, Pledgor shall:

 

6.1.1            not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity Interest, or disposal of the Equity Interest in any other means, without the prior written consent of Pledgee, except for the performance of the Transaction Documents executed by Pledgor, the Pledgee and Party C on the execution date of this Agreement;

 

6.1.2            comply with the provisions of all laws and regulations applicable to the pledge of rights, and within five (5) working days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or submit objections and representations with respect to the aforementioned matters upon Pledgee’s reasonable request or upon consent of Pledgee;

 

6.1.3            promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on Pledgee’s rights to the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and other obligations of Pledgor arising out of this Agreement.

 

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6.2                      Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings.

 

6.3                      To protect or perfect the security interest granted by this Agreement for Pledgor and Party C’s performance of obligations under the Transaction Documents, Pledgor hereby undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee.

 

6.4                      Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shall indemnify Pledgee for all losses resulting therefrom.

 

7.                       Event of Breach

 

7.1                        The following circumstances shall be deemed Event of Default:

 

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7.1.1            Party C fails to fully and timely fulfill any liabilities under the Transaction Documents, including without limitation failure to pay in full any of the payment payable under the Transaction Documents or breaches any other obligations of Party C thereunder;

 

7.1.2            Pledgor or Party C has committed a material breach of any provisions of this Agreement;

 

7.1.3            The Pledgor and Party C fail to register the Pledge in the shareholders’ register of Party C or fail to complete the Registration of Pledge stipulated in Section 3.1;

 

7.1.4            Except as expressly stipulated in Section 6.1.1, Pledgor abandons the Equity Interest pledged or transfers or purports to transfer the Equity Interest pledged without the written consent of Pledgee;

 

7.1.5            The successor or custodian of Party C is capable of only partially perform or refuses to perform the payment obligations under the Transaction Documents; and

 

7.1.6            Due to causes of the Pledgor or Party C, any other circumstances occur where the Pledgee is or may become unable to exercise its right with respect to the Pledge in accordance with applicable laws.

 

7.2                      Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section 7.1, Pledgor shall immediately notify Pledgee in writing accordingly.

 

7.3                      Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee’s satisfaction within twenty (20) working days after the Pledgee delivers a notice to the Pledgor requesting ratification of such Event of Default, Pledgee may issue a Notice of Default to Pledgor in writing at any time thereafter, demanding the Pledgor to immediately dispose of the Pledge in accordance with the provisions of Article 8 of this Agreement.

 

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8.                       Exercise of Pledge

 

8.1                      Prior to the full payment of the funds under the Transaction Documents, without the Pledgee’s written consent, Pledgor shall not assign the Pledge or the Equity Interest in Party C.

 

8.2                      Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge.

 

8.3                      Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at the time when, or at any time after, the issuance of the Notice of Default in accordance with Section 8.2. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests associated with the Equity Interest.

 

8.4                      In the event of default, Pledgee is entitled to dispose of the Equity Interest pledged in accordance with applicable PRC laws. Only to the extent permitted under applicable PRC laws, Pledgee has no obligation to account to Pledgor for proceeds of disposition of the Equity Interest, and Pledgor hereby waives any rights it may have to demand any such accounting from Pledgee; likewise, in such circumstance Pledgor shall have no obligation to Pledgee for any deficiency remaining after such disposition of the Equity Interest pledged.

 

8.5                      When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable Pledgee to enforce the Pledge in accordance with this Agreement.

 

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9.                       Assignment

 

9.1                      Without Pledgee’s prior written consent, Pledgor shall not have the right to assign or delegate its rights and obligations under this Agreement.

 

9.2                      This Agreement shall be binding on Pledgor and its successors and permitted assigns, and shall be valid with respect to Pledgee and each of its successors and assigns.

 

9.3                      At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents to its designee(s) (natural/legal persons), in which case the assigns shall have the rights and obligations of Pledgee under this Agreement, as if it were the original party to this Agreement. When the Pledgee assigns the rights and obligations under the Transaction Documents, upon Pledgee’s request, Pledgor shall execute relevant agreements or other documents relating to such assignment.

 

9.4                      In the event of a change in Pledgee due to an assignment, Pledgor shall, at the request of Pledgee, execute a new pledge agreement with the new pledgee on the same terms and conditions as this Agreement, and register for change of the same with the competent AIC.

 

9.5                      Pledgor shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto or any of them, including the Exclusive Purchase Option Agreement and the Power of Attorney granted to Pledgee, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee.

 

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10.                Termination

 

Upon the full payment of the funds under the Transaction Documents and upon termination of Party C’s obligations under the Transaction Documents, this Agreement shall be terminated, and Pledgee shall then cancel or terminate this Agreement as soon as reasonably practicable.

 

11.                Handling Fees and Other Expenses

 

All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other taxes and fees, shall be borne by Party C.

 

12.                Confidentiality

 

The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

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13.                Governing Law and Resolution of Disputes

 

13.1               The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of China.

 

13.2               In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.

 

13.3               Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement.

 

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14.                Notices

 

14.1               All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

14.2               Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices.

 

14.3               Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

14.4               For the purpose of notices, the addresses of the Parties are as follows:

 

Party A:                            Shanghai Chu Le Information Technology Co., Ltd.

Address:                         

Attn:                                             Zhang Kan

Phone:                                  

Facsimile:                 

 

Party B:                            Li Qiaoling

Address:                         

Facsimile:                 

 

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Party C:                            Shanghai Chu Bao Information Technology Co., Ltd.

Address:                         

Attn:                                             Zhang Kan

Phone:                                  

Facsimile:                 

 

14.5               Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.

 

15.                Severability

 

In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

16.                Attachments

 

The attachments set forth herein shall be an integral part of this Agreement.

 

17.                Effectiveness

 

17.1               This Agreement shall come into effect upon execution by the Parties as of the date first above written. Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon the affixation of the signatures or seals of the Parties.

 

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17.2               This Agreement is written in Chinese and English in three copies. Pledgor, Pledgee and Party C shall hold one copy respectively. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

[The Remainder of this page is intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Equity Pledge Agreement as of the date first above written.

 

Party A: Shanghai Chu Le Information Technology Co., Ltd.

 

 

 

By:

/s/ Zhang Kan

Name: Zhang Kan

Title: Legal Representative

 

Party B: Li Qiaoling

 

 

 

 

By:

/s/ Li Qiaoling

 

 

Party C: Shanghai Chu Bao Information Technology Co., Ltd.

 

 

 

By:

/s/ Zhang Kan

Name: Zhang Kan

Title: Legal Representative

 

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Amended and Restated Equity Pledge Agreement

 

This Amended and Restated Equity Pledge Agreement (“ this Agreement ”) has been executed by and among the following parties on October 30, 2012 in Shanghai, the People’s Republic of China (the “ China ”):

 

Pledgee:                                                                 Shanghai Chu Le Information Technology Co., Ltd. (“ Pledgee ” or “ Party A ”)

Address:                                                                  ***

 

Pledgor:                                                                Wang Jialiang (“ Pledgor ” or “ Party B ”)

ID No.:                                                                         ***

 

Party C:                                                                 Shanghai Chu Bao Information Technology Co., Ltd.

Address:                                                                  ***

 

In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the “Parties”.

 

Whereas:

 

1 .                       Pledgor is a citizen of China, and holds 21.94% of the equity interest in Party C. Party C is a limited liability company registered in Shanghai, China, engaging in the technology development, technology transfer and other related business. Pledgee is a wholly foreign-owned enterprise registered in China.

 

2 .                       Pledgee and Party C executed an Exclusive Business Cooperation Agreement on August 6, 2012 in Shanghai, pursuant to which Pledgee exclusively provides technology and consultation service for Party C and Party C pays consulting and services fee to Pledgee as the consideration.

 

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3 .                       Pledgee, Pledgor and Party C executed an Equity Pledge Agreement (the “ Prior Pledge Agreement ”) on August 6, 2012 in Shanghai, pursuant to which, Pledgor pledges all its current and future equity interests in Party C (no matter whether the shareholding percentage changes or not) to secure its payment obligation under the Exclusive Business Cooperation Agreement.

 

4 .                       Pledgee, Pledgor and Party C executed an Amended and Restated Equity Pledge Agreement on October 30, 2012 in Shanghai, pursuant to which Pledgor irrevocably grants Pledgee or any other entity or individual designated by Pledgee an exclusive option to directly or indirectly purchase all or part of equity interest owned by Pledgor in Party C.

 

5 .                       Pledgor issued a Power of Attorney on October 30, 2012 to Pledgee which irrevocably authorized Pledgee to act on behalf of Pledgor to exercise all rights in connection with the equity interest held by Pledgor in Party C.

 

6 .                       As the Parties desires to expand the security scope of Prior Pledge Agreement so as to secure all the obligations of Pledgor and Party C under the Exclusive Business Cooperation Agreement, the Amended and Restated Equity Pledge Agreement , the Loan Agreement and the Power of Attorney, the Parties desire to amend, restate, supersede and replace in its entirety the Prior Pledge Agreement.

 

To perform the provisions of the Transaction Documents, the Parties have mutually agreed to execute this Agreement upon the following terms.

 

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1.                       Definitions

 

Unless otherwise provided herein, the terms below shall have the following meanings:

 

1.1                      Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Article 2 of this Agreement, i.e., the right of Pledgee to be compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest.

 

1.2                      Equity Interest: shall refer to all of the equity interest lawfully now held and hereafter acquired by Pledgor in Party C (whether the percentage of the equity interest is changed or not in the future).

 

1.3                      Term of Pledge: shall refer to the term set forth in Section 3.2 of this Agreement.

 

1.4                      Transaction Documents: shall refer to the Exclusive Business Cooperation Agreement, Amended and Restated Equity Pledge Agreement , Loan Agreement and Power of Attorney (the Attachment 3, Attachment 4, Attachment 5 and Attachment 6 ).

 

1.5                      Event of Default: shall refer to any of the circumstances set forth in Article 7 of this Agreement.

 

1.6                      Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default.

 

2.                       The Pledge

 

As collateral security for the duly performance by Pledgor and Party C of their respective obligations under the Transaction Documents and the timely and complete payment when due (whether at stated maturity, by acceleration or otherwise) of any and all of the payments due by Party C under the Transaction Documents, including without limitation the consulting and services fees payable to the Pledgee under the Exclusive Business Cooperation Agreement, Pledgor hereby pledges to Pledgee a first security interest in all of Pledgor’s right, title and interest, whether now owned or hereafter acquired by Pledgor, in the Equity Interest of Party C.

 

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3.                       Term of Pledge

 

3.1                      The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with relevant administration for industry and commerce (the “ AIC ”). The Pledge shall be continuously valid until all payments due under the Transaction Documents have been fulfilled by Party C. Pledgor and Party C shall (1) register the Pledge in the shareholders’ register of Party C within three (3) working days following the execution of this Agreement, and (2) submit an application to the AIC for the registration of the Pledge of the Equity Interest contemplated herein within ten (10) working days following the execution of this Agreement. The parties covenant that for the purpose of registration of the Pledge (including re-registration of the Pledge when the percentage of equity interest the Pledgor holds in Party C changes), the parties hereto and all other shareholders of Party C shall submit to the AIC the Equity Interest Pledge Contract as set forth in the Attachment 7 of this Agreement in the form required by the AIC at the location of Party C which shall truly reflect the information of the Pledge hereunder (the “ AIC Pledge Contract ”). In case that there is any discrepancy between the AIC Pledge Contract and this Agreement, the provisions of this Agreement shall prevail. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC as soon as possible after filing.

 

3.2                      During the Term of Pledge, in the event Party C fails to perform any of its obligations in accordance with the Transaction Documents, Pledgee shall have the right, but not the obligation, to dispose of the Pledge in accordance with the provisions of this Agreement.

 

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4.                       Custody of Records for Equity Interest subject to Pledge

 

4.1                      During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgee’s custody the original capital contribution certificate for the Equity Interest (the Attachment 2 ) and the original shareholders’ register containing the Pledge (the Attachment 1 ) within five (5) working days from the execution of this Agreement or from completion of the re-registration of shareholding when percentage of equity interest changed (in that case, Pledgor shall deliver to Pledgee’s custody the updated original capital contribution certificate for the Equity Interest and the updated original shareholders’ register containing the Pledge as attachment to this Agreement). Pledgee shall have custody of such original documents during the entire Term of Pledge set forth in this Agreement.

 

4.2                      Pledgee shall have the right to collect dividends generated by the Equity Interest during the Term of Pledge.

 

5.                       Representations and Warranties of Pledgor

 

5.1                      Pledgor is the sole legal and beneficial owner of the Equity Interest.

 

5.2                      Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement.

 

5.3                      Upon execution, this Agreement shall constitute the Pledgor’s legal, valid and binding obligations in accordance with the provisions herein.

 

5.4                      Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest.

 

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5.5                      No third party consent or government approval or registration, except for the Registration of Pledge with the AIC, is required in connection with the execution and performance of this Agreement;

 

5.6                      There is no pending disputation or litigation proceeding related to the Equity Interest.

 

6.                       Covenants and Further Agreements of Pledgor

 

6.1                      Pledgor hereby covenants to the Pledgee, that during the term of this Agreement, Pledgor shall:

 

6.1.1            not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity Interest, or disposal of the Equity Interest in any other means, without the prior written consent of Pledgee, except for the performance of the Transaction Documents executed by Pledgor, the Pledgee and Party C on the execution date of this Agreement;

 

6.1.2            comply with the provisions of all laws and regulations applicable to the pledge of rights, and within five (5) working days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or submit objections and representations with respect to the aforementioned matters upon Pledgee’s reasonable request or upon consent of Pledgee;

 

6.1.3            promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on Pledgee’s rights to the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and other obligations of Pledgor arising out of this Agreement.

 

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6.2                      Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings.

 

6.3                      To protect or perfect the security interest granted by this Agreement for Pledgor and Party C’s performance of obligations under the Transaction Documents, Pledgor hereby undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee.

 

6.4                      Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shall indemnify Pledgee for all losses resulting therefrom.

 

7.                       Event of Breach

 

7.1                        The following circumstances shall be deemed Event of Default:

 

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7.1.1            Party C fails to fully and timely fulfill any liabilities under the Transaction Documents, including without limitation failure to pay in full any of the payment payable under the Transaction Documents or breaches any other obligations of Party C thereunder;

 

7.1.2            Pledgor or Party C has committed a material breach of any provisions of this Agreement;

 

7.1.3            The Pledgor and Party C fail to register the Pledge in the shareholders’ register of Party C or fail to complete the Registration of Pledge stipulated in Section 3.1;

 

7.1.4            Except as expressly stipulated in Section 6.1.1, Pledgor abandons the Equity Interest pledged or transfers or purports to transfer the Equity Interest pledged without the written consent of Pledgee;

 

7.1.5            The successor or custodian of Party C is capable of only partially perform or refuses to perform the payment obligations under the Transaction Documents; and

 

7.1.6            Due to causes of the Pledgor or Party C, any other circumstances occur where the Pledgee is or may become unable to exercise its right with respect to the Pledge in accordance with applicable laws.

 

7.2                      Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section 7.1, Pledgor shall immediately notify Pledgee in writing accordingly.

 

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7.3                      Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee’s satisfaction within twenty (20) working days after the Pledgee delivers a notice to the Pledgor requesting ratification of such Event of Default, Pledgee may issue a Notice of Default to Pledgor in writing at any time thereafter, demanding the Pledgor to immediately dispose of the Pledge in accordance with the provisions of Article 8 of this Agreement.

 

8.                       Exercise of Pledge

 

8.1                      Prior to the full payment of the funds under the Transaction Documents, without the Pledgee’s written consent, Pledgor shall not assign the Pledge or the Equity Interest in Party C.

 

8.2                      Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge.

 

8.3                      Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at the time when, or at any time after, the issuance of the Notice of Default in accordance with Section 8.2. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests associated with the Equity Interest.

 

8.4                      In the event of default, Pledgee is entitled to dispose of the Equity Interest pledged in accordance with applicable PRC laws. Only to the extent permitted under applicable PRC laws, Pledgee has no obligation to account to Pledgor for proceeds of disposition of the Equity Interest, and Pledgor hereby waives any rights it may have to demand any such accounting from Pledgee; likewise, in such circumstance Pledgor shall have no obligation to Pledgee for any deficiency remaining after such disposition of the Equity Interest pledged.

 

8.5                      When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable Pledgee to enforce the Pledge in accordance with this Agreement.

 

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9.                       Assignment

 

9.1                      Without Pledgee’s prior written consent, Pledgor shall not have the right to assign or delegate its rights and obligations under this Agreement.

 

9.2                      This Agreement shall be binding on Pledgor and its successors and permitted assigns, and shall be valid with respect to Pledgee and each of its successors and assigns.

 

9.3                      At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents to its designee(s) (natural/legal persons), in which case the assigns shall have the rights and obligations of Pledgee under this Agreement, as if it were the original party to this Agreement. When the Pledgee assigns the rights and obligations under the Transaction Documents, upon Pledgee’s request, Pledgor shall execute relevant agreements or other documents relating to such assignment.

 

9.4                      In the event of a change in Pledgee due to an assignment, Pledgor shall, at the request of Pledgee, execute a new pledge agreement with the new pledgee on the same terms and conditions as this Agreement, and register for change of the same with the competent AIC.

 

9.5                      Pledgor shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto or any of them, including the Exclusive Purchase Option Agreement and the Power of Attorney granted to Pledgee, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee.

 

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10.                Termination

 

Upon the full payment of the funds under the Transaction Documents and upon termination of Party C’s obligations under the Transaction Documents, this Agreement shall be terminated, and Pledgee shall then cancel or terminate this Agreement as soon as reasonably practicable.

 

11.                Handling Fees and Other Expenses

 

All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other taxes and fees, shall be borne by Party C.

 

12.                Confidentiality

 

The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

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13.                Governing Law and Resolution of Disputes

 

13.1               The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of China.

 

13.2               In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.

 

13.3               Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement.

 

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14.                Notices

 

14.1               All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

14.2               Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices.

 

14.3               Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

14.4               For the purpose of notices, the addresses of the Parties are as follows:

 

Party A:                            Shanghai Chu Le Information Technology Co., Ltd.

Address:

 

Attn:                                             Zhang Kan

Phone:

Facsimile:

 

Party B:                            Wang Jialiang

Address:

Facsimile:

 

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Party C:                            Shanghai Chu Bao Information Technology Co., Ltd.

Address:

Attn:                                             Zhang Kan

Phone:

Facsimile:

 

14.5               Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.

 

15.                Severability

 

In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

16.                Attachments

 

The attachments set forth herein shall be an integral part of this Agreement.

 

17.                Effectiveness

 

17.1               This Agreement shall come into effect upon execution by the Parties as of the date first above written. Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon the affixation of the signatures or seals of the Parties.

 

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17.2               This Agreement is written in Chinese and English in three copies. Pledgor, Pledgee and Party C shall hold one copy respectively. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

[The Remainder of this page is intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Equity Pledge Agreement as of the date first above written.

 

 

Party A:

Shanghai Chu Le Information Technology Co., Ltd.

 

By:

/s/ Zhang Kan

 

Name: Zhang Kan

 

Title: Legal Representative

 

Party B:

Wang Jialiang

 

By:

/s/ Wang Jialiang

 

 

Party C:

Shanghai Chu Bao Information Technology Co., Ltd.

 

By:

/s/ Zhang Kan

 

Name: Zhang Kan

Title: Legal Representative

 

16


 

Amended and Restated Equity Pledge Agreement

 

This Amended and Restated Equity Pledge Agreement (“ this Agreement ”) has been executed by and among the following parties on October 30, 2012 in Shanghai, the People’s Republic of China (the “ China ”):

 

Pledgee:                                                                 Shanghai Chu Le Information Technology Co., Ltd. (“ Pledgee ” or “ Party A ”)

Address:                                                                  ***

 

Pledgor:                                                                Wang Jian (“ Pledgor ” or “ Party B ”)

ID No.:                                                                         ***

 

Party C:                                                                 Shanghai Chu Bao Information Technology Co., Ltd.

Address:                                                                  ***

 

In this Agreement, each of Pledgee, Pledgor and Party C shall be referred to as a “Party” respectively, and they shall be collectively referred to as the “Parties”.

 

Whereas:

 

1.                       Pledgor is a citizen of China, and holds 13.12% of the equity interest in Party C. Party C is a limited liability company registered in Shanghai, China, engaging in the technology development, technology transfer and other related business. Pledgee is a wholly foreign-owned enterprise registered in China.

 

2.                       Pledgee and Party C executed an Exclusive Business Cooperation Agreement on August 6, 2012 in Shanghai, pursuant to which Pledgee exclusively provides technology and consultation service for Party C and Party C pays consulting and services fee to Pledgee as the consideration.

 

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3                          Pledgee, Pledgor and Party C executed an Equity Pledge Agreement (the “ Prior Pledge Agreement ”) on August 6, 2012 in Shanghai, pursuant to which, Pledgor pledges all its current and future equity interests in Party C (no matter whether the shareholding percentage changes or not) to secure its payment obligation under the Exclusive Business Cooperation Agreement.

 

4                          Pledgee, Pledgor and Party C executed an Amended and Restated Exclusive Purchase Option Agreement on October 30, 2012 in Shanghai, pursuant to which Pledgor irrevocably grants Pledgee or any other entity or individual designated by Pledgee an exclusive option to directly or indirectly purchase all or part of equity interest owned by Pledgor in Party C.

 

5                          Pledgor issued a Power of Attorney on October 30, 2012 to Pledgee which irrevocably authorized Pledgee to act on behalf of Pledgor to exercise all rights in connection with the equity interest held by Pledgor in Party C.

 

6.                       As the Parties desires to expand the security scope of Prior Pledge Agreement so as to secure all the obligations of Pledgor and Party C under the Exclusive Business Cooperation Agreement, the Amended and Restated Exclusive Purchase Option Agreement, the Loan Agreement and the Power of Attorney, the Parties desire to amend, restate, supersede and replace in its entirety the Prior Pledge Agreement.

 

To perform the provisions of the Transaction Documents, the Parties have mutually agreed to execute this Agreement upon the following terms.

 

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1.                       Definitions

 

Unless otherwise provided herein, the terms below shall have the following meanings:

 

1.1                      Pledge: shall refer to the security interest granted by Pledgor to Pledgee pursuant to Article 2 of this Agreement, i.e., the right of Pledgee to be compensated on a preferential basis with the conversion, auction or sales price of the Equity Interest.

 

1.2                      Equity Interest: shall refer to all of the equity interest lawfully now held and hereafter acquired by Pledgor in Party C (whether the percentage of the equity interest is changed or not in the future).

 

1.3                      Term of Pledge: shall refer to the term set forth in Section 3.2 of this Agreement.

 

1.4                      Transaction Documents: shall refer to the Exclusive Business Cooperation Agreement, Amended and Restated Exclusive Purchase Option Agreement, Loan Agreement and Power of Attorney (the Attachment 3, Attachment 4, Attachment 5 and Attachment 6 ).

 

1.5                      Event of Default: shall refer to any of the circumstances set forth in Article 7 of this Agreement.

 

1.6                      Notice of Default: shall refer to the notice issued by Pledgee in accordance with this Agreement declaring an Event of Default.

 

2.                       The Pledge

 

As collateral security for the duly performance by Pledgor and Party C of their respective obligations under the Transaction Documents and the timely and complete payment when due (whether at stated maturity, by acceleration or otherwise) of any and all of the payments due by Party C under the Transaction Documents, including without limitation the consulting and services fees payable to the Pledgee under the Exclusive Business Cooperation Agreement, Pledgor hereby pledges to Pledgee a first security interest in all of Pledgor’s right, title and interest, whether now owned or hereafter acquired by Pledgor, in the Equity Interest of Party C.

 

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3.                       Term of Pledge

 

3.1                      The Pledge shall become effective on such date when the pledge of the Equity Interest contemplated herein has been registered with relevant administration for industry and commerce (the “ AIC ”). The Pledge shall be continuously valid until all payments due under the Transaction Documents have been fulfilled by Party C. Pledgor and Party C shall (1) register the Pledge in the shareholders’ register of Party C within three (3) working days following the execution of this Agreement, and (2) submit an application to the AIC for the registration of the Pledge of the Equity Interest contemplated herein within ten (10) working days following the execution of this Agreement. The parties covenant that for the purpose of registration of the Pledge (including re-registration of the Pledge when the percentage of equity interest the Pledgor holds in Party C changes), the parties hereto and all other shareholders of Party C shall submit to the AIC the Equity Interest Pledge Contract as set forth in the Attachment 7 of this Agreement in the form required by the AIC at the location of Party C which shall truly reflect the information of the Pledge hereunder (the “ AIC Pledge Contract ”). In case that there is any discrepancy between the AIC Pledge Contract and this Agreement, the provisions of this Agreement shall prevail. Pledgor and Party C shall submit all necessary documents and complete all necessary procedures, as required by the PRC laws and regulations and the relevant AIC, to ensure that the Pledge of the Equity Interest shall be registered with the AIC as soon as possible after filing.

 

4



 

3.2                      During the Term of Pledge, in the event Party C fails to perform any of its obligations in accordance with the Transaction Documents, Pledgee shall have the right, but not the obligation, to dispose of the Pledge in accordance with the provisions of this Agreement.

 

4.                       Custody of Records for Equity Interest subject to Pledge

 

4.1                      During the Term of Pledge set forth in this Agreement, Pledgor shall deliver to Pledgee’s custody the original capital contribution certificate for the Equity Interest (the Attachment 2 ) and the original shareholders’ register containing the Pledge (the Attachment 1 ) within five (5) working days from the execution of this Agreement or from completion of the re-registration of shareholding when percentage of equity interest changed (in that case, Pledgor shall deliver to Pledgee’s custody the updated original capital contribution certificate for the Equity Interest and the updated original shareholders’ register containing the Pledge as attachment to this Agreement). Pledgee shall have custody of such original documents during the entire Term of Pledge set forth in this Agreement.

 

4.2                      Pledgee shall have the right to collect dividends generated by the Equity Interest during the Term of Pledge.

 

5.                       Representations and Warranties of Pledgor

 

5.1                      Pledgor is the sole legal and beneficial owner of the Equity Interest.

 

5.2                      Pledgee shall have the right to dispose of and transfer the Equity Interest in accordance with the provisions set forth in this Agreement.

 

5.3                      Upon execution, this Agreement shall constitute the Pledgor’s legal, valid and binding obligations in accordance with the provisions herein.

 

5.4                      Except for the Pledge, Pledgor has not placed any security interest or other encumbrance on the Equity Interest.

 

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5.5                      No third party consent or government approval or registration, except for the Registration of Pledge with the AIC, is required in connection with the execution and performance of this Agreement;

 

5.6                      There is no pending disputation or litigation proceeding related to the Equity Interest.

 

6.                       Covenants and Further Agreements of Pledgor

 

6.1                      Pledgor hereby covenants to the Pledgee, that during the term of this Agreement, Pledgor shall:

 

6.1.1            not transfer the Equity Interest, place or permit the existence of any security interest or other encumbrance on the Equity Interest, or disposal of the Equity Interest in any other means, without the prior written consent of Pledgee, except for the performance of the Transaction Documents executed by Pledgor, the Pledgee and Party C on the execution date of this Agreement;

 

6.1.2            comply with the provisions of all laws and regulations applicable to the pledge of rights, and within five (5) working days of receipt of any notice, order or recommendation issued or prepared by relevant competent authorities regarding the Pledge, shall present the aforementioned notice, order or recommendation to Pledgee, and shall comply with the aforementioned notice, order or recommendation or submit objections and representations with respect to the aforementioned matters upon Pledgee’s reasonable request or upon consent of Pledgee;

 

6.1.3            promptly notify Pledgee of any event or notice received by Pledgor that may have an impact on Pledgee’s rights to the Equity Interest or any portion thereof, as well as any event or notice received by Pledgor that may have an impact on any guarantees and other obligations of Pledgor arising out of this Agreement.

 

6



 

6.2                      Pledgor agrees that the rights acquired by Pledgee in accordance with this Agreement with respect to the Pledge shall not be interrupted or harmed by Pledgor or any heirs or representatives of Pledgor or any other persons through any legal proceedings.

 

6.3                      To protect or perfect the security interest granted by this Agreement for Pledgor and Party C’s performance of obligations under the Transaction Documents, Pledgor hereby undertakes to execute in good faith and to cause other parties who have an interest in the Pledge to execute all certificates, agreements, deeds and/or covenants required by Pledgee. Pledgor also undertakes to perform and to cause other parties who have an interest in the Pledge to perform actions required by Pledgee, to facilitate the exercise by Pledgee of its rights and authority granted thereto by this Agreement, and to enter into all relevant documents regarding ownership of Equity Interest with Pledgee or designee(s) of Pledgee (natural persons/legal persons). Pledgor undertakes to provide Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are required by Pledgee.

 

6.4                      Pledgor hereby undertakes to comply with and perform all guarantees, promises, agreements, representations and conditions under this Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, Pledgor shall indemnify Pledgee for all losses resulting therefrom.

 

7.                       Event of Breach

 

7.1                      The following circumstances shall be deemed Event of Default:

 

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7.1.1            Party C fails to fully and timely fulfill any liabilities under the Transaction Documents, including without limitation failure to pay in full any of the payment payable under the Transaction Documents or breaches any other obligations of Party C thereunder;

 

7.1.2            Pledgor or Party C has committed a material breach of any provisions of this Agreement;

 

7.1.3            The Pledgor and Party C fail to register the Pledge in the shareholders’ register of Party C or fail to complete the Registration of Pledge stipulated in Section 3.1;

 

7.1.4            Except as expressly stipulated in Section 6.1.1, Pledgor abandons the Equity Interest pledged or transfers or purports to transfer the Equity Interest pledged without the written consent of Pledgee;

 

7.1.5            The successor or custodian of Party C is capable of only partially perform or refuses to perform the payment obligations under the Transaction Documents; and

 

7.1.6            Due to causes of the Pledgor or Party C, any other circumstances occur where the Pledgee is or may become unable to exercise its right with respect to the Pledge in accordance with applicable laws.

 

7.2                      Upon notice or discovery of the occurrence of any circumstances or event that may lead to the aforementioned circumstances described in Section 7.1, Pledgor shall immediately notify Pledgee in writing accordingly.

 

7.3                      Unless an Event of Default set forth in this Section 7.1 has been successfully resolved to Pledgee’s satisfaction within twenty (20) working days after the Pledgee delivers a notice to the Pledgor requesting ratification of such Event of Default, Pledgee may issue a Notice of Default to Pledgor in writing at any time thereafter, demanding the Pledgor to immediately dispose of the Pledge in accordance with the provisions of Article 8 of this Agreement.

 

8



 

8.       Exercise of Pledge

 

8.1                      Prior to the full payment of the funds under the Transaction Documents, without the Pledgee’s written consent, Pledgor shall not assign the Pledge or the Equity Interest in Party C.

 

8.2                      Pledgee may issue a Notice of Default to Pledgor when exercising the Pledge.

 

8.3                      Subject to the provisions of Section 7.3, Pledgee may exercise the right to enforce the Pledge at the time when, or at any time after, the issuance of the Notice of Default in accordance with Section 8.2. Once Pledgee elects to enforce the Pledge, Pledgor shall cease to be entitled to any rights or interests associated with the Equity Interest.

 

8.4                      In the event of default, Pledgee is entitled to dispose of the Equity Interest pledged in accordance with applicable PRC laws. Only to the extent permitted under applicable PRC laws, Pledgee has no obligation to account to Pledgor for proceeds of disposition of the Equity Interest, and Pledgor hereby waives any rights it may have to demand any such accounting from Pledgee; likewise, in such circumstance Pledgor shall have no obligation to Pledgee for any deficiency remaining after such disposition of the Equity Interest pledged.

 

8.5                      When Pledgee disposes of the Pledge in accordance with this Agreement, Pledgor and Party C shall provide necessary assistance to enable Pledgee to enforce the Pledge in accordance with this Agreement.

 

9



 

9.        Assignment

 

9.1                      Without Pledgee’s prior written consent, Pledgor shall not have the right to assign or delegate its rights and obligations under this Agreement.

 

9.2                      This Agreement shall be binding on Pledgor and its successors and permitted assigns, and shall be valid with respect to Pledgee and each of its successors and assigns.

 

9.3                      At any time, Pledgee may assign any and all of its rights and obligations under the Transaction Documents to its designee(s) (natural/legal persons), in which case the assigns shall have the rights and obligations of Pledgee under this Agreement, as if it were the original party to this Agreement. When the Pledgee assigns the rights and obligations under the Transaction Documents, upon Pledgee’s request, Pledgor shall execute relevant agreements or other documents relating to such assignment.

 

9.4                      In the event of a change in Pledgee due to an assignment, Pledgor shall, at the request of Pledgee, execute a new pledge agreement with the new pledgee on the same terms and conditions as this Agreement, and register for change of the same with the competent AIC.

 

9.5                      Pledgor shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by the Parties hereto or any of them, including the Exclusive Purchase Option Agreement and the Power of Attorney granted to Pledgee, perform the obligations hereunder and thereunder, and refrain from any action/omission that may affect the effectiveness and enforceability thereof. Any remaining rights of Pledgor with respect to the Equity Interest pledged hereunder shall not be exercised by Pledgor except in accordance with the written instructions of Pledgee.

 

10



 

10.      Termination

 

Upon the full payment of the funds under the Transaction Documents and upon termination of Party C’s obligations under the Transaction Documents, this Agreement shall be terminated, and Pledgee shall then cancel or terminate this Agreement as soon as reasonably practicable.

 

11.      Handling Fees and Other Expenses

 

All fees and out of pocket expenses relating to this Agreement, including but not limited to legal costs, costs of production, stamp tax and any other taxes and fees, shall be borne by Party C.

 

12.      Confidentiality

 

The Parties acknowledge that the existence and the terms of this Agreement and any oral or written information exchanged between the Parties in connection with the preparation and performance of this Agreement are regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this Agreement for any reason.

 

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13.      Governing Law and Resolution of Disputes

 

13.1               The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes hereunder shall be governed by the laws of China.

 

13.2               In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Parties for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its Arbitration Rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all Parties.

 

13.3               Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the Parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement.

 

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14.      Notices

 

All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by E-mail. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

14.2               Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery or refusal at the address specified for notices.

 

14.3               Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

14.4               For the purpose of notices, the addresses of the Parties are as follows:

 

Party A:         Shanghai Chu Le Information Technology Co., Ltd.

Address:

 

Attn:               Zhang Kan

Phone:

Facsimile:

 

Party B:         Wang Jian

Address:

Facsimile:

 

13



 

Party C:         Shanghai Chu Bao Information Technology Co., Ltd.

Address:

Attn:               Zhang Kan

Phone:

Facsimile:

 

14.5               Any Party may at any time change its address for notices by a notice delivered to the other Parties in accordance with the terms hereof.

 

15.      Severability

 

In the event that one or several of the provisions of this Contract are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Contract shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law and the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

16.      Attachments

 

The attachments set forth herein shall be an integral part of this Agreement.

 

17.      Effectiveness

 

17.1               This Agreement shall come into effect upon execution by the Parties as of the date first above written. Any amendments, changes and supplements to this Agreement shall be in writing and shall become effective upon the affixation of the signatures or seals of the Parties.

 

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17.2               This Agreement is written in Chinese and English in three copies. Pledgor, Pledgee and Party C shall hold one copy respectively. Each copy of this Agreement shall have equal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

[The Remainder of this page is intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have caused their authorized representatives to execute this Amended and Restated Equity Pledge Agreement as of the date first above written.

 

 

Party A:

Shanghai Chu Le Information Technology Co.,  Ltd.

 

 

By:

/s/ Zhang Kan

 

Name: Zhang Kan

 

Title: Legal Representative

 

Party B:

Wang Jian

 

By:

/s/ Wang Jian

 

 

Party C:

Shanghai Chu Bao Information Technology Co.,  Ltd.

 

By:

/s/ Zhang Kan

 

Name: Zhang Kan

 

Title: Legal Representative

 

16




Exhibit 10.8

 

Power of Attorney

 

I, Zhang Kan, a Chinese citizen with Chinese Identification Card No. :***, and a holder of 25% of the entire registered capital in Shanghai Chu Bao Information Technology Co., Ltd. (“ Chu Bao ”) (“ My Shareholding ”), hereby irrevocably authorize Shanghai Chu Le Information Technology Co., Ltd. (the “ WFOE ”) to exercise the following rights relating to My Shareholding during the term of this Power of Attorney:

 

The WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) attend shareholders’ meetings of Chu Bao; 2) exercise all the shareholder’s rights and shareholder’s voting rights I am entitled to under the laws of China and Chu Bao’s Articles of Association, including but not limited to the sale or transfer or pledge or disposition of My Shareholding in part or in whole; and 3) designate and appoint on behalf of myself the legal representative, the executive director and/or director, supervisor, the chief executive officer and other senior management members of Chu Bao.

 

Without limiting the generality of the powers granted hereunder, the WFOE shall have the power and authority under this Power of Attorney to execute the Transfer Contracts stipulated in Amended and Restated Exclusive Purchase Option Agreement, to which I am required to be a party, on behalf of myself, and to effect the terms of the Amended and Restated Equity Pledge Agreement and Amended and Restated Exclusive Purchase Option Agreement to which the WFOE, Chu Bao and I am a party.

 

All the actions associated with My Shareholding conducted by the WFOE shall be deemed as my own actions, and all the documents related to My Shareholding executed by the WFOE shall be deemed to be executed by me. I hereby acknowledge and ratify those actions and/or documents by the WFOE.

 

Strictly Confidential

 

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The WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent.

 

This Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of execution of this Power of Attorney, so long as I am a shareholder of Chu Bao.

 

During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to WFOE through this Power of Attorney, and shall not exercise such rights by myself.

 

This Power of Attorney is written in Chinese and English; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

 

Zhang Kan

 

 

 

 

By:

/s/ Zhang Kan

 

 

 

October 30, 2012

 

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Power of Attorney

 

I, Zhu Haiyan, a Chinese citizen with Chinese Identification Card No.:***, and a holder of 18% of the entire registered capital in Shanghai Chu Bao Information Technology Co., Ltd. (“ Chu Bao ”) (“ My Shareholding ”), hereby irrevocably authorize Shanghai Chu Le Information Technology Co., Ltd. (the “ WFOE ”) to exercise the following rights relating to My Shareholding during the term of this Power of Attorney:

 

The WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) attend shareholders’ meetings of Chu Bao; 2) exercise all the shareholder’s rights and shareholder’s voting rights I am entitled to under the laws of China and Chu Bao’s Articles of Association, including but not limited to the sale or transfer or pledge or disposition of My Shareholding in part or in whole; and 3) designate and appoint on behalf of myself the legal representative, the executive director and/or director, supervisor, the chief executive officer and other senior management members of Chu Bao.

 

Without limiting the generality of the powers granted hereunder, the WFOE shall have the power and authority under this Power of Attorney to execute the Transfer Contracts stipulated in Amended and Restated Exclusive Purchase Option Agreement, to which I am required to be a party, on behalf of myself, and to effect the terms of the Amended and Restated Equity Pledge Agreement and Amended and Restated Exclusive Purchase Option Agreement to which the WFOE, Chu Bao and I am a party.

 

All the actions associated with My Shareholding conducted by the WFOE shall be deemed as my own actions, and all the documents related to My Shareholding executed by the WFOE shall be deemed to be executed by me. I hereby acknowledge and ratify those actions and/or documents by the WFOE.

 

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The WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent.

 

This Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of execution of this Power of Attorney, so long as I am a shareholder of Chu Bao.

 

During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to WFOE through this Power of Attorney, and shall not exercise such rights by myself.

 

This Power of Attorney is written in Chinese and English; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

 

Zhu Haiyan

 

 

 

 

By:

/s/ Zhu Haiyan

 

 

 

October 30, 2012

 

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Power of Attorney

 

I, Li Qiaoling, a Chinese citizen with Chinese Identification Card No.:***, and a holder of 21.94% of the entire registered capital in Shanghai Chu Bao Information Technology Co., Ltd. (“ Chu Bao ”) (“ My Shareholding ”), hereby irrevocably authorize Shanghai Chu Le Information Technology Co., Ltd. (the “ WFOE ”) to exercise the following rights relating to My Shareholding during the term of this Power of Attorney:

 

The WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) attend shareholders’ meetings of Chu Bao; 2) exercise all the shareholder’s rights and shareholder’s voting rights I am entitled to under the laws of China and Chu Bao’s Articles of Association, including but not limited to the sale or transfer or pledge or disposition of My Shareholding in part or in whole; and 3) designate and appoint on behalf of myself the legal representative, the executive director and/or director, supervisor, the chief executive officer and other senior management members of Chu Bao.

 

Without limiting the generality of the powers granted hereunder, the WFOE shall have the power and authority under this Power of Attorney to execute the Transfer Contracts stipulated in Amended and Restated Exclusive Purchase Option Agreement, to which I am required to be a party, on behalf of myself, and to effect the terms of the Amended and Restated Equity Pledge Agreement and Amended and Restated Exclusive Purchase Option Agreement to which the WFOE, Chu Bao and I am a party.

 

All the actions associated with My Shareholding conducted by the WFOE shall be deemed as my own actions, and all the documents related to My Shareholding executed by the WFOE shall be deemed to be executed by me. I hereby acknowledge and ratify those actions and/or documents by the WFOE.

 

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The WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent.

 

This Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of execution of this Power of Attorney, so long as I am a shareholder of Chu Bao.

 

During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to WFOE through this Power of Attorney, and shall not exercise such rights by myself.

 

This Power of Attorney is written in Chinese and English; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

 

Li Qiaoling

 

 

 

 

By:

/s/ Li Qiaoling

 

 

 

October 30, 2012

 

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Power of Attorney

 

I, Wang Jianliang, a Chinese citizen with Chinese Identification Card No.:***, and a holder of 21.94% of the entire registered capital in Shanghai Chu Bao Information Technology Co., Ltd. (“ Chu Bao ”) (“ My Shareholding ”), hereby irrevocably authorize Shanghai Chu Le Information Technology Co., Ltd. (the “ WFOE ”) to exercise the following rights relating to My Shareholding during the term of this Power of Attorney:

 

The WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) attend shareholders’ meetings of Chu Bao; 2) exercise all the shareholder’s rights and shareholder’s voting rights I am entitled to under the laws of China and Chu Bao’s Articles of Association, including but not limited to the sale or transfer or pledge or disposition of My Shareholding in part or in whole; and 3) designate and appoint on behalf of myself the legal representative, the executive director and/or director, supervisor, the chief executive officer and other senior management members of Chu Bao.

 

Without limiting the generality of the powers granted hereunder, the WFOE shall have the power and authority under this Power of Attorney to execute the Transfer Contracts stipulated in Amended and Restated Exclusive Purchase Option Agreement, to which I am required to be a party, on behalf of myself, and to effect the terms of the Amended and Restated Equity Pledge Agreement and Amended and Restated Exclusive Purchase Option Agreement to which the WFOE, Chu Bao and I am a party.

 

All the actions associated with My Shareholding conducted by the WFOE shall be deemed as my own actions, and all the documents related to My Shareholding executed by the WFOE shall be deemed to be executed by me. I hereby acknowledge and ratify those actions and/or documents by the WFOE.

 

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The WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent.

 

This Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of execution of this Power of Attorney, so long as I am a shareholder of Chu Bao.

 

During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to WFOE through this Power of Attorney, and shall not exercise such rights by myself.

 

This Power of Attorney is written in Chinese and English; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

 

Wang Jialiang

 

 

 

 

By:

/s/ Wang Jialiang

 

 

 

October 30, 2012

 

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Power of Attorney

 

I, Wang Jian, a Chinese citizen with Chinese Identification Card No.:***, and a holder of 13.12% of the entire registered capital in Shanghai Chu Bao Information Technology Co., Ltd. (“ Chu Bao ”) (“ My Shareholding ”), hereby irrevocably authorize Shanghai Chu Le Information Technology Co., Ltd. (the “ WFOE ”) to exercise the following rights relating to My Shareholding during the term of this Power of Attorney:

 

The WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My Shareholding, including without limitation to: 1) attend shareholders’ meetings of Chu Bao; 2) exercise all the shareholder’s rights and shareholder’s voting rights I am entitled to under the laws of China and Chu Bao’s Articles of Association, including but not limited to the sale or transfer or pledge or disposition of My Shareholding in part or in whole; and 3) designate and appoint on behalf of myself the legal representative, the executive director and/or director, supervisor, the chief executive officer and other senior management members of Chu Bao.

 

Without limiting the generality of the powers granted hereunder, the WFOE shall have the power and authority under this Power of Attorney to execute the Transfer Contracts stipulated in Amended and Restated Exclusive Purchase Option Agreement, to which I am required to be a party, on behalf of myself, and to effect the terms of the Amended and Restated Equity Pledge Agreement and Amended and Restated Exclusive Purchase Option Agreement to which the WFOE, Chu Bao and I am a party.

 

All the actions associated with My Shareholding conducted by the WFOE shall be deemed as my own actions, and all the documents related to My Shareholding executed by the WFOE shall be deemed to be executed by me. I hereby acknowledge and ratify those actions and/or documents by the WFOE.

 

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The WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and without giving prior notice to me or obtaining my consent.

 

This Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of execution of this Power of Attorney, so long as 1 am a shareholder of Chu Bao.

 

During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to WFOE through this Power of Attorney, and shall not exercise such rights by myself.

 

This Power of Attorney is written in Chinese and English; in case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

 

Wang Jian

 

 

 

 

By:

/s/ Wang Jian

 

 

 

October 30, 2012

 

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Exhibit 10.9

 

Loan Agreement

 

Loan Agreement

 

This Loan Agreement (“ this Agreement ”) is made and entered into by and between the parties below as of August 6, 2012 in Shanghai, the People’s Republic of China (“ China ”):

 

(1)                        Shanghai Chu Le Information Technology Co., Ltd. (“ Lender ”), a wholly foreign owned enterprise with its address at ***.

 

(2)                        Zhang Kan (“ Borrower ”), a citizen of China, with his Chinese identification No.: ***.

 

Each of Lender and Borrower shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.

 

Whereas, Lender intends to provide Borrower with a loan to be used for the purpose set forth under this Agreement. After friendly consultation, the Parties agree as follows:

 

1.                       Loan

 

1.1                      In accordance with the terms and conditions of this Agreement, Lender agrees to provide a loan in the amount of RMB250,000 (the “ Loan ”) to Borrower, and the Loan will be provided in a lump sum basis or by several installments according to the amount specified in the written notice from the Borrower. The term of the Loan shall be 10 years from the date of this Agreement, and shall be renewed automatically for successive 3 year, and shall be renewed automatically thereafter unless Lender notifies Borrower to terminate this Agreement with fifteen (15) days’ prior notice. During the term of the Loan or the extended term of the Loan, Borrower shall immediately repay the full amount of the Loan in the event any one or more of the following circumstances occur (except otherwise decided by the Lender):

 

Strictly Confidential

 

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1.1.1            30 days elapse after Borrower receives written notice from Lender requesting repayment of the Loan;

 

1.1.2            Borrower’s death, lack or limitation of civil capacity;

 

1.1.3            Borrower ceases (for any reason) to be an employee of Lender, Borrower Company (as defined below) or its affiliated entity, or ceases to be a shareholder of Borrower Company;

 

1.1.4            Borrower engages in criminal act or is involved in criminal activities;

 

1.1.5            Any third party filed a claim against Borrower that exceeds RMB500,000; or

 

1.1.6            The Lender decides to exercise the exclusive option under the Exclusive Purchase Option Agreement (the “Exclusive Purchase Option Agreement”) described in Sections 4.1.1 and 4.2.4 of this Agreement.

 

1.2                      Lender agrees to remit the total amount under the Loan as described in the written notification to the account designated by Borrower within 20 days after receiving a written notification from the Borrower regarding the same, provided that all the conditions precedent in Section 2 are fulfilled. Borrower shall provide Lender with a written receipt for the Loan upon receiving the Loan. The Loan provided by Lender under this Agreement shall inure to Borrower’s benefit only and not to Borrower’s successors or assignees.

 

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1.3                      Borrower agrees to accept the aforementioned Loan provided by Lender, and hereby agrees and warrants using the Loan to repay the money he borrowed from Shanghai Han Xiang (CooTek) Information Technology Co., Ltd. for the purpose of paying his capital contribution to Shanghai Chu Bao Information Technology Co., Ltd. (“ Borrower Company ”). Without Lender’s prior written consent, Borrower shall not use the Loan for any purpose other than as set forth herein.

 

1.4                      Lender and Borrower hereby agree and acknowledge that Borrower’s method of repayment shall be at the sole discretion of Lender, at Lender’s option take the form of Borrower’s transfer the equity interest of Borrower Company in whole to Lender or Lender’s designated persons (legal or natural persons) pursuant to the Lender’s exercise of its right to acquire such equity interest under the Exclusive Purchase Option Agreement.

 

1.5                      Lender and Borrower hereby agree and acknowledge that any proceeds from the transfer of the equity interest of Borrower Company held by Borrower (to the extent permissible) shall be used to repay the Loan to Lender, in accordance with this Agreement and in the manner designated by Lender.

 

1.6                      Lender and Borrower hereby agree and acknowledge that to the extent permitted by applicable laws, Lender shall have the right but not the obligation to purchase or designate other persons (legal or natural persons) to purchase the equity interest of Borrower Company held by Borrower in part or in whole at any time, at the price stipulated in the Exclusive Purchase Option Agreement.

 

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1.7                      Borrower also undertakes to execute an irrevocable Power of Attorney (the “ Power of Attorney ”, referred to in Section 4.2.3), which authorizes the Lender or a legal or natural person designated by Lender to exercise all of Borrower’s rights as a shareholder of Borrower Company.

 

1.8                      When Borrower transfers the equity interest of Borrower Company held by the Borrower to Lender or Lender’s designated person(s), in the event that the transfer price of such equity interest equals or is lower than the principal of the Loan under this Agreement, the Loan under this Agreement shall be deemed an interest-free loan. In the event that the transfer price of such equity interest exceeds the principal of the Loan under this Agreement, the excess over the principal shall be deemed the interest of the Loan under this Agreement payable by Borrower to Lender.

 

2.                       Conditions Precedent

 

The obligation of Lender to provide the Loan to Borrower contemplated in Section 1.1 shall be subject to the satisfaction of the following conditions, unless waived in writing by Lender.

 

2.1                      All the representations and warranties by Borrower in Section 3.2 are true, complete, correct and not misleading.

 

2.2                      Borrower has not violated the covenants in Section 4 of this Agreement, and no event which may affect Borrower’s performance of its obligations under this Agreement has occurred or is expected to occur.

 

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3.                       Representations and Warranties

 

3.1                      Between the date of this Agreement and the date of termination of this Agreement, Lender hereby makes the following representations and warranties to Borrower:

 

3.1.1            Lender is a company duly organized and legally existing in accordance with the laws of China;

 

3.1.2            Lender has the legal capacity to execute and perform this Agreement. The execution and performance by Lender of this Agreement is consistent with Lender’s scope of business and the provisions of Lender’s corporate bylaws and other organizational documents, and Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; and

 

3.1.3            This Agreement constitutes Lender’s legal, valid and binding obligations, enforceable in accordance with its terms.

 

3.2                      Between the date of this Agreement and the date of termination of this Agreement, Borrower hereby makes the following representations and warranties:

 

3.2.1            Borrower has the legal capacity to execute and perform this Agreement. Borrower has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement;

 

3.2.2            This Agreement constitutes Borrower’s legal, valid and binding obligations enforceable in accordance with its terms; and

 

3.2.3            There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower, nor are there any potential disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower.

 

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4.                       Borrower’s Covenants

 

4.1                      As and when he becomes, and for so long as he remains a shareholder of Borrower Company, Borrower covenants irrevocably that during the term of this Agreement, Borrower shall cause Borrower Company:

 

4.1.1            to execute the Exclusive Purchase Option Agreement with Borrower and Lender or a party designated by Lender, under which Borrower shall irrevocably grant Lender or a party designated by Lender an exclusive option to purchase all of the equity interest of Borrower Company held by the Borrower; to perform the Exclusive Business Cooperation Agreement executed with the Lender or any person designated by Lender (the “ Exclusive Business Cooperation Agreement ”), under which the Lender or any person designated by Lender, as an exclusive service provider, will provide Borrower Company with technical service and business consulting service; to execute the Equity Pledge Agreement (including its supplementary agreement, if any, the “ Equity Pledge Agreement ”) with the Lender or a party designated by Lender and Borrower, under which will set for the pledge of the equity interest of Borrower Company held by the Borrower; complete all the related governmental approvals, registrations or fillings (as applicable);

 

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4.1.2            to strictly abide by the provisions of the Exclusive Purchase Option Agreement, Equity Pledge Agreement and the Exclusive Business Cooperation Agreement, and to refrain from any action/omission that may affect the effectiveness and enforceability of the Exclusive Purchase Option Agreement, Equity Pledge Agreement and the Exclusive Business Cooperation Agreement;

 

4.1.3            at the request of Lender (or a party designated by Lender), to execute contracts/agreements on business cooperation with Lender (or a party designated by Lender), and to strictly abide by such contracts/agreements;

 

4.1.4            to provide Lender with all of the information on its business operations and financial condition at the request of Lender (or a party designated by Lender);

 

4.1.5            to immediately notify Lender (or any party designated by Lender) of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to its assets, business or income;

 

4.1.6            at the request of Lender or a party designated by Lender, to appoint any persons designated by Lender as directors and/or executive director of Borrower Company;

 

4.1.7            without the prior written consent of Lender (or a party designated by Lender), not to supplement, change or amend its articles of association in any manner, increase or decrease its registered capital or change its share capital structure in any manner;

 

4.1.8            to maintain its corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs;

 

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4.1.9            without prior written consent of Lender (or a party designated by Lender) , not to sell, transfer, mortgage or dispose of in any other manner its legal or beneficial interest in any of its assets, business or revenue at any time from the date of this Agreement, or permit the encumbrance of any other security interest thereon;

 

4.1.10     without the prior written consent of Lender (or a party designated by Lender), not to incur, inherit, guarantee or otherwise allow for the existence of any debt, except for (i) debt incurred in the ordinary course of business other than through any loans; and (ii) debt already disclosed to Lender (or a party designated by Lender) for which the written consent of Lender (or a party designated by Lender) has been obtained;

 

4.1.11     to operate its businesses in the ordinary course and to maintain the value of its assets;

 

4.1.12     without the prior written consent of Lender (or a party designated by Lender), not to execute, amend or early terminate any major contract, except for contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB100,000, or involves any material assets or intellectual properties, or is entered into with any of its related parties, shall be deemed a major contract);

 

4.1.13     without the prior written consent of Lender (or a party designated by Lender), not to provide any person with any loan or credit;

 

4.1.14     to procure and maintain insurance from an insurance carrier acceptable to Lender (or a party designated by Lender), at an amount and type of coverage typical for companies that operate similar businesses;

 

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4.1.15     without the prior written consent of Lender (or a party designated by Lender), not to merge, consolidate with, acquire, or invest in any person;

 

4.1.16     to maintain the ownership of all of its assets, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; and

 

4.1.17     without the prior written consent of Lender (or a party designated by Lender), not to distribute dividends to shareholders, provided that upon the written request of Lender (or a party designated by Lender), to distribute the distributable profits in whole or in part to its shareholders.

 

4.2                      Borrower covenants that during the term of this Agreement, he shall:

 

4.2.1            ensure that Borrower Company shall be a limited liability company without foreign investment, and Borrower shall hold 25% equity interest of Borrower Company;

 

4.2.2            endeavor to cause Borrower Company to engage in its current business;

 

4.2.3            execute an irrevocable Power of Attorney, which authorizes a legal or natural person designated by Lender to exercise all of Borrower’s rights as a shareholder in Borrower Company, and refrain from exercising any such shareholder rights except to the extent required under this Agreement or the Equity Pledge Agreement or as requested by Lender;

 

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4.2.4            execute the Exclusive Purchase Option Agreement with Lender (or a party designated by Lender) and Borrower Company, under which Borrower shall irrevocably grant to Lender an exclusive option to purchase all of the equity interest of Borrower Company held by Borrower;

 

4.2.5            execute a Equity Pledge Agreement (the “Equity Pledge Agreement”) with the Lender (or a party designated by Lender) and Borrower Company, under which Borrower shall pledge the equity interest of Borrower Company held by Borrower to the Lender;

 

4.2.6            abide by the provisions of this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement, perform his obligations under this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement, and refrain from any action/omission that may affect the effectiveness and enforceability of this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement;

 

4.2.7            not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in the equity interest of Borrower Company held by Borrower, or allow the encumbrance thereon of any security interest or the encumbrance, except in accordance with the Equity Pledge Agreement;

 

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4.2.8            cause any shareholders’ meeting and/or the board of directors (or executive director) of Borrower Company not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interest of Borrower Company held by Borrower, or allow the encumbrance thereon of any security interest without the prior written consent of Lender (or a party designated by Lender), except to Lender or Lender’s designated person;

 

4.2.9            cause any shareholders’ meeting and/or the board of directors (or executive director) of the Borrower Company not to approve the merger or consolidation of Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of Lender (or a party designated by Lender);

 

4.2.10     immediately notify Lender (or a party designated by Lender) of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Borrower Equity Interest;

 

4.2.11     to the extent necessary to maintain his ownership of the Equity Interest of Borrower Company, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defense against all claims;

 

4.2.12     without the prior written consent of Lender (or a party designated by Lender), refrain from any action/omission that may have a material impact on the assets, business and liabilities of Borrower Company;

 

4.2.13     appoint any designee of Lender as director and/or executive director of Borrower Company, at the request of Lender (or a party designated by Lender);

 

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4.2.14     to the extent permitted by the laws of China, at the request of Lender (or a party designated by Lender) at any time, promptly and unconditionally transfer all of equity interest of Borrower Company held by Borrower to Lender or Lender’s designated representative(s) at any time, and cause the other shareholders of Borrower Company to waive their right of first refusal with respect to the share transfer described in this Section;

 

4.2.15     to the extent permitted by the laws of China, at the request of Lender (or a party designated by Lender) at any time, cause the other shareholders of Borrower Company to promptly and unconditionally transfer all of their equity interest to Lender or Lender’s designated representative(s) at any time, and Borrower hereby waives his right of first refusal (if any) with respect to the share transfer described in this Section;

 

4.2.16     in the event that Lender purchases the equity interest of Borrower Company held by Borrower from Borrower in accordance with the provisions of the Exclusive Purchase Option Agreement, use such purchase price obtained thereby to repay the Loan to Lender; and

 

4.2.17     without the prior written consent of Lender (or a party designated by Lender), not to cause Borrower Company to supplement, change, or amend its articles of association in any manner, increase or decreases its registered capital or change its share capital structure in any manner.

 

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5.                       Liability for Default

 

5.1                      In the event either Party breaches this Agreement or otherwise causes the non-performance of this Agreement in part or in whole, the Party shall be liable for such breach and shall compensate all damages (including litigation and attorneys fees) resulting therefrom. In the event that both Parties breach this Agreement, each Party shall be liable for its respective breach.

 

5.2                      In the event that Borrower fails to perform the repayment obligations set forth in this Agreement, Borrower shall pay overdue interest of 0.01% per day for the outstanding payment, until the day Borrower repays the full principal of the Loan, overdue interests and other payable amounts.

 

6.                       Notices

 

6.1                      All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

6.1.1            Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery.

 

6.1.2            Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

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6.2                      For the purpose of notices, the addresses of the Parties are as follows:

 

Lender:                                      Shanghai Chu Le Information Technology Co., Ltd.

 

Address:

 

Attn:                                                       Zhang Kan

Phone:

Facsimile:

 

Borrower:                       Zhang Kan

Address:

Facsimile:

 

6.3                      Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof.

 

7.                       Confidentiality

 

The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. The Parties shall maintain the confidentiality of all such information, and without the written consent of other Party, either Party shall not disclose any relevant information to any third party, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This section shall survive the termination of this Agreement for any reason.

 

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8.                       Governing Law and Resolution of Disputes

 

8.1                      The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes shall be governed by the laws of China.

 

8.2                      In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Party for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all parties.

 

8.3                      Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement.

 

9.                       Miscellaneous

 

9.1                      This Agreement shall become effective on the date thereof, and shall expire upon the date of full performance by the Parties of their respective obligations under this Agreement.

 

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9.2                      This Agreement shall be written in both Chinese and English language in two copies, each Party having one copy with equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

9.3                      This Agreement may be amended or supplemented through written agreement by and between the Parties. Such written amendment agreement and/or supplementary agreement executed by and between the Parties are an integral part of this Agreement, and shall have the same legal validity as this Agreement.

 

9.4                      In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

9.5                      The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.

 

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IN WITNESS WHEREOF, the Parties have executed, or caused their authorized representatives to execute, this Loan Agreement as of the date first above written.

 

Lender:                            Shanghai Chu Le Information Technology Co., Ltd.

 

By:

/ s/ Zhang Kan

 

Name: Zhang Kan

 

Title: Legal Representative

 

 

Borrower: Zhang Kan

 

By:

/s/ Zhang Kan

 

 

17


 

Loan Agreement

 

This Loan Agreement (“ this Agreement ”) is made and entered into by and between the parties below as of August 6, 2012 in Shanghai, the People’s Republic of China (“ China ”):

 

(1)                        Shanghai Chu Le Information Technology Co., Ltd. (“ Lender ”), a wholly foreign owned enterprise with its address at ***.

 

(2)                        Zhu Haiyan (“ Borrower ”), a citizen of China, with her Chinese identification No.: ***.

 

Each of Lender and Borrower shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.

 

Whereas, Lender intends to provide Borrower with a loan to be used for the purpose set forth under this Agreement. After friendly consultation, the Parties agree as follows:

 

1.                       Loan

 

1.1                      In accordance with the terms and conditions of this Agreement, Lender agrees to provide a loan in the amount of RMB180,000 (the “ Loan ”) to Borrower, and the Loan will be provided in a lump sum basis or by several installments according to the amount specified in the written notice from the Borrower. The term of the Loan shall be 10 years from the date of this Agreement, and shall be renewed automatically for successive 3 year, and shall be renewed automatically thereafter unless Lender notifies Borrower to terminate this Agreement with fifteen (15) days’ prior notice. During the term of the Loan or the extended term of the Loan, Borrower shall immediately repay the full amount of the Loan in the event any one or more of the following circumstances occur (except otherwise decided by the Lender):

 

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1.1.1            30 days elapse after Borrower receives written notice from Lender requesting repayment of the Loan;

 

1.1.2            Borrower’s death, lack or limitation of civil capacity;

 

1.1.3            Borrower ceases (for any reason) to be an employee of Lender, Borrower Company (as defined below) or its affiliated entity, or ceases to be a shareholder of Borrower Company;

 

1.1.4            Borrower engages in criminal act or is involved in criminal activities;

 

1.1.5            Any third party filed a claim against Borrower that exceeds RMB500,000; or

 

1.1.6            The Lender decides to exercise the exclusive option under the Exclusive Purchase Option Agreement (the “Exclusive Purchase Option Agreement”) described in Sections 4.1.1 and 4.2.4 of this Agreement.

 

1.2                          Lender agrees to remit the total amount under the Loan as described in the written notification to the account designated by Borrower within 20 days after receiving a written notification from the Borrower regarding the same, provided that all the conditions precedent in Section 2 are fulfilled. Borrower shall provide Lender with a written receipt for the Loan upon receiving the Loan. The Loan provided by Lender under this Agreement shall inure to Borrower’s benefit only and not to Borrower’s successors or assignees.

 

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1.3                      Borrower agrees to accept the aforementioned Loan provided by Lender, and hereby agrees and warrants using the Loan to repay the money she borrowed from Shanghai Han Xiang (CooTek) Information Technology Co., Ltd. for the purpose of paying her capital contribution to Shanghai Chu Bao Information Technology Co., Ltd. (“ Borrower Company ”). Without Lender’s prior written consent, Borrower shall not use the Loan for any purpose other than as set forth herein.

 

1.4                      Lender and Borrower hereby agree and acknowledge that Borrower’s method of repayment shall be at the sole discretion of Lender, at Lender’s option take the form of Borrower’s transfer the equity interest of Borrower Company in whole to Lender or Lender’s designated persons (legal or natural persons) pursuant to the Lender’s exercise of its right to acquire such equity interest under the Exclusive Purchase Option Agreement.

 

1.5                      Lender and Borrower hereby agree and acknowledge that any proceeds from the transfer of the equity interest of Borrower Company held by Borrower (to the extent permissible) shall be used to repay the Loan to Lender, in accordance with this Agreement and in the manner designated by Lender.

 

1.6                      Lender and Borrower hereby agree and acknowledge that to the extent permitted by applicable laws, Lender shall have the right but not the obligation to purchase or designate other persons (legal or natural persons) to purchase the equity interest of Borrower Company held by Borrower in part or in whole at any time, at the price stipulated in the Exclusive Purchase Option Agreement.

 

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1.7                      Borrower also undertakes to execute an irrevocable Power of Attorney (the “ Power of Attorney ”, referred to in Section 4.2.3), which authorizes the Lender or a legal or natural person designated by Lender to exercise all of Borrower’s rights as a shareholder of Borrower Company.

 

1.8                      When Borrower transfers the equity interest of Borrower Company held by the Borrower to Lender or Lender’s designated person(s), in the event that the transfer price of such equity interest equals or is lower than the principal of the Loan under this Agreement, the Loan under this Agreement shall be deemed an interest-free loan. In the event that the transfer price of such equity interest exceeds the principal of the Loan under this Agreement, the excess over the principal shall be deemed the interest of the Loan under this Agreement payable by Borrower to Lender.

 

2.                       Conditions Precedent

 

The obligation of Lender to provide the Loan to Borrower contemplated in Section 1.1 shall be subject to the satisfaction of the following conditions, unless waived in writing by Lender.

 

2.1                      All the representations and warranties by Borrower in Section 3.2 are true, complete, correct and not misleading.

 

2.2                      Borrower has not violated the covenants in Section 4 of this Agreement, and no event which may affect Borrower’s performance of its obligations under this Agreement has occurred or is expected to occur.

 

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3.                       Representations and Warranties

 

3.1                      Between the date of this Agreement and the date of termination of this Agreement, Lender hereby makes the following representations and warranties to Borrower:

 

3.1.1            Lender is a company duly organized and legally existing in accordance with the laws of China;

 

3.1.2            Lender has the legal capacity to execute and perform this Agreement. The execution and performance by Lender of this Agreement is consistent with Lender’s scope of business and the provisions of Lender’s corporate bylaws and other organizational documents, and Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; and

 

3.1.3            This Agreement constitutes Lender’s legal, valid and binding obligations, enforceable in accordance with its terms.

 

3.2                      Between the date of this Agreement and the date of termination of this Agreement, Borrower hereby makes the following representations and warranties:

 

3.2.1            Borrower has the legal capacity to execute and perform this Agreement. Borrower has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement;

 

3.2.2            This Agreement constitutes Borrower’s legal, valid and binding obligations enforceable in accordance with its terms; and

 

3.2.3            There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower, nor are there any potential disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower.

 

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4.                       Borrower’s Covenants

 

4.1                      As and when she becomes, and for so long as she remains a shareholder of Borrower Company, Borrower covenants irrevocably that during the term of this Agreement, Borrower shall cause Borrower Company:

 

4.1.1            to execute the Exclusive Purchase Option Agreement with Borrower and Lender or a party designated by Lender, under which Borrower shall irrevocably grant Lender or a party designated by Lender an exclusive option to purchase all of the equity interest of Borrower Company held by the Borrower; to perform the Exclusive Business Cooperation Agreement executed with the Lender or any person designated by Lender (the “ Exclusive Business Cooperation Agreement ”), under which the Lender or any person designated by Lender, as an exclusive service provider, will provide Borrower Company with technical service and business consulting service; to execute the Equity Pledge Agreement (including its supplementary agreement, if any, the “ Equity Pledge Agreement ”) with the Lender or a party designated by Lender and Borrower, under which will set for the pledge of the equity interest of Borrower Company held by the Borrower; complete all the related governmental approvals, registrations or fillings (as applicable);

 

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4.1.2            to strictly abide by the provisions of the Exclusive Purchase Option Agreement, Equity Pledge Agreement and the Exclusive Business Cooperation Agreement, and to refrain from any action/omission that may affect the effectiveness and enforceability of the Exclusive Purchase Option Agreement, Equity Pledge Agreement and the Exclusive Business Cooperation Agreement;

 

4.1.3            at the request of Lender (or a party designated by Lender), to execute contracts/agreements on business cooperation with Lender (or a party designated by Lender), and to strictly abide by such contracts/agreements;

 

4.1.4            to provide Lender with all of the information on its business operations and financial condition at the request of Lender (or a party designated by Lender);

 

4.1.5            to immediately notify Lender (or any party designated by Lender) of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to its assets, business or income;

 

4.1.6            at the request of Lender or a party designated by Lender, to appoint any persons designated by Lender as directors and/or executive director of Borrower Company;

 

4.1.7            without the prior written consent of Lender (or a party designated by Lender), not to supplement, change or amend its articles of association in any manner, increase or decrease its registered capital or change its share capital structure in any manner;

 

4.1.8            to maintain its corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs;

 

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4.1.9            without prior written consent of Lender (or a party designated by Lender) , not to sell, transfer, mortgage or dispose of in any other manner its legal or beneficial interest in any of its assets, business or revenue at any time from the date of this Agreement, or permit the encumbrance of any other security interest thereon;

 

4.1.10          without the prior written consent of Lender (or a party designated by Lender), not to incur, inherit, guarantee or otherwise allow for the existence of any debt, except for (i) debt incurred in the ordinary course of business other than through any loans; and (ii) debt already disclosed to Lender (or a party designated by Lender) for which the written consent of Lender (or a party designated by Lender) has been obtained;

 

4.1.11          to operate its businesses in the ordinary course and to maintain the value of its assets;

 

4.1.12          without the prior written consent of Lender (or a party designated by Lender), not to execute, amend or early terminate any major contract, except for contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB100,000, or involves any material assets or intellectual properties, or is entered into with any of its related parties, shall be deemed a major contract);

 

4.1.13          without the prior written consent of Lender (or a party designated by Lender), not to provide any person with any loan or credit;

 

4.1.14          to procure and maintain insurance from an insurance carrier acceptable to Lender (or a party designated by Lender), at an amount and type of coverage typical for companies that operate similar businesses;

 

8



 

4.1.15          without the prior written consent of Lender (or a party designated by Lender), not to merge, consolidate with, acquire, or invest in any person;

 

4.1.16          to maintain the ownership of all of its assets, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; and

 

4.1.17          without the prior written consent of Lender (or a party designated by Lender), not to distribute dividends to shareholders, provided that upon the written request of Lender (or a party designated by Lender), to distribute the distributable profits in whole or in part to its shareholders.

 

4.2                      Borrower covenants that during the term of this Agreement, she shall:

 

4.2.1            ensure that Borrower Company shall be a limited liability company without foreign investment, and Borrower shall hold 18% equity interest of Borrower Company;

 

4.2.2            endeavor to cause Borrower Company to engage in its current business;

 

4.2.3            execute an irrevocable Power of Attorney, which authorizes a legal or natural person designated by Lender to exercise all of Borrower’s rights as a shareholder in Borrower Company, and refrain from exercising any such shareholder rights except to the extent required under this Agreement or the Equity Pledge Agreement or as requested by Lender;

 

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4.2.4            execute the Exclusive Purchase Option Agreement with Lender (or a party designated by Lender) and Borrower Company, under which Borrower shall irrevocably grant to Lender an exclusive option to purchase all of the equity interest of Borrower Company held by Borrower;

 

4.2.5            execute a Equity Pledge Agreement (the “Equity Pledge Agreement”) with the Lender (or a party designated by Lender) and Borrower Company, under which Borrower shall pledge the equity interest of Borrower Company held by Borrower to the Lender;

 

4.2.6            abide by the provisions of this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement, perform her obligations under this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement, and refrain from any action/omission that may affect the effectiveness and enforceability of this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement;

 

4.2.7            not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in the equity interest of Borrower Company held by Borrower, or allow the encumbrance thereon of any security interest or the encumbrance, except in accordance with the Equity Pledge Agreement;

 

10



 

4.2.8            cause any shareholders’ meeting and/or the board of directors (or executive director) of Borrower Company not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interest of Borrower Company held by Borrower, or allow the encumbrance thereon of any security interest without the prior written consent of Lender (or a party designated by Lender), except to Lender or Lender’s designated person;

 

4.2.9            cause any shareholders’ meeting and/or the board of directors (or executive director) of the Borrower Company not to approve the merger or consolidation of Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of Lender (or a party designated by Lender);

 

4.2.10       immediately notify Lender (or a party designated by Lender) of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Borrower Equity Interest;

 

4.2.11       to the extent necessary to maintain her ownership of the Equity Interest of Borrower Company, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defense against all claims;

 

4.2.12       without the prior written consent of Lender (or a party designated by Lender), refrain from any action/omission that may have a material impact on the assets, business and liabilities of Borrower Company;

 

4.2.13       appoint any designee of Lender as director and/or executive director of Borrower Company, at the request of Lender (or a party designated by Lender);

 

11


 

4.2.14       to the extent permitted by the laws of China, at the request of Lender (or a party designated by Lender) at any time, promptly and unconditionally transfer all of equity interest of Borrower Company held by Borrower to Lender or Lender’s designated representative(s) at any time, and cause the other shareholders of Borrower Company to waive their right of first refusal with respect to the share transfer described in this Section;

 

4.2.15       to the extent permitted by the laws of China, at the request of Lender (or a party designated by Lender) at any time, cause the other shareholders of Borrower Company to promptly and unconditionally transfer all of their equity interest to Lender or Lender’s designated representative(s) at any time, and Borrower hereby waives her right of first refusal (if any) with respect to the share transfer described in this Section;

 

4.2.16       in the event that Lender purchases the equity interest of Borrower Company held by Borrower from Borrower in accordance with the provisions of the Exclusive Purchase Option Agreement, use such purchase price obtained thereby to repay the Loan to Lender; and

 

4.2.17       without the prior written consent of Lender (or a party designated by Lender), not to cause Borrower Company to supplement, change, or amend its articles of association in any manner, increase or decreases its registered capital or change its share capital structure in any manner.

 

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5.                       Liability for Default

 

5.1                      In the event either Party breaches this Agreement or otherwise causes the non-performance of this Agreement in part or in whole, the Party shall be liable for such breach and shall compensate all damages (including litigation and attorneys fees) resulting therefrom. In the event that both Parties breach this Agreement, each Party shall be liable for its respective breach.

 

5.2                      In the event that Borrower fails to perform the repayment obligations set forth in this Agreement, Borrower shall pay overdue interest of 0.01% per day for the outstanding payment, until the day Borrower repays the full principal of the Loan, overdue interests and other payable amounts.

 

6.                       Notices

 

6.1                      All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

6.1.1            Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery.

 

6.1.2            Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

6.2                      For the purpose of notices, the addresses of the Parties are as follows:

 

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Lender:                                      Shanghai Chu Le Information Technology Co., Ltd.

Address: Floor 12, Building 82, No. 1198, North Qinzhou Road,

Xuhui District, Shanghai

 

Attn:                                                       Zhang Kan

Phone:                                            

Facsimile:                           

 

Borrower:                       Zhu Haiyan

Address:                                   

Facsimile:                           

 

6.3                      Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof.

 

7.                       Confidentiality

 

The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. The Parties shall maintain the confidentiality of all such information, and without the written consent of other Party, either Party shall not disclose any relevant information to any third party, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This section shall survive the termination of this Agreement for any reason.

 

14



 

8.                       Governing Law and Resolution of Disputes

 

8.1                      The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes shall be governed by the laws of China.

 

8.2                      In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Party for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all parties.

 

8.3                      Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement.

 

9.                       Miscellaneous

 

9.1                      This Agreement shall become effective on the date thereof, and shall expire upon the date of full performance by the Parties of their respective obligations under this Agreement.

 

15



 

9.2                      This Agreement shall be written in both Chinese and English language in two copies, each Party having one copy with equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

9.3                      This Agreement may be amended or supplemented through written agreement by and between the Parties. Such written amendment agreement and/or supplementary agreement executed by and between the Parties are an integral part of this Agreement, and shall have the same legal validity as this Agreement.

 

9.4                      In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

9.5                      The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.

 

[The Remainder of this page is intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have executed, or caused their authorized representatives to execute, this Loan Agreement as of the date first above written.

 

Lender:                       Shanghai Chu Le Information Technology Co., Ltd.

 

By:

/s/ Zhang Kan

 

Name: Zhang Kan

 

Title: Legal Representative

 

 

 

Borrower: Zhu Haiyan

 

By:

/s/ Zhu Haiyan

 

 

17


 

Loan Agreement

 

This Loan Agreement (“ this Agreement ”) is made and entered into by and between the parties below as of August 6, 2012 in Shanghai, the People’s Republic of China (“ China ”):

 

(1)                        Shanghai Chu Le Information Technology Co., Ltd. (“ Lender ”), a wholly foreign owned enterprise with its address at ***.

 

(2)                        Li Qiaoling (“ Borrower ”), a citizen of China, with her Chinese identification No.: ***.

 

Each of Lender and Borrower shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.

 

Whereas, Lender intends to provide Borrower with a loan to be used for the purpose set forth under this Agreement. After friendly consultation, the Parties agree as follows:

 

1.                       Loan

 

1.1                      In accordance with the terms and conditions of this Agreement, Lender agrees to provide a loan in the amount of RMB219,400 (the “ Loan ”) to Borrower, and the Loan will be provided in a lump sum basis or by several installments according to the amount specified in the written notice from the Borrower. The term of the Loan shall be 10 years from the date of this Agreement, and shall be renewed automatically for successive 3 year, and shall be renewed automatically thereafter unless Lender notifies Borrower to terminate this Agreement with fifteen (15) days’ prior notice. During the term of the Loan or the extended term of the Loan, Borrower shall immediately repay the full amount of the Loan in the event any one or more of the following circumstances occur (except otherwise decided by the Lender):

 

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1.1.1            30 days elapse after Borrower receives written notice from Lender requesting repayment of the Loan;

 

1.1.2            Borrower’s death, lack or limitation of civil capacity;

 

1.1.3            Borrower ceases (for any reason) to be an employee of Lender, Borrower Company (as defined below) or its affiliated entity, or ceases to be a shareholder of Borrower Company;

 

1.1.4            Borrower engages in criminal act or is involved in criminal activities;

 

1.1.5            Any third party filed a claim against Borrower that exceeds RMB500,000; or

 

1.1.6            The Lender decides to exercise the exclusive option under the Exclusive Purchase Option Agreement (the “Exclusive Purchase Option Agreement”) described in Sections 4.1.1 and 4.2.4 of this Agreement.

 

1.2                      Lender agrees to remit the total amount under the Loan as described in the written notification to the account designated by Borrower within 20 days after receiving a written notification from the Borrower regarding the same, provided that all the conditions precedent in Section 2 are fulfilled. Borrower shall provide Lender with a written receipt for the Loan upon receiving the Loan. The Loan provided by Lender under this Agreement shall inure to Borrower’s benefit only and not to Borrower’s successors or assignees.

 

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1.3                      Borrower agrees to accept the aforementioned Loan provided by Lender, and hereby agrees and warrants using the Loan to repay the money she borrowed from Shanghai Han Xiang (CooTek) Information Technology Co., Ltd. for the purpose of paying her capital contribution to Shanghai Chu Bao Information Technology Co., Ltd. (“ Borrower Company ”). Without Lender’s prior written consent, Borrower shall not use the Loan for any purpose other than as set forth herein.

 

1.4                      Lender and Borrower hereby agree and acknowledge that Borrower’s method of repayment shall be at the sole discretion of Lender, at Lender’s option take the form of Borrower’s transfer the equity interest of Borrower Company in whole to Lender or Lender’s designated persons (legal or natural persons) pursuant to the Lender’s exercise of its right to acquire such equity interest under the Exclusive Purchase Option Agreement.

 

1.5                      Lender and Borrower hereby agree and acknowledge that any proceeds from the transfer of the equity interest of Borrower Company held by Borrower (to the extent permissible) shall be used to repay the Loan to Lender, in accordance with this Agreement and in the manner designated by Lender.

 

1.6                      Lender and Borrower hereby agree and acknowledge that to the extent permitted by applicable laws, Lender shall have the right but not the obligation to purchase or designate other persons (legal or natural persons) to purchase the equity interest of Borrower Company held by Borrower in part or in whole at any time, at the price stipulated in the Exclusive Purchase Option Agreement.

 

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1.7                      Borrower also undertakes to execute an irrevocable Power of Attorney (the “ Power of Attorney ”, referred to in Section 4.2.3), which authorizes the Lender or a legal or natural person designated by Lender to exercise all of Borrower’s rights as a shareholder of Borrower Company.

 

1.8                      When Borrower transfers the equity interest of Borrower Company held by the Borrower to Lender or Lender’s designated person(s), in the event that the transfer price of such equity interest equals or is lower than the principal of the Loan under this Agreement, the Loan under this Agreement shall be deemed an interest-free loan. In the event that the transfer price of such equity interest exceeds the principal of the Loan under this Agreement, the excess over the principal shall be deemed the interest of the Loan under this Agreement payable by Borrower to Lender.

 

2.                       Conditions Precedent

 

The obligation of Lender to provide the Loan to Borrower contemplated in Section 1.1 shall be subject to the satisfaction of the following conditions, unless waived in writing by Lender.

 

2.1                      All the representations and warranties by Borrower in Section 3.2 are true, complete, correct and not misleading.

 

2.2                      Borrower has not violated the covenants in Section 4 of this Agreement, and no event which may affect Borrower’s performance of its obligations under this Agreement has occurred or is expected to occur.

 

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3.                       Representations and Warranties

 

3.1                      Between the date of this Agreement and the date of termination of this Agreement, Lender hereby makes the following representations and warranties to Borrower:

 

3.1.1            Lender is a company duly organized and legally existing in accordance with the laws of China;

 

3.1.2            Lender has the legal capacity to execute and perform this Agreement. The execution and performance by Lender of this Agreement is consistent with Lender’s scope of business and the provisions of Lender’s corporate bylaws and other organizational documents, and Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; and

 

3.1.3            This Agreement constitutes Lender’s legal, valid and binding obligations, enforceable in accordance with its terms.

 

3.2                      Between the date of this Agreement and the date of termination of this Agreement, Borrower hereby makes the following representations and warranties:

 

3.2.1            Borrower has the legal capacity to execute and perform this Agreement. Borrower has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement;

 

3.2.2            This Agreement constitutes Borrower’s legal, valid and binding obligations enforceable in accordance with its terms; and

 

3.2.3            There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower, nor are there any potential disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower.

 

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4.                       Borrower’s Covenants

 

4.1                      As and when she becomes, and for so long as she remains a shareholder of Borrower Company, Borrower covenants irrevocably that during the term of this Agreement, Borrower shall cause Borrower Company:

 

4.1.1            to execute the Exclusive Purchase Option Agreement with Borrower and Lender or a party designated by Lender, under which Borrower shall irrevocably grant Lender or a party designated by Lender an exclusive option to purchase all of the equity interest of Borrower Company held by the Borrower; to perform the Exclusive Business Cooperation Agreement executed with the Lender or any person designated by Lender (the “ Exclusive Business Cooperation Agreement ”), under which the Lender or any person designated by Lender, as an exclusive service provider, will provide Borrower Company with technical service and business consulting service; to execute the Equity Pledge Agreement (including its supplementary agreement, if any, the “ Equity Pledge Agreement ”) with the Lender or a party designated by Lender and Borrower, under which will set for the pledge of the equity interest of Borrower Company held by the Borrower; complete all the related governmental approvals, registrations or fillings (as applicable);

 

4.1.2            to strictly abide by the provisions of the Exclusive Purchase Option Agreement, Equity Pledge Agreement and the Exclusive Business Cooperation Agreement, and to refrain from any action/omission that may affect the effectiveness and enforceability of the Exclusive Purchase Option Agreement, Equity Pledge Agreement and the Exclusive Business Cooperation Agreement;

 

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4.1.3            at the request of Lender (or a party designated by Lender), to execute contracts/agreements on business cooperation with Lender (or a party designated by Lender), and to strictly abide by such contracts/agreements;

 

4.1.4            to provide Lender with all of the information on its business operations and financial condition at the request of Lender (or a party designated by Lender);

 

4.1.5            to immediately notify Lender (or any party designated by Lender) of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to its assets, business or income;

 

4.1.6            at the request of Lender or a party designated by Lender, to appoint any persons designated by Lender as directors and/or executive director of Borrower Company;

 

4.1.7            without the prior written consent of Lender (or a party designated by Lender), not to supplement, change or amend its articles of association in any manner, increase or decrease its registered capital or change its share capital structure in any manner;

 

4.1.8            to maintain its corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs;

 

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4.1.9            without prior written consent of Lender (or a party designated by Lender), not to sell, transfer, mortgage or dispose of in any other manner its legal or beneficial interest in any of its assets, business or revenue at any time from the date of this Agreement, or permit the encumbrance of any other security interest thereon;

 

4.1.10     without the prior written consent of Lender (or a party designated by Lender), not to incur, inherit, guarantee or otherwise allow for the existence of any debt, except for (i) debt incurred in the ordinary course of business other than through any loans; and (ii) debt already disclosed to Lender (or a party designated by Lender) for which the written consent of Lender (or a party designated by Lender) has been obtained;

 

4.1.11     to operate its businesses in the ordinary course and to maintain the value of its assets;

 

4.1.12     without the prior written consent of Lender (or a party designated by Lender), not to execute, amend or early terminate any major contract, except for contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB100,000, or involves any material assets or intellectual properties, or is entered into with any of its related parties, shall be deemed a major contract);

 

4.1.13     without the prior written consent of Lender (or a party designated by Lender), not to provide any person with any loan or credit;

 

4.1.14     to procure and maintain insurance from an insurance carrier acceptable to Lender (or a party designated by Lender), at an amount and type of coverage typical for companies that operate similar businesses;

 

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4.1.15     without the prior written consent of Lender (or a party designated by Lender), not to merge, consolidate with, acquire, or invest in any person;

 

4.1.16     to maintain the ownership of all of its assets, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; and

 

4.1.17     without the prior written consent of Lender (or a party designated by Lender), not to distribute dividends to shareholders, provided that upon the written request of Lender (or a party designated by Lender), to distribute the distributable profits in whole or in part to its shareholders.

 

4.2                      Borrower covenants that during the term of this Agreement, she shall:

 

4.2.1            ensure that Borrower Company shall be a limited liability company without foreign investment, and Borrower shall hold 21.94% equity interest of Borrower Company;

 

4.2.2            endeavor to cause Borrower Company to engage in its current business;

 

4.2.3            execute an irrevocable Power of Attorney, which authorizes a legal or natural person designated by Lender to exercise all of Borrower’s rights as a shareholder in Borrower Company, and refrain from exercising any such shareholder rights except to the extent required under this Agreement or the Equity Pledge Agreement or as requested by Lender;

 

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4.2.4            execute the Exclusive Purchase Option Agreement with Lender (or a party designated by Lender) and Borrower Company, under which Borrower shall irrevocably grant to Lender an exclusive option to purchase all of the equity interest of Borrower Company held by Borrower;

 

4.2.5            execute a Equity Pledge Agreement (the “Equity Pledge Agreement”) with the Lender (or a party designated by Lender) and Borrower Company, under which Borrower shall pledge the equity interest of Borrower Company held by Borrower to the Lender;

 

4.2.6            abide by the provisions of this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement, perform her obligations under this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement, and refrain from any action/omission that may affect the effectiveness and enforceability of this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement;

 

4.2.7            not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in the equity interest of Borrower Company held by Borrower, or allow the encumbrance thereon of any security interest or the encumbrance, except in accordance with the Equity Pledge Agreement;

 

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4.2.8            cause any shareholders’ meeting and/or the board of directors (or executive director) of Borrower Company not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interest of Borrower Company held by Borrower, or allow the encumbrance thereon of any security interest without the prior written consent of Lender (or a party designated by Lender), except to Lender or Lender’s designated person;

 

4.2.9            cause any shareholders’ meeting and/or the board of directors (or executive director) of the Borrower Company not to approve the merger or consolidation of Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of Lender (or a party designated by Lender);

 

4.2.10     immediately notify Lender (or a party designated by Lender) of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Borrower Equity Interest;

 

4.2.11     to the extent necessary to maintain her ownership of the Equity Interest of Borrower Company, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defense against all claims;

 

4.2.12     without the prior written consent of Lender (or a party designated by Lender), refrain from any action/omission that may have a material impact on the assets, business and liabilities of Borrower Company;

 

4.2.13     appoint any designee of Lender as director and/or executive director of Borrower Company, at the request of Lender (or a party designated by Lender);

 

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4.2.14     to the extent permitted by the laws of China, at the request of Lender (or a party designated by Lender) at any time, promptly and unconditionally transfer all of equity interest of Borrower Company held by Borrower to Lender or Lender’s designated representative(s) at any time, and cause the other shareholders of Borrower Company to waive their right of first refusal with respect to the share transfer described in this Section;

 

4.2.15     to the extent permitted by the laws of China, at the request of Lender (or a party designated by Lender) at any time, cause the other shareholders of Borrower Company to promptly and unconditionally transfer all of their equity interest to Lender or Lender’s designated representative(s) at any time, and Borrower hereby waives her right of first refusal (if any) with respect to the share transfer described in this Section;

 

4.2.16     in the event that Lender purchases the equity interest of Borrower Company held by Borrower from Borrower in accordance with the provisions of the Exclusive Purchase Option Agreement, use such purchase price obtained thereby to repay the Loan to Lender; and

 

4.2.17     without the prior written consent of Lender (or a party designated by Lender), not to cause Borrower Company to supplement, change, or amend its articles of association in any manner, increase or decreases its registered capital or change its share capital structure in any manner.

 

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5.                       Liability for Default

 

5.1                      In the event either Party breaches this Agreement or otherwise causes the non-performance of this Agreement in part or in whole, the Party shall be liable for such breach and shall compensate all damages (including litigation and attorneys fees) resulting therefrom. In the event that both Parties breach this Agreement, each Party shall be liable for its respective breach.

 

5.2                      In the event that Borrower fails to perform the repayment obligations set forth in this Agreement, Borrower shall pay overdue interest of 0.01% per day for the outstanding payment, until the day Borrower repays the full principal of the Loan, overdue interests and other payable amounts.

 

6.                       Notices

 

6.1                      All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

6.1.1            Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery.

 

6.1.2            Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

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6.2                      For the purpose of notices, the addresses of the Parties are as follows:

 

Lender:                                      Shanghai Chu Le Information Technology Co., Ltd.

Address:

 

Attn:                                                       Zhang Kan

Phone:                                            

Facsimile:                           

 

Borrower:                       Li Qiaoling

Address:                                   

Facsimile:                           

 

6.3                      Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof.

 

7.                       Confidentiality

 

The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. The Parties shall maintain the confidentiality of all such information, and without the written consent of other Party, either Party shall not disclose any relevant information to any third party, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This section shall survive the termination of this Agreement for any reason.

 

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8.                       Governing Law and Resolution of Disputes

 

8.1                      The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes shall be governed by the laws of China.

 

8.2                      In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Party for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all parties.

 

8.3                      Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement.

 

9.                       Miscellaneous

 

9.1                      This Agreement shall become effective on the date thereof, and shall expire upon the date of full performance by the Parties of their respective obligations under this Agreement.

 

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9.2                      This Agreement shall be written in both Chinese and English language in two copies, each Party having one copy with equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

9.3                      This Agreement may be amended or supplemented through written agreement by and between the Parties. Such written amendment agreement and/or supplementary agreement executed by and between the Parties are an integral part of this Agreement, and shall have the same legal validity as this Agreement.

 

9.4                      In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

9.5                      The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.

 

[The Remainder of this page is intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have executed, or caused their authorized representatives to execute, this Loan Agreement as of the date first above written.

 

 

 

Lender:  Shanghai Chu Le Information Technology Co., Ltd.

 

 

 

 

By:

/s/ Zhang Kan

 

Name: Zhang Kan

 

Title: Legal Representative

 

 

 

 

 

Borrower: Li Qiaoling

 

 

 

By:

/s/ Li Qiaoling

 

 

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Loan Agreement

 

This Loan Agreement (“ this Agreement ”) is made and entered into by and between the parties below as of August 6, 2012 in Shanghai, the People’s Republic of China (“ China ”):

 

(1)                        Shanghai Chu Le Information Technology Co., Ltd. (“ Lender ”), a wholly foreign owned enterprise with its address at ***.

 

(2)                        Wang Jialiang (“ Borrower ”), a citizen of China, with his Chinese identification No.: ***.

 

Each of Lender and Borrower shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.

 

Whereas, Lender intends to provide Borrower with a loan to be used for the purpose set forth under this Agreement. After friendly consultation, the Parties agree as follows:

 

1.                       Loan

 

1.1                      In accordance with the terms and conditions of this Agreement, Lender agrees to provide a loan in the amount of RMB219,400 (the “ Loan ”) to Borrower, and the Loan will be provided in a lump sum basis or by several installments according to the amount specified in the written notice from the Borrower. The term of the Loan shall be 10 years from the date of this Agreement, and shall be renewed automatically for successive 3 year, and shall be renewed automatically thereafter unless Lender notifies Borrower to terminate this Agreement with fifteen (15) days’ prior notice. During the term of the Loan or the extended term of the Loan, Borrower shall immediately repay the full amount of the Loan in the event any one or more of the following circumstances occur (except otherwise decided by the Lender):

 

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1.1.1            30 days elapse after Borrower receives written notice from Lender requesting repayment of the Loan;

 

1.1.2            Borrower’s death, lack or limitation of civil capacity;

 

1.1.3            Borrower ceases (for any reason) to be an employee of Lender, Borrwoer Company (as defined below) or its affiliated entity, or ceases to be a shareholder of Borrower Company;

 

1.1.4            Borrower engages in criminal act or is involved in criminal activities;

 

1.1.5            Any third party filed a claim against Borrower that exceeds RMB500,000; or

 

1.1.6            The Lender decides to exercise the exclusive option under the Exclusive Purchase Option Agreement (the “Exclusive Purchase Option Agreement”) described in Sections 4.1.1 and 4.2.4 of this Agreement.

 

1.2                      Lender agrees to remit the total amount under the Loan as described in the written notification to the account designated by Borrower within 20 days after receiving a written notification from the Borrower regarding the same, provided that all the conditions precedent in Section 2 are fulfilled. Borrower shall provide Lender with a written receipt for the Loan upon receiving the Loan. The Loan provided by Lender under this Agreement shall inure to Borrower’s benefit only and not to Borrower’s successors or assignees.

 

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1.3                      Borrower agrees to accept the aforementioned Loan provided by Lender, and hereby agrees and warrants using the Loan to repay the money he borrowed from Shanghai Han Xiang (CooTek) Information Tecnology Co., Ltd. for the purpose of paying his capital contribution to Shanghai Chu Bao Information Technology Co., Ltd. (“ Borrower Company ”). Without Lender’s prior written consent, Borrower shall not use the Loan for any purpose other than as set forth herein.

 

1.4                      Lender and Borrower hereby agree and acknowledge that Borrower’s method of repayment shall be at the sole discretion of Lender, at Lender’s option take the form of Borrower’s transfer the equity interest of Borrower Company in whole to Lender or Lender’s designated persons (legal or natural persons) pursuant to the Lender’s exercise of its right to acquire such equity interest under the Exclusive Purchase Option Agreement.

 

1.5                      Lender and Borrower hereby agree and acknowledge that any proceeds from the transfer of the equity interest of Borrower Company held by Borrower (to the extent permissible) shall be used to repay the Loan to Lender, in accordance with this Agreement and in the manner designated by Lender.

 

1.6                      Lender and Borrower hereby agree and acknowledge that to the extent permitted by applicable laws, Lender shall have the right but not the obligation to purchase or designate other persons (legal or natural persons) to purchase the equity interest of Borrower Company held by Borrower in part or in whole at any time, at the price stipulated in the Exclusive Purchase Option Agreement.

 

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1.7                          Borrower also undertakes to execute an irrevocable Power of Attorney (the “ Power of Attorney ”, referred to in Section 4.2.3), which authorizes the Lender or a legal or natural person designated by Lender to exercise all of Borrower’s rights as a shareholder of Borrower Company.

 

1.8                          When Borrower transfers the equity interest of Borrower Company held by the Borrower to Lender or Lender’s designated person(s), in the event that the transfer price of such equity interest equals or is lower than the principal of the Loan under this Agreement, the Loan under this Agreement shall be deemed an interest-free loan. In the event that the transfer price of such equity interest exceeds the principal of the Loan under this Agreement, the excess over the principal shall be deemed the interest of the Loan under this Agreement payable by Borrower to Lender.

 

2.                       Conditions Precedent

 

The obligation of Lender to provide the Loan to Borrower contemplated in Section 1.1 shall be subject to the satisfaction of the following conditions, unless waived in writing by Lender.

 

2.1                      All the representations and warranties by Borrower in Section 3.2 are true, complete, correct and not misleading.

 

2.2                      Borrower has not violated the covenants in Section 4 of this Agreement, and no event which may affect Borrower’s performance of its obligations under this Agreement has occurred or is expected to occur.

 

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3.                       Representations and Warranties

 

3.1                      Between the date of this Agreement and the date of termination of this Agreement, Lender hereby makes the following representations and warranties to Borrower:

 

3.1.1            Lender is a company duly organized and legally existing in accordance with the laws of China;

 

3.1.2            Lender has the legal capacity to execute and perform this Agreement. The execution and performance by Lender of this Agreement is consistent with Lender’s scope of business and the provisions of Lender’s corporate bylaws and other organizational documents, and Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; and

 

3.1.3            This Agreement constitutes Lender’s legal, valid and binding obligations, enforceable in accordance with its terms.

 

3.2                      Between the date of this Agreement and the date of termination of this Agreement, Borrower hereby makes the following representations and warranties:

 

3.2.1            Borrower has the legal capacity to execute and perform this Agreement. Borrower has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement;

 

3.2.2            This Agreement constitutes Borrower’s legal, valid and binding obligations enforceable in accordance with its terms; and

 

3.2.3            There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower, nor are there any potential disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower.

 

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4.                       Borrower’s Covenants

 

4.1                      As and when he becomes, and for so long as he remains a shareholder of Borrower Company, Borrower covenants irrevocably that during the term of this Agreement, Borrower shall cause Borrower Company:

 

4.1.1            to execute the Exclusive Purchase Option Agreement with Borrower and Lender or a party designated by Lender, under which Borrower shall irrevocably grant Lender or a party designated by Lender an exclusive option to purchase all of the equity interest of Borrower Company held by the Borrower; to perform the Exclusive Business Cooperation Agreement executed with the Lender or any person designated by Lender (the “ Exclusive Business Cooperation Agreement ”), under which the Lender or any person designated by Lender, as an exclusive service provider, will provide Borrower Company with technical service and business consulting service; to execute the Equity Pledge Agreement (including its supplementary agreement, if any, the “ Equity Pledge Agreement ”) with the Lender or a party designated by Lender and Borrower, under which will set for the pledge of the equity interest of Borrower Company held by the Borrower; complete all the related governmental approvals, registrations or fillings (as applicable);

 

4.1.2            to strictly abide by the provisions of the Exclusive Purchase Option Agreement, Equity Pledge Agreement and the Exclusive Business Cooperation Agreement, and to refrain from any action/omission that may affect the effectiveness and enforceability of the Exclusive Purchase Option Agreement, Equity Pledge Agreement and the Exclusive Business Cooperation Agreement;

 

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4.1.3            at the request of Lender (or a party designated by Lender), to execute contracts/agreements on business cooperation with Lender (or a party designated by Lender), and to strictly abide by such contracts/agreements;

 

4.1.4            to provide Lender with all of the information on its business operations and financial condition at the request of Lender (or a party designated by Lender);

 

4.1.5            to immediately notify Lender (or any party designated by Lender) of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to its assets, business or income;

 

4.1.6            at the request of Lender or a party designated by Lender, to appoint any persons designated by Lender as directors and/or executive director of Borrower Company;

 

4.1.7            without the prior written consent of Lender (or a party designated by Lender), not to supplement, change or amend its articles of association in any manner, increase or decrease its registered capital or change its share capital structure in any manner;

 

4.1.8            to maintain its corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs;

 

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4.1.9            without prior written consent of Lender (or a party designated by Lender) , not to sell, transfer, mortgage or dispose of in any other manner its legal or beneficial interest in any of its assets, business or revenue at any time from the date of this Agreement, or permit the encumbrance of any other security interest thereon;

 

4.1.10     without the prior written consent of Lender (or a party designated by Lender), not to incur, inherit, guarantee or otherwise allow for the existence of any debt, except for (i) debt incurred in the ordinary course of business other than through any loans; and (ii) debt already disclosed to Lender (or a party designated by Lender) for which the written consent of Lender (or a party designated by Lender) has been obtained;

 

4.1.11     to operate its businesses in the ordinary course and to maintain the value of its assets;

 

4.1.12     without the prior written consent of Lender (or a party designated by Lender), not to execute, amend or early terminate any major contract, except for contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB100,000, or involves any material assets or intellectual properties, or is entered into with any of its related parties, shall be deemed a major contract);

 

4.1.13     without the prior written consent of Lender (or a party designated by Lender), not to provide any person with any loan or credit;

 

4.1.14     to procure and maintain insurance from an insurance carrier acceptable to Lender (or a party designated by Lender), at an amount and type of coverage typical for companies that operate similar businesses;

 

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4.1.15     without the prior written consent of Lender (or a party designated by Lender), not to merge, consolidate with, acquire, or invest in any person;

 

4.1.16     to maintain the ownership of all of its assets, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; and

 

4.1.17     without the prior written consent of Lender (or a party designated by Lender), not to distribute dividends to shareholders, provided that upon the written request of Lender (or a party designated by Lender), to distribute the distributable profits in whole or in part to its shareholders.

 

4.2                        Borrower covenants that during the term of this Agreement, he shall:

 

4.2.1            ensure that Borrower Company shall be a limited liability company without foreign investment, and Borrower shall hold 21.94% equity interest of Borrower Company;

 

4.2.2            endeavor to cause Borrower Company to engage in its current business;

 

4.2.3            execute an irrevocable Power of Attorney, which authorizes a legal or natural person designated by Lender to exercise all of Borrower’s rights as a shareholder in Borrower Company, and refrain from exercising any such shareholder rights except to the extent required under this Agreement or the Equity Pledge Agreement or as requested by Lender;

 

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4.2.4            execute the Exclusive Purchase Option Agreement with Lender (or a party designated by Lender) and Borrower Company, under which Borrower shall irrevocably grant to Lender an exclusive option to purchase all of the equity interest of Borrower Company held by Borrower;

 

4.2.5            execute a Equity Pledge Agreement (the “Equity Pledge Agreement”) with the Lender (or a party designated by Lender) and Borrower Company, under which Borrower shall pledge the equity interest of Borrower Company held by Borrower to the Lender;

 

4.2.6            abide by the provisions of this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement, perform his obligations under this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement, and refrain from any action/omission that may affect the effectiveness and enforceability of this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement;

 

4.2.7            not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in the equity interest of Borrower Company held by Borrower, or allow the encumbrance thereon of any security interest or the encumbrance, except in accordance with the Equity Pledge Agreement;

 

10



 

4.2.8            cause any shareholders’ meeting and/or the board of directors (or executive director) of Borrower Company not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interest of Borrower Company held by Borrower, or allow the encumbrance thereon of any security interest without the prior written consent of Lender (or a party designated by Lender), except to Lender or Lender’s designated person;

 

4.2.9            cause any shareholders’ meeting and/or the board of directors (or executive director) of the Borrower Company not to approve the merger or consolidation of Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of Lender (or a party designated by Lender);

 

4.2.10     immediately notify Lender (or a party designated by Lender) of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Borrower Equity Interest;

 

4.2.11     to the extent necessary to maintain his ownership of the Equity Interest of Borrower Company, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defense against all claims;

 

4.2.12     without the prior written consent of Lender (or a party designated by Lender), refrain from any action/omission that may have a material impact on the assets, business and liabilities of Borrower Company;

 

4.2.13     appoint any designee of Lender as director and/or executive director of Borrower Company, at the request of Lender (or a party designated by Lender);

 

11


 

4.2.14     to the extent permitted by the laws of China, at the request of Lender (or a party designated by Lender) at any time, promptly and unconditionally transfer all of equity interest of Borrower Company held by Borrower to Lender or Lender’s designated representative(s) at any time, and cause the other shareholders of Borrower Company to waive their right of first refusal with respect to the share transfer described in this Section;

 

4.2.15     to the extent permitted by the laws of China, at the request of Lender (or a party designated by Lender) at any time, cause the other shareholders of Borrower Company to promptly and unconditionally transfer all of their equity interest to Lender or Lender’s designated representative(s) at any time, and Borrower hereby waives his right of first refusal (if any) with respect to the share transfer described in this Section;

 

4.2.16     in the event that Lender purchases the equity interest of Borrower Company held by Borrower from Borrower in accordance with the provisions of the Exclusive Purchase Option Agreement, use such purchase price obtained thereby to repay the Loan to Lender; and

 

4.2.17     without the prior written consent of Lender (or a party designated by Lender), not to cause Borrower Company to supplement, change, or amend its articles of association in any manner, increase or decreases its registered capital or change its share capital structure in any manner.

 

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5.                       Liability for Default

 

5.1                      In the event either Party breaches this Agreement or otherwise causes the non-performance of this Agreement in part or in whole, the Party shall be liable for such breach and shall compensate all damages (including litigation and attorneys fees) resulting therefrom. In the event that both Parties breach this Agreement, each Party shall be liable for its respective breach.

 

5.2                      In the event that Borrower fails to perform the repayment obligations set forth in this Agreement, Borrower shall pay overdue interest of 0.01% per day for the outstanding payment, until the day Borrower repays the full principal of the Loan, overdue interests and other payable amounts.

 

6.                       Notices

 

6.1                      All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

6.1.1            Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery.

 

6.1.2            Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

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6.2                      For the purpose of notices, the addresses of the Parties are as follows:

 

Lender:                                      Shanghai Chu Le Information Technology Co., Ltd.

 

Attn:                                                       Zhang Kan

Phone:                                            

Facsimile:                           

 

Borrower:                       Wang Jialiang

Address:                                   

Facsimile:                           

 

6.3                      Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof.

 

7.                       Confidentiality

 

The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. The Parties shall maintain the confidentiality of all such information, and without the written consent of other Party, either Party shall not disclose any relevant information to any third party, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This section shall survive the termination of this Agreement for any reason.

 

14



 

8.                       Governing Law and Resolution of Disputes

 

8.1        The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes shall be governed by the laws of China.

 

8.2        In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Party for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all parties.

 

8.3        Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement.

 

9.                       Miscellaneous

 

9.1        This Agreement shall become effective on the date thereof, and shall expire upon the date of full performance by the Parties of their respective obligations under this Agreement.

 

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9.2        This Agreement shall be written in both Chinese and English language in two copies, each Party having one copy with equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

9.3        This Agreement may be amended or supplemented through written agreement by and between the Parties. Such written amendment agreement and/or supplementary agreement executed by and between the Parties are an integral part of this Agreement, and shall have the same legal validity as this Agreement.

 

9.4        In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

9.5        The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.

 

[The Remainder of this page is intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties have executed, or caused their authorized representatives to execute, this Loan Agreement as of the date first above written.

 

Lender:  Shanghai Chu Le Information Technology Co., Ltd.

 

 

 

 

By:

/s/ Zhang Kan

 

Name: Zhang Kan

 

Title: Legal Representative

 

 

 

 

 

Borrower: Wang Jiliang

 

 

 

 

By:

/s/ Wang Jiliang

 

 

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Loan Agreement

 

This Loan Agreement (“ this Agreement ”) is made and entered into by and between the parties below as of August 6, 2012 in Shanghai, the People’s Republic of China (“ China ”):

 

(1)                        Shanghai Chu Le Information Technology Co., Ltd. (“ Lender ”), a wholly foreign owned enterprise with its address at ***.

 

(2)                        Wang Jian (“ Borrower ”), a citizen of China, with his Chinese identification No.: ***.

 

Each of Lender and Borrower shall be hereinafter referred to as a “Party” respectively, and as the “Parties” collectively.

 

Whereas, Lender intends to provide Borrower with a loan to be used for the purpose set forth under this Agreement. After friendly consultation, the Parties agree as follows:

 

1.                       Loan

 

1.1                      In accordance with the terms and conditions of this Agreement, Lender agrees to provide a loan in the amount of RMB131,200 (the “ Loan ”) to Borrower, and the Loan will be provided in a lump sum basis or by several installments according to the amount specified in the written notice from the Borrower. The term of the Loan shall be 10 years from the date of this Agreement, and shall be renewed automatically for successive 3 year, and shall be renewed automatically thereafter unless Lender notifies Borrower to terminate this Agreement with fifteen (15) days’ prior notice. During the term of the Loan or the extended term of the Loan, Borrower shall immediately repay the full amount of the Loan in the event any one or more of the following circumstances occur (except otherwise decided by the Lender):

 

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1.1.1            30 days elapse after Borrower receives written notice from Lender requesting repayment of the Loan;

 

1.1.2            Borrower’s death, lack or limitation of civil capacity;

 

1.1.3            Borrower ceases (for any reason) to be an employee of Lender, Borrwoer Company (as defined below) or its affiliated entity, or ceases to be a shareholder of Borrower Company;

 

1.1.4            Borrower engages in criminal act or is involved in criminal activities;

 

1.1.5            Any third party filed a claim against Borrower that exceeds RMB500,000; or

 

1.1.6            The Lender decides to exercise the exclusive option under the Exclusive Purchase Option Agreement (the “Exclusive Purchase Option Agreement”) described in Sections 4.1.1 and 4.2.4 of this Agreement.

 

1.2                      Lender agrees to remit the total amount under the Loan as described in the written notification to the account designated by Borrower within 20 days after receiving a written notification from the Borrower regarding the same, provided that all the conditions precedent in Section 2 are fulfilled. Borrower shall provide Lender with a written receipt for the Loan upon receiving the Loan. The Loan provided by Lender under this Agreement shall inure to Borrower’s benefit only and not to Borrower’s successors or assignees.

 

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1.3                      Borrower agrees to accept the aforementioned Loan provided by Lender, and hereby agrees and warrants using the Loan to repay the money he borrowed from Shanghai Han Xiang (CooTek) Information Tecnology Co., Ltd. for the purpose of paying his capital contribution to Shanghai Chu Bao Information Technology Co., Ltd. (“ Borrower Company ”). Without Lender’s prior written consent, Borrower shall not use the Loan for any purpose other than as set forth herein.

 

1.4                      Lender and Borrower hereby agree and acknowledge that Borrower’s method of repayment shall be at the sole discretion of Lender, at Lender’s option take the form of Borrower’s transfer the equity interest of Borrower Company in whole to Lender or Lender’s designated persons (legal or natural persons) pursuant to the Lender’s exercise of its right to acquire such equity interest under the Exclusive Purchase Option Agreement.

 

1.5                      Lender and Borrower hereby agree and acknowledge that any proceeds from the transfer of the equity interest of Borrower Company held by Borrower (to the extent permissible) shall be used to repay the Loan to Lender, in accordance with this Agreement and in the manner designated by Lender.

 

1.6                      Lender and Borrower hereby agree and acknowledge that to the extent permitted by applicable laws, Lender shall have the right but not the obligation to purchase or designate other persons (legal or natural persons) to purchase the equity interest of Borrower Company held by Borrower in part or in whole at any time, at the price stipulated in the Exclusive Purchase Option Agreement.

 

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1.7                      Borrower also undertakes to execute an irrevocable Power of Attorney (the “ Power of Attorney ”, referred to in Section 4.2.3), which authorizes the Lender or a legal or natural person designated by Lender to exercise all of Borrower’s rights as a shareholder of Borrower Company.

 

1.8                      When Borrower transfers the equity interest of Borrower Company held by the Borrower to Lender or Lender’s designated person(s), in the event that the transfer price of such equity interest equals or is lower than the principal of the Loan under this Agreement, the Loan under this Agreement shall be deemed an interest-free loan. In the event that the transfer price of such equity interest exceeds the principal of the Loan under this Agreement, the excess over the principal shall be deemed the interest of the Loan under this Agreement payable by Borrower to Lender.

 

2.                       Conditions Precedent

 

The obligation of Lender to provide the Loan to Borrower contemplated in Section 1.1 shall be subject to the satisfaction of the following conditions, unless waived in writing by Lender.

 

2.1                      All the representations and warranties by Borrower in Section 3.2 are true, complete, correct and not misleading.

 

2.2                      Borrower has not violated the covenants in Section 4 of this Agreement, and no event which may affect Borrower’s performance of its obligations under this Agreement has occurred or is expected to occur.

 

4



 

3.                       Representations and Warranties

 

3.1                      Between the date of this Agreement and the date of termination of this Agreement, Lender hereby makes the following representations and warranties to Borrower:

 

3.1.1            Lender is a company duly organized and legally existing in accordance with the laws of China;

 

3.1.2            Lender has the legal capacity to execute and perform this Agreement. The execution and performance by Lender of this Agreement is consistent with Lender’s scope of business and the provisions of Lender’s corporate bylaws and other organizational documents, and Lender has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement; and

 

3.1.3            This Agreement constitutes Lender’s legal, valid and binding obligations, enforceable in accordance with its terms.

 

3.2                      Between the date of this Agreement and the date of termination of this Agreement, Borrower hereby makes the following representations and warranties:

 

3.2.1            Borrower has the legal capacity to execute and perform this Agreement. Borrower has obtained all necessary and proper approvals and authorizations for the execution and performance of this Agreement;

 

3.2.2            This Agreement constitutes Borrower’s legal, valid and binding obligations enforceable in accordance with its terms; and

 

3.2.3            There are no disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower, nor are there any potential disputes, litigations, arbitrations, administrative proceedings or any other legal proceedings relating to Borrower.

 

5



 

4.                       Borrower’s Covenants

 

4.1                      As and when he becomes, and for so long as he remains a shareholder of Borrower Company, Borrower covenants irrevocably that during the term of this Agreement, Borrower shall cause Borrower Company:

 

4.1.1            to execute the Exclusive Purchase Option Agreement with Borrower and Lender or a party designated by Lender, under which Borrower shall irrevocably grant Lender or a party designated by Lender an exclusive option to purchase all of the equity interest of Borrower Company held by the Borrower; to perform the Exclusive Business Cooperation Agreement executed with the Lender or any person designated by Lender (the “ Exclusive Business Cooperation Agreement ”), under which the Lender or any person designated by Lender, as an exclusive service provider, will provide Borrower Company with technical service and business consulting service; to execute the Equity Pledge Agreement (including its supplementary agreement, if any, the “ Equity Pledge Agreement ”) with the Lender or a party designated by Lender and Borrower, under which will set for the pledge of the equity interest of Borrower Company held by the Borrower; complete all the related governmental approvals, registrations or fillings (as applicable);

 

4.1.2            to strictly abide by the provisions of the Exclusive Purchase Option Agreement, Equity Pledge Agreement and the Exclusive Business Cooperation Agreement, and to refrain from any action/omission that may affect the effectiveness and enforceability of the Exclusive Purchase Option Agreement, Equity Pledge Agreement and the Exclusive Business Cooperation Agreement;

 

6



 

4.1.3            at the request of Lender (or a party designated by Lender), to execute contracts/agreements on business cooperation with Lender (or a party designated by Lender), and to strictly abide by such contracts/agreements;

 

4.1.4            to provide Lender with all of the information on its business operations and financial condition at the request of Lender (or a party designated by Lender);

 

4.1.5            to immediately notify Lender (or any party designated by Lender) of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to its assets, business or income;

 

4.1.6            at the request of Lender or a party designated by Lender, to appoint any persons designated by Lender as directors and/or executive director of Borrower Company;

 

4.1.7            without the prior written consent of Lender (or a party designated by Lender), not to supplement, change or amend its articles of association in any manner, increase or decrease its registered capital or change its share capital structure in any manner;

 

4.1.8            to maintain its corporate existence in accordance with good financial and business standards and practices by prudently and effectively operating its business and handling its affairs;

 

7



 

4.1.9            without prior written consent of Lender (or a party designated by Lender) , not to sell, transfer, mortgage or dispose of in any other manner its legal or beneficial interest in any of its assets, business or revenue at any time from the date of this Agreement, or permit the encumbrance of any other security interest thereon;

 

4.1.10     without the prior written consent of Lender (or a party designated by Lender), not to incur, inherit, guarantee or otherwise allow for the existence of any debt, except for (i) debt incurred in the ordinary course of business other than through any loans; and (ii) debt already disclosed to Lender (or a party designated by Lender) for which the written consent of Lender (or a party designated by Lender) has been obtained;

 

4.1.11     to operate its businesses in the ordinary course and to maintain the value of its assets;

 

4.1.12     without the prior written consent of Lender (or a party designated by Lender), not to execute, amend or early terminate any major contract, except for contracts in the ordinary course of business (for purpose of this subsection, a contract with a value exceeding RMB100,000, or involves any material assets or intellectual properties, or is entered into with any of its related parties, shall be deemed a major contract);

 

4.1.13     without the prior written consent of Lender (or a party designated by Lender), not to provide any person with any loan or credit;

 

4.1.14     to procure and maintain insurance from an insurance carrier acceptable to Lender (or a party designated by Lender), at an amount and type of coverage typical for companies that operate similar businesses;

 

8



 

4.1.15     without the prior written consent of Lender (or a party designated by Lender), not to merge, consolidate with, acquire, or invest in any person;

 

4.1.16     to maintain the ownership of all of its assets, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all claims; and

 

4.1.17     without the prior written consent of Lender (or a party designated by Lender), not to distribute dividends to shareholders, provided that upon the written request of Lender (or a party designated by Lender), to distribute the distributable profits in whole or in part to its shareholders.

 

4.2                      Borrower covenants that during the term of this Agreement, he shall:

 

4.2.1            ensure that Borrower Company shall be a limited liability company without foreign investment, and Borrower shall hold 13.12% equity interest of Borrower Company;

 

4.2.2            endeavor to cause Borrower Company to engage in its current business;

 

4.2.3            execute an irrevocable Power of Attorney, which authorizes a legal or natural person designated by Lender to exercise all of Borrower’s rights as a shareholder in Borrower Company, and refrain from exercising any such shareholder rights except to the extent required under this Agreement or the Equity Pledge Agreement or as requested by Lender;

 

9



 

4.2.4            execute the Exclusive Purchase Option Agreement with Lender (or a party designated by Lender) and Borrower Company, under which Borrower shall irrevocably grant to Lender an exclusive option to purchase all of the equity interest of Borrower Company held by Borrower;

 

4.2.5            execute a Equity Pledge Agreement (the “Equity Pledge Agreement”) with the Lender (or a party designated by Lender) and Borrower Company, under which Borrower shall pledge the equity interest of Borrower Company held by Borrower to the Lender;

 

4.2.6            abide by the provisions of this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement, perform his obligations under this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement, and refrain from any action/omission that may affect the effectiveness and enforceability of this Agreement, the Power of Attorney, the Equity Pledge Agreement and the Exclusive Purchase Option Agreement;

 

4.2.7            not sell, transfer, mortgage or dispose of in any other manner the legal or beneficial interest in the equity interest of Borrower Company held by Borrower, or allow the encumbrance thereon of any security interest or the encumbrance, except in accordance with the Equity Pledge Agreement;

 

10



 

4.2.8            cause any shareholders’ meeting and/or the board of directors (or executive director) of Borrower Company not to approve the sale, transfer, mortgage or disposition in any other manner of any legal or beneficial interest in the equity interest of Borrower Company held by Borrower, or allow the encumbrance thereon of any security interest without the prior written consent of Lender (or a party designated by Lender), except to Lender or Lender’s designated person;

 

4.2.9            cause any shareholders’ meeting and/or the board of directors (or executive director) of the Borrower Company not to approve the merger or consolidation of Borrower Company with any person, or its acquisition of or investment in any person, without the prior written consent of Lender (or a party designated by Lender);

 

4.2.10     immediately notify Lender (or a party designated by Lender) of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to Borrower Equity Interest;

 

4.2.11     to the extent necessary to maintain his ownership of the Equity Interest of Borrower Company, execute all necessary or appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defense against all claims;

 

4.2.12     without the prior written consent of Lender (or a party designated by Lender), refrain from any action/omission that may have a material impact on the assets, business and liabilities of Borrower Company;

 

4.2.13     appoint any designee of Lender as director and/or executive director of Borrower Company, at the request of Lender (or a party designated by Lender);

 

11


 

4.2.14     to the extent permitted by the laws of China, at the request of Lender (or a party designated by Lender) at any time, promptly and unconditionally transfer all of equity interest of Borrower Company held by Borrower to Lender or Lender’s designated representative(s) at any time, and cause the other shareholders of Borrower Company to waive their right of first refusal with respect to the share transfer described in this Section;

 

4.2.15     to the extent permitted by the laws of China, at the request of Lender (or a party designated by Lender) at any time, cause the other shareholders of Borrower Company to promptly and unconditionally transfer all of their equity interest to Lender or Lender’s designated representative(s) at any time, and Borrower hereby waives his right of first refusal (if any) with respect to the share transfer described in this Section;

 

4.2.16     in the event that Lender purchases the equity interest of Borrower Company held by Borrower from Borrower in accordance with the provisions of the Exclusive Purchase Option Agreement, use such purchase price obtained thereby to repay the Loan to Lender; and

 

4.2.17     without the prior written consent of Lender (or a party designated by Lender), not to cause Borrower Company to supplement, change, or amend its articles of association in any manner, increase or decreases its registered capital or change its share capital structure in any manner.

 

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5.                       Liability for Default

 

5.1                      In the event either Party breaches this Agreement or otherwise causes the non-performance of this Agreement in part or in whole, the Party shall be liable for such breach and shall compensate all damages (including litigation and attorneys fees) resulting therefrom. In the event that both Parties breach this Agreement, each Party shall be liable for its respective breach.

 

5.2                      In the event that Borrower fails to perform the repayment obligations set forth in this Agreement, Borrower shall pay overdue interest of 0.01% per day for the outstanding payment, until the day Borrower repays the full principal of the Loan, overdue interests and other payable amounts.

 

6.                       Notices

 

6.1                      All notices and other communications required or permitted to be given pursuant to this Agreement shall be delivered personally or sent by registered mail, postage prepaid, by a commercial courier service or by facsimile transmission to the address of such party set forth below. A confirmation copy of each notice shall also be sent by email. The dates on which notices shall be deemed to have been effectively given shall be determined as follows:

 

6.1.1            Notices given by personal delivery, by courier service or by registered mail, postage prepaid, shall be deemed effectively given on the date of delivery.

 

6.1.2            Notices given by facsimile transmission shall be deemed effectively given on the date of successful transmission (as evidenced by an automatically generated confirmation of transmission).

 

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6.2                      For the purpose of notices, the addresses of the Parties are as follows:

 

Lender:                                      Shanghai Chu Le Information Technology Co., Ltd.

 

Attn:                                                       Zhang Kan

Phone:                                            

Facsimile:                           

 

Borrower:                       Wang Jian

Address:                                   

Facsimile:                           

 

6.3                      Any Party may at any time change its address for notices by a notice delivered to the other Party in accordance with the terms hereof.

 

7.                       Confidentiality

 

The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information. The Parties shall maintain the confidentiality of all such information, and without the written consent of other Party, either Party shall not disclose any relevant information to any third party, except in the following circumstances: (a) such information is or will be in the public domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws or rules or regulations of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This section shall survive the termination of this Agreement for any reason.

 

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8.                       Governing Law and Resolution of Disputes

 

8.1                      The execution, effectiveness, construction, performance, amendment and termination of this Agreement and the resolution of disputes shall be governed by the laws of China.

 

8.2                      In the event of any dispute with respect to the construction and performance of this Agreement, the Parties shall first resolve the dispute through friendly negotiations. In the event the Parties fail to reach an agreement on the dispute within 30 days after either Party’s request to the other Party for resolution of the dispute through negotiations, either Party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with its then effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on all parties.

 

8.3                      Upon the occurrence of any disputes arising from the construction and performance of this Agreement or during the pending arbitration of any dispute, except for the matters under dispute, the parties to this Agreement shall continue to exercise their respective rights under this Agreement and perform their respective obligations under this Agreement.

 

9.                       Miscellaneous

 

9.1                      This Agreement shall become effective on the date thereof, and shall expire upon the date of full performance by the Parties of their respective obligations under this Agreement.

 

15



 

9.2                      This Agreement shall be written in both Chinese and English language in two copies, each Party having one copy with equal legal validity. In case there is any conflict between the Chinese version and the English version, the Chinese version shall prevail.

 

9.3                      This Agreement may be amended or supplemented through written agreement by and between the Parties. Such written amendment agreement and/or supplementary agreement executed by and between the Parties are an integral part of this Agreement, and shall have the same legal validity as this Agreement.

 

9.4                      In the event that one or several of the provisions of this Agreement are found to be invalid, illegal or unenforceable in any aspect in accordance with any laws or regulations, the validity, legality or enforceability of the remaining provisions of this Agreement shall not be affected or compromised in any respect. The Parties shall strive in good faith to replace such invalid, illegal or unenforceable provisions with effective provisions that accomplish to the greatest extent permitted by law the intentions of the Parties, and the economic effect of such effective provisions shall be as close as possible to the economic effect of those invalid, illegal or unenforceable provisions.

 

9.5                      The attachments (if any) to this Agreement shall be an integral part of this Agreement and shall have the same legal validity as this Agreement.

 

[The Remainder of this page is intentionally left blank]

 

16



 

IN WITNESS WHEREOF, the Parties have executed, or caused their authorized representatives to execute, this Loan Agreement as of the date first above written.

 

 

Lender:  Shanghai Chu Le Information Technology Co., Ltd.

 

 

 

 

By:

/s/ Zhang Kan

 

Name: Zhang Kan

 

Title: Legal Representative

 

 

 

 

 

Borrower: Wang Jian

 

 

 

 

By:

/s/ Wang Jian

 

 

17




Exhibit 10.10

 

Spousal Consent

 

The undersigned,             People’s Republic of China (“China” or the “PRC”) citizen with PRC Identification Card No.:         , is the lawful spouse of           , a PRC citizen with PRC Identification Card No.:        . I hereby agree to the execution of the Loan Agreement entered into with Shanghai Chu Le Information Technology Co., Ltd. (the “ WFOE ”) by       on August 6, 2012, and the following documents (together with Loan Agreement, the “ Transaction Documents ”) by         on October 30, 2012, and the disposal of the equity interests of Shanghai Chu Bao Information Technology Co., Ltd. (“ Target Company ”) held by         and registered in his name according to the following documents:

 

(1)                                  The Amended and Restated Equity Pledge Agreement entered into between the WFOE and Target Company;

 

(2)                                  The Amended and Restated Exclusive Purchase Option Agreement entered into between the WFOE and Target Company;

 

(3)                                  Power of Attorney.

 

I hereby undertake and confirm that                can perform the Transaction Documents and further amend or terminate the Transaction Documents without the authorization or consent from me.

 

I hereby undertake to execute all necessary documents and take all necessary actions to ensure appropriate performance of the Transaction Documents (as may be amended from time to time).

 

I hereby agree and undertake that if I obtain any equity interests of Target Company which are held by          for any reasons, I shall be bound by the Transaction Documents and the Exclusive Business Cooperation Agreement entered into between the WFOE and Target Company as of August 6, 2012 (the “ Exclusive Business Cooperation Agreement ”) (as may be amended from time to time) and comply with the obligations thereunder as a shareholder of Target Company. For this purpose, upon the WFOE’s request, I shall sign a series of written documents in substantially the same format and content as the Transaction Documents and the Exclusive Business Cooperation Agreement (as may be amended from time to time).

 



 

Name

 

 

 

 

 

 

 

 

 

Date: October 30, 2012

 

Signature Page to Spousal Consent-[ ]

 




Exhibit 10.11

 

Execution Copy

 

SERIES D-1 PREFERRED SHARE PURCHASE AGREEMENT

 



 

SERIES D-1 PREFERRED SHARE PURCHASE AGREEMENT

 

THIS SHARE PURCHASE AGREEMENT (this “ Agreement ”) is entered into as of January 10, 2017, by and among:

 

(1)                                  CooTek (Cayman) Inc., a company duly incorporated and validly existing under the Laws of the Cayman Islands (the “ Company ”),

 

(2)                                  CooTek HongKong Limited, a company duly incorporated and validly existing under the Laws of the Hong Kong Special Administrative Region (the “ HK Subsidiary ”),

 

(3)                                  TouchPal HK Co., Limited, a company duly incorporated and validly existing under the Law of the Hong Kong Special Administrative Region (“ TouchPal HK ”),

 

(4)                                  TouchPal, Inc., a corporation duly incorporated and validly existing under the Law of Delaware State, USA (“ TouchPal US ”, together with TouchPal HK collectively, the “ Offshore Subsidiaries ”),

 

(5)                                  Shanghai Chu Le (CooTek) Information Technology Co., Ltd. (上海触乐信息科技有限公司), a wholly foreign-owned enterprise duly organized and validly existing under the Laws of the PRC (the “ WFOE ”),

 

(6)                                  Shanghai Han Xiang (CooTek) Information Technology Co., Ltd. (上海汉翔信息技术有限公司), a Sino-foreign joint venture company duly incorporated and validly existing under the Laws of the PRC (“ Han Xiang ”),

 

(7)                                  Shanghai Chu Bao (CooTek) Information Technology Co., Ltd. (上海触宝信息技术有限公司), a limited liability company duly incorporated and validly existing under the Laws of the PRC (“ Chu Bao ,” together with Han Xiang, the “ Domestic Companies ” and each a “ Domestic Company ”; and the Domestic Companies together with the WFOE, collectively, the “ PRC Subsidiaries ” and each, a “ PRC Subsidiary ”),

 

(8)                                  Haiyan’s Global Creativity Investment Inc., a company duly incorporated and validly existing under the Laws of the British Virgin Islands (the “ Haiyan’s Holdco ”),

 

(9)                                  Zhu Haiyan (朱海燕, referred herein as “ Zhu ”), a citizen of the PRC with her ID card number of ***,

 

(10)                           The individuals listed in Schedule I attached hereto (the “ Founders ”, and each, a “ Founder ”),

 

(11)                           The entities listed in Schedule II attached hereto (the “ Founder Holdcos ”, and each, a “ Founder Holdco ”),

 

(12)                           Qualcomm International, Inc., a company duly incorporated and validly existing under the Laws of the State of California of the United States of America (“ Qualcomm ”, together with the Founder Holdcos, the “ Selling Shareholders ”, and each, a “ Selling Shareholder ”), and

 

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(13)                           HG Qiandao Limited, a company duly incorporated and validly existing under the Laws of British Virgin Islands (the “ Investor ”).

 

Each of the Company, HK Subsidiary, the Offshore Subsidiaries, the PRC Subsidiaries, the Founders, the Founder Holdcos, Haiyan’s Holdco, Zhu, Qualcomm and the Investor is referred to herein individually as a “ Party ” and collectively as the “ Parties .”

 

RECITALS

 

WHEREAS, the Investor wishes to invest in the Company by subscribing for Series D-1 Preferred Shares (as defined below), to be issued by the Company pursuant to the terms and subject to the conditions of this Agreement;

 

WHEREAS, upon the Initial Closing, the Investor wishes to designate one of its Affiliates to provide a loan to WFOE, and WFOE wishes to accept and borrow such loan from such Affiliate designated by the Investor, in a principal equal to an amount of US$20,000,000 or its equivalent RMB pursuant to the terms and subject to the conditions of the Loan Agreement (the “ Domestic Loan Agreement ”) entered into by and among the Investor’s Affiliate, the WFOE and other parties thereto (the “ Domestic Loan ”);

 

WHEREAS, the Company wishes to issue and sell Series D-1 Preferred Shares to the Investor pursuant to the terms and subject to the conditions of this Agreement;

 

WHEREAS, each of the Selling Shareholders agrees to sell to the Company, and the Company agrees to repurchase from each of the Selling Shareholders and cancel certain shares of the Company pursuant to the terms and subject to the conditions of this Agreement;

 

WHEREAS, the Parties desire to enter into this Agreement and make the respective representations, warranties, covenants and agreements set forth herein on the terms and conditions set forth herein;

 

WHEREAS, on or prior to the execution of this Agreement, the shareholders of the Company have approved, (a) by special resolution, the adoption of the Memorandum and Articles (subject to the consummation of the Initial Closing under this Agreement), and (b) by ordinary resolution, this Agreement;

 

WITNESSETH

 

NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties intending to be legally bound hereto hereby agree as follows:

 

1.                                       Definitions. The following terms shall have the meanings ascribed to them below:

 

2012 Stock Incentive Plan ” means the Company’s 2012 Stock Incentive Plan.

 

Action ” means any notice, charge, claim, action, complaint, petition, investigation, suit or other proceeding, whether administrative, civil or criminal, whether at Law or in equity, and whether or not before any mediator, arbitrator or Governmental Authority.

 

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Affiliate ” means, with respect to a Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with such Person.

 

Agreement ” means this Share Purchase Agreement.

 

Ancillary Agreements ” means the Shareholders’ Agreement defined herein, as amended from time to time.

 

Applicable Accounting Principles ” means, in the case of the WFOE and the PRC Subsidiaries, PRC GAAP, and in the case of all other Group Companies, the local accounting principles of the country where the Group Company is incorporated.

 

Approval ” means any approval, authorization, license, permit, release, order, or consent required to be obtained from, or any registration, qualification, designation, declaration, filing, notice, statement or other communication required to be filed with or delivered to, any Governmental Authority or any other Person, or any waiver of any of the foregoing.

 

Domestic Companies ” has the meaning set forth in the Preamble of this Agreement.

 

Domestic Loan ” has the meaning set forth in the Recitals of this Agreement.

 

Domestic Loan Agreement ” has the meaning set forth in the Recitals of this Agreement.

 

Board ” or “ Board of Directors ” means the board of directors of the Company.

 

Business Plan ” has the meaning set forth in Section 3.29 hereof.

 

Charter Documents ” means, as to a Person, such Person’s certificate of incorporation, formation or registration (including, if relevant, certificates of change of name), memorandum of association, articles of association or incorporation, charter, by-laws, trust deed, trust instrument, partnership, operating agreement, limited liability company, joint venture or shareholders’ agreement or equivalent documents, and business license, in each case as amended.

 

Circular 37 ” has the meaning set forth in Section 3.10(ii)  hereof.

 

Circular 698 ” means the Circular issued by the PRC State Administration of Taxation titled ‘strengthening of Administration of Corporate Income Tax Liability on Income of Non-Resident Enterprises from Transfer of Equity Interests’(Guoshuihan 2009 No. 698) (in Chinese:  and the further explanatory document, the Announcement No. 7 issued by the PRC State Administration of Taxation titled ‘Announcement of the State Administration of Taxation on Several Issues Relating to Corporate Income Tax on Gains from Indirect Transfer of Assets by Non-resident Enterprises’ (Gong Gao [2015] No. 7 ) (in Chinese: 《国家税务总局关于非居民企业间接转让财产企业所得税若干问题的公告》 ( 国家税务总局公告 2015 年第 7 )).

 

Closing ” has the meaning set forth in Section 2.3(iii)  hereof.

 

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Company ” has the meaning set forth in the Preamble of this Agreement.

 

Company Intellectual Property ” has the meaning set forth in Section 3.19(i)  hereof.

 

Company Owned IP ” has the meaning set forth in Section 3.19(i)  hereof.

 

Company Registered IP ” has the meaning set forth in Section 3.19(i)  hereof.

 

Company Security Holder ” has the meaning set forth in Section 3.10(ii)  hereof.

 

Compliance Laws ” has the meaning set forth in Section 3.9(ii) .

 

Contract ” means, as to any Person, any contract, agreement, undertaking, understanding, indenture, note, bond, loan, instrument, lease, mortgage, deed of trust, franchise, or license to which such Person is a party or by which such Person or any of its property is bound, whether oral or written.

 

Control ” of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, which power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person; the term “Controlled” has the meaning correlative to the foregoing.

 

Control Documents ” means the following Contracts collectively: (a) the Amended and Restated Exclusive Purchase Option Agreement by and among the WFOE, Han Xiang, and each of the Founders and ZHU, each dated October 30, 2012; the Exclusive Purchase Option Agreement by and among the WFOE, Han Xiang, and each of Orange Capital Management, Qi Ming century (HK) Limited, Qualcomm International, Inc., each dated October 30, 2012; (b) the Amended and Restated Exclusive Purchase Option Agreement by and among the WFOE, Chu Bao, and each shareholder of Chu Bao, each dated October 30, 2012; (c) the Equity Pledge Agreement and the Amended and Restated Equity Pledge Agreement by and among the WFOE, Han Xiang, and each of the Founders and ZHU, each dated October 30, 2012; the Equity Pledge Agreements ( version for SAIC filing purpose ) by and among the WFOE, Han Xiang, and each of Orange Capital Management, Qi Ming century (HK) Limited, Qualcomm International, Inc., each dated October 30, 2012; (d) the Equity Pledge Agreement ( version for SAIC filing purpose ) and Amended and Restated Equity Pledge Agreement by and among the WFOE, Chu Bao, and each shareholder of Chu Bao, each dated October 30, 2012; (e) the Amended and Restated Exclusive Business Cooperation Agreement by and between the WFOE and Han Xiang dated October 30, 2012; (f) the Exclusive Business Cooperation Agreement by and between the WFOE and Chu Bao dated August 6, 2012; (g) the Powers of Attorney by and between the WFOE and each shareholder of Chu Bao, each dated October 30, 2012; (h) the Powers of Attorney by and between the WFOE and each shareholder of Han Xiang, each dated October 30, 2012; and (i) the Loan Agreement by and between the WFOE, and each shareholder of Chu Bao, each dated August 6, 2012.

 

Conversion Shares ” means Ordinary Shares issuable upon conversion of any Series D-1 Preferred Shares.

 

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Director ” means the member of the Board of the Company.

 

Disclosing Party ” has the meaning set forth in Section 10.3 hereof.

 

Disclosure Schedule ” has the meaning set forth in Section 3 hereof.

 

Domestic Company ” has the meaning set forth in the Preamble of this Agreement.

 

Employee Benefit Plans ” has the meaning set forth in Section 3.20 hereof

 

Equity Securities ” means, with respect to a Person, any shares, share capital, registered capital, ownership interest, equity interest, or other securities of such Person, and any option, warrant, or right to subscribe for, acquire or purchase any of the foregoing, or any other security or instrument convertible into or exercisable or exchangeable for any of the foregoing, or any equity appreciation, phantom equity, equity plans or similar rights with respect to such Person, or any Contract of any kind for the purchase or acquisition from such Person of any of the foregoing, either directly or indirectly.

 

FCPA ” has the meaning set forth in Section 3.9(ii)  hereof.

 

Financial Statements ” has the meaning set forth in Section 3.14 hereof.

 

Financing Terms ” has the meaning set forth in Section 10.1 hereof.

 

Foreign Exchange Authorization ” has the meaning set forth in Section 3.10(ii)  hereof.

 

Founders ” has the meaning set forth in the Preamble of this Agreement.

 

Founder Holdcos ” has the meaning set forth in the Preamble of this Agreement.

 

Governmental Authority ” means any nation or government or any federation, province or state or any other political subdivision thereof; any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the PRC, the Cayman Islands, the British Virgin Islands, or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.

 

Governmental Order ” means any applicable order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent, approval, award, judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.

 

Group Company ” means each of the Company, HK Subsidiary, the Offshore Subsidiaries and the PRC Subsidiaries, together with each Subsidiary of any of the foregoing, and each Person (other than a natural person) that is, directly or indirectly, Controlled by any of the foregoing, including but not limited to each joint venture in which any of the foregoing holds more than fifty percent (50%) of the voting power, and “ Group ” refers to all of Group Companies collectively.

 

Haiyan’s Holdco ” has the meaning set forth in the Preamble of this Agreement.

 

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Hong Kong ” means the Hong Kong Special Administrative Region of the PRC.

 

IFRS ” means the International Financial Reporting Standards.

 

Indemnifiable Loss ” has the meaning set forth in Section 11.1 hereof.

 

“Initial Closing” has the meaning set forth in Section 2.3(i)  hereof.

 

Intellectual Property ” means any and all (i) patents, all patent rights and all applications therefor and all reissues, reexaminations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (ii) inventions (whether patentable or not), discoveries, improvements, concepts, innovations and industrial models, (iii) registered and unregistered copyrights, copyright registrations and applications, author’s rights and works of authorship (including artwork of any kind and software of all types in whatever medium, inclusive of computer programs, source code, object code and executable code, and related documentation), (iv) URLs, domain names, web sites, web pages and any part thereof, (v) technical information, know-how, trade secrets, drawings, designs, design protocols, specifications for parts and devices, quality assurance and control procedures, design tools, manuals, research data concerning historical and current research and development efforts, including the results of successful and unsuccessful designs, databases and proprietary data, (vi) proprietary processes, technology, engineering, formulae, algorithms and operational procedures, (vii) trade names, trade dress, trademarks, and service marks, and registrations and applications therefor, and (viii) the goodwill of the business symbolized or represented by the foregoing, customer lists and other proprietary information and common-law rights.

 

Investor ” has the meaning set forth in the Preamble of this Agreement.

 

IPO ” means the first firmly underwritten registered public offering (a) by the Company of its Ordinary Shares or any member of Group Companies pursuant to a Registration Statement (as defined in the Shareholders’ Agreement) that is filed with and declared effective by either the Commission (as defined in the Shareholders’ Agreement) under the Securities Act in the United States, or (b) listing of all the equity interest or shares of any member of Group Companies on the Hong Kong Stock Exchange or United States stock exchange or PRC stock exchange approved by the Board of the Company.

 

Key Employee ” means each of the Persons listed on Schedule IV and Key Employees mean such Persons collectively.

 

Knowledge ” means, with respect to any of the Warrantors, the actual knowledge of any of the Founders and the Key Employees, and that knowledge which should have been acquired by each such individual after making such due inquiry and exercising such due diligence as a prudent business person would have made or exercised in the management of his or her business affairs, including but not limited to due inquiry of all officers, directors, employees, consultants and professional advisers (including attorneys, accountants and auditors) of the Group and of its Affiliates who could reasonably be expected to have knowledge of the matters in question, and where any statement in the representations and warranties hereunder is expressed to be given or made to a Person’s Knowledge, or so far as a Party is aware, or is qualified in some other manner having a similar effect, the statement shall be deemed to be supplemented by the additional statement that such Party has made such due inquiry and due diligence.

 

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Law ” or “ Laws ” means any constitutional provision, statute or other law, rule, regulation, official policy or interpretation of any Governmental Authority and any Governmental Order.

 

Liability ” or “ Liabilities ” means, with respect to any Person, all debts, obligations, liabilities owed by such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.

 

Licensed IP ” has the meaning set forth in Section 3.19(i)  hereof.

 

Lien ” means any mortgage, pledge, claim, security interest, encumbrance, title defect, lien, charge, easement, adverse claim, restrictive covenant, or other restriction or limitation of any kind whatsoever, including any restriction on the use, voting, transfer, receipt of income, or exercise of any attributes of ownership.

 

Long-Stop Date ” has the meaning set forth in Section 2.3 hereof.

 

Material Adverse Effect ” means any (i) event, occurrence, fact, condition, change or development that has had, has, or could reasonably be expected to have, either alone or together with other events, occurrences, facts, conditions, changes or developments, a material adverse effect on the business, properties, assets, employees, operations, results of operations, condition (financial or otherwise), prospects, assets or liabilities of the Group, (ii) material impairment of the ability of any Group Company, any Founder, or any Founder Holdco to perform the material obligations of such Person hereunder or under any other Transaction Documents, as applicable, or (iii) material impairment of the validity or enforceability of this Agreement or any Transaction Document against any Group Company, any Founder, or any Founder Holdco.

 

Material Contracts ” has the meaning set forth in Section 3.17 hereof.

 

Memorandum and Articles ” means the Fifth Amended and Restated Memorandum of Association of the Company and the Fifth Amended and Restated Articles of Association of the Company attached hereto as Exhibit B , to be adopted in accordance with applicable Law on or before the Initial Closing and which shall be in full force and effect as of the Initial Closing.

 

Offshore Subsidiaries ” has the meaning set forth in the Preamble of this Agreement.

 

Ordinary Shares ” means the Company’s ordinary shares, par value US$0.00001 per share.

 

Party ” or “ Parties ” has the meaning set forth in the Preamble of this Agreement.

 

Permitted Liens ” means (i) Liens for Taxes not yet delinquent or the validity of which are being contested in good faith and (ii) Liens incurred in the ordinary course of business, which (x) do not individually or in the aggregate materially detract from the value, use, or transferability of the assets that are subject to such Liens and (y) were not incurred in connection with the borrowing of money.

 

Permits ” has the meaning set forth in Section 3.8 hereof.

 

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Person ” means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, trust, estate or other enterprise or entity.

 

PRC ” means the People’s Republic of China, but solely for the purposes of this Agreement and the other Transaction Documents, excluding Hong Kong, the Macau Special Administrative Region and the islands of Taiwan.

 

PRC GAAP ” means the Corporate Accounting Standards (2006)  as promulgated by the Ministry of Finance of the PRC and as amended and in effect from time to time.

 

PRC Subsidiaries ” has the meaning set forth in the Preamble of this Agreement.

 

PRC Tax Authority ” means the PRC tax authority competent to impose, assess or enforce the tax liabilities in connection with the repurchase contemplated hereunder.

 

Preferred Shares ” has the meaning set forth in Section 3.2(i)  hereof.

 

Public Official ” means any employee of a Governmental Authority, an active member of a political party engaged in political or governmental activities, a political candidate, officer of a public international organization, or officer or employee of a state-owned enterprise, including a PRC state-owned enterprise.

 

Purchase Price ” has the meaning set forth in Section 2.1 hereof.

 

Qualcomm ” has the meaning set forth in the Preamble of this Agreement.

 

Real Property ” has the meaning set forth in Section 3.18(ii)  hereof.

 

Related Party ” means an officer, director or employee of any Group Company or any “affiliate” or “associate” (as those terms are defined in Rule 405 promulgated under the Securities Act) of any of them (each of the foregoing, a “ Related Party ”).

 

Related Party Contract ” means a contract between any Group Company and any Related Party.

 

Representatives ” has the meaning set forth in Section 3.9(ii)  hereof.

 

SAIC ” means the State Administration for Industry and Commerce of the PRC and any of its local branches.

 

SAFE ” means the State Administration of Foreign Exchange of the PRC and any of its local branches.

 

SAFE Rules and Regulations ” has the meaning set forth in Section 3.10(ii)  hereof.

 

Securities Act ” means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Selling Shareholders ” has the meaning set forth in the Preamble of this Agreement.

 

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Series A Preferred Shares ” has the meaning set forth in Section 3.2(i)  hereof.

 

Series B Preferred Shares ” has the meaning set forth in Section 3.2(i)  hereof.

 

Series B-1 Preferred Shares ” has the meaning set forth in Section 3.2(i)  hereof.

 

Series C Preferred Shares ” has the meaning set forth in Section 3.2(i)  hereof.

 

Series D Preferred Shares ” has the meaning set forth in Section 3.2(i)  hereof.

 

Series D-1 Preferred Shares ” has the meaning set forth in Section 3.2(i)  hereof.

 

Settlement Agreement ” has the meaning set forth in Section 3.19(iii)  hereof.

 

Shareholders’ Agreement ” means the Fifth Amended and Restated Shareholders’ Agreement to be entered into by and among the parties thereto on or prior to the Initial Closing, in the form attached hereto as Exhibit C .

 

Social Insurance ” has the meaning set forth in Section 3.20(vii)  hereof.

 

Statement Date ” has the meaning set forth in Section 3.14 hereof.

 

“Subsequent Closing” has the meaning set forth in Section 2.3(iii)  hereof.

 

Subsidiary ” means, with respect to any specified Person, any Person of which the specified Person, directly or indirectly, owns or Controls more than fifty percent (50%) of the issued and outstanding share capital, voting interests or registered capital.

 

Tax ” means (i) in the PRC: (a) any national, provincial, municipal, or local taxes, charges, fees, levies, or other assessments, including, without limitation, all net income (including enterprise income tax and individual income withholding tax), turnover (including value-added tax, business tax, and consumption tax), resource (including urban and township land use tax), special purpose (including land value-added tax, urban maintenance and construction tax, and additional education fees), property (including urban real estate tax and land use fees), documentation (including stamp duty and deed tax), filing, recording, social insurance (including pension, medical, unemployment, housing, and other social insurance withholding), tariffs (including import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Governmental Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Governmental Authority in connection with any item described in clauses (a) and (b) above, and (ii) in any jurisdiction other than the PRC, all similar liabilities as described in clause (i) above.

 

TouchPal HK ” has the meaning set forth in the Preamble of this Agreement.

 

TouchPal US ” has the meaning set forth in the Preamble of this Agreement.

 

Tax Return ” means any return, report or statement showing Taxes, used to pay Taxes, or required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof), including any information return, claim for refund, amended return or declaration of estimated or provisional Tax.

 

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Transaction Documents ” means this Agreement, the Ancillary Agreements, the exhibits attached to any of the foregoing and each of the agreements and other documents otherwise required in connection with implementing the transactions contemplated by any of the foregoing.

 

U.S. ” means the United States of America.

 

Warrantors ” has the meaning set forth in Section 3 hereof.

 

WFOE ” has the meaning set forth in the Preamble of this Agreement.

 

Zhu ” has the meaning set forth in the Preamble of this Agreement.

 

2.                                       Purchase and Sale of Series D-1 Preferred Shares

 

2.1                                Sale and Issuance of the Series D-1 Preferred Shares. Subject to the terms and conditions of this Agreement, at the Initial Closing, the Investor agrees to subscribe for and purchase, and the Company agrees to issue and sell to the Investor, that number of Series D-1 Preferred Shares set forth opposite the Investor’s name on Schedule III-A attached hereto, with the Investor to pay after the Initial Closing as consideration for such Series D-1 Preferred Shares the aggregate purchase price (the “ Purchase Price ”) set forth opposite the Investor’s name on Schedule III-A attached hereto.

 

2.2                                Repurchase of Shares . Subject to the terms and conditions of this Agreement, (i) at the Initial Closing, Qualcomm agrees to sell to the Company, and the Company agrees to repurchase from Qualcomm and cancel that number of shares of the Company (the “ Qualcomm Repurchased Shares ”) as set forth opposite Qualcomm on Schedule III-B for the repurchase price (the “ Qualcomm Repurchase Price ”) as set forth opposite Qualcomm on Schedule III-B ; (ii) at the Subsequent Closing, each of Founder Holdcos, severally but not jointly, agrees to sell to the Company, and the Company agrees to repurchase from each of the Founder Holdcos and cancel that number of shares of the Company (the “ Founder Holdcos Repurchased Shares ”, together with Qualcomm Repurchased Shares the “ Repurchased Shares ”) as set forth opposite such Founder Holdco on Schedule III-B for the repurchase price (the “ Founder Holdcos Repurchase Price ”, together with Qualcomm Repurchase Price the “Repurchase Price” ) as set forth opposite such Founder Holdco on Schedule III-B .

 

2.3                                Closing

 

(i)                                      Initial Closing. The consummation of the sale and issuance of the Series D-1 Preferred Shares pursuant to Section 2.1 and the repurchase and cancellation of the Qualcomm Repurchased Shares pursuant to Section 2.2(i)  (the “ Initial Closing ”) shall, take place remotely via the exchange of documents and signatures as soon as practicable, but in no event later than five (5) business days following the satisfaction or waiver of all of the conditions set forth in Section 6 , as confirmed in writing by the Investor and the Company, or at such other place or at such other time or on such other date as the Company and the Investor may mutually agree in writing.

 

(ii)                                   Initial Closing Deliveries. At the Initial Closing, the Company shall deliver to the Investor (a) a scanned copy of the updated register of members of the Company, certified by the registered office provider of the Company, reflecting the issuance to the

 

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Investor of the Series D-1 Preferred Shares being purchased but unpaid and the repurchase and cancellation of the Qualcomm Repurchased Shares at the Initial Closing, (b) the share certificate or certificates representing the relevant Series D-1 Preferred Shares being purchased but unpaid by the Investor at the Initial Closing, and (c) all Transaction Documents duly executed by relevant Parties.

 

At the Initial Closing, the Company shall deliver to Qualcomm (a) a scanned copy of the updated register of members of the Company, certified by the registered office provider of the Company, reflecting the issuance to the Investor of the Series D-1 Preferred Shares being purchased but unpaid and the repurchase and cancellation of the Qualcomm Repurchased Shares at the Initial Closing, (b) the share certificate or certificates representing the Series A Preferred Shares held by Qualcomm after the repurchase of Qualcomm Repurchased Shares at the Initial Closing subject to any tax payment or tax withholding obligation under Circular 698 filing and tax filing arrangement under Section 9.9 , and (c) all Transaction Documents duly executed by relevant Parties.

 

At the Initial Closing, Qualcomm shall deliver to the Company the original share certificate(s) representing the Qualcomm Repurchased Shares for cancellation against payment of the Qualcomm Repurchase Price by wire transfer of U.S. funds by the Company to the account otherwise designated by Qualcomm.

 

At the Initial Closing, the Investor and Qualcomm shall deliver to the Company all Transaction Documents duly executed by the Investor and Qualcomm.

 

(iii)                                Subsequent Closing. The consummation of the repurchase and cancellation of the Founder Holdcos Repurchased Shares pursuant to Section 2.2(ii)  (the “ Subsequent Closing ”, together with the Initial Closing, the “ Closing ”) shall take place on or within ten (10) business days after January 20, 2017, or at such other time or on such other date as the Company, the Founder Holdcos and the Investor may mutually agree in writing.

 

(iv)                               Subsequent Closing Deliveries. At the Subsequent Closing, the Company shall deliver to each of the Founder Holdcos (a) a scanned copy of the updated register of members of the Company, certified by the registered office provider of the Company, reflecting the repurchase and cancellation of the Founder Holdcos Repurchased Shares at the Subsequent Closing, (b) the share certificate or certificates representing the Ordinary Shares held by such Founder Holdcos after the repurchase and cancellation of Founder Holdcos Repurchased Shares at the Subsequent Closing subject to any tax payment or tax withholding obligation under Circular 698 filing and tax filing arrangement under Section 9.9 , and (c) all Transaction Documents duly executed by relevant Parties.

 

At the Subsequent Closing, the Founder Holdcos shall deliver to the Company the original share certificate(s) representing the Founder Holdcos Repurchased Shares for cancellation against payment of the Founder Holdcos Repurchase Price by wire transfer of U.S. funds by the Company to the bank account otherwise designated by such Founder Holdcos.

 

(v)                                  Payment of Domestic Loan. The Investor shall procure and guarantee that its Affiliate make the payment of the Domestic Loan to the bank account designated by WFOE at or after the Initial Closing pursuant to the terms and subject to the conditions of the Domestic Loan Agreement.

 

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(vi)                               Deferred Arrangement of the Initial Closing Payment. After the Initial Closing but in no event after the later date of (i) the commencement of IPO application as determined by the Board of the Company or (ii) one year after the execution of the Domestic Loan Agreement, the Investor shall make the payment of the Purchase Price in an amount set forth opposite the Investor’s name on Schedule III-A (on the basis that the pre-money valuation of the Company is US$700,000,000) to the Company by remittance of immediately available funds to the following bank account of the Company. All bank charges and related expenses for remittance and receipt of funds shall be borne by the Company.

 

Account Bank: SILICON VALLEY BANK

Bank Address: 3003 TASMAN DRIVE, SANTA CLARA, CA 95054, USA

Account Name: COOTEK (CAYMAN) INC.

Account No.: 3300886130

Swift Code: SVBKUS6S

 

If the Investor fails to make the payment of the Purchase Price in accordance with this Section 2.3(vi)  or the circumstance under Article 11.2(3) of Domestic Loan Agreement occurs, the Series D-1 Preferred Shares being purchased but unpaid by the Investor shall be forfeited by the Company in accordance with the Memorandum and Articles And subject to the terms and conditions of the Domestic Loan Agreement, the Investor shall provide reasonable efforts and cooperation to complete such forfeiture of the Series D-1 Preferred Shares as requested by the Company.

 

Further all Parties agree that, the aforesaid deferred arrangement of the payment of the Purchase Price will be subject to the rules and requirements of the relevant stock exchange applicable to the Company, provided that the time of IPO application and listing of the Company will not be delayed due to aforesaid deferred arrangement of the payment of the Purchase Price.

 

2.4                                Long-Stop Date. If the Initial Closing fails to occur within sixty (60) days from the date hereof or another date as the Company and the Investor may mutually agree in writing (the “ Long-Stop Date ”), either the Investor (with respect to itself only) or the Company shall have the right (but not the obligation) to terminate this Agreement and the transaction contemplated hereunder. If the Investor or the Company terminates this Agreement pursuant to this Section 2.4 , and the purchase of the Series D-1 Preferred Shares and the repurchase and the cancellation of the Repurchased Shares hereunder shall be abandoned, each of the Parties shall be relieved of any and all of its obligations under this Agreement without prejudice to any accrued rights it may have.

 

3.                                       Representations and Warranties of the Warrantors to the Investor. Subject to such exceptions as may be specifically set forth in the Disclosure Schedule attached to this Agreement as Exhibit D (the “ Disclosure Schedule ”), each of the Company, HK Subsidiary, the Offshore Subsidiaries, the PRC Subsidiaries, the Founders, the Founder Holdcos, Haiyan’s Holdco and Zhu (collectively, the “ Warrantors ”, however, Haiyan’s Holdco and Zhu only jointly and severally give the representations and warranties regarding Haiyan’s Holdco or Zhu in Section 3.3, 3.4, 3.6, 3.9, 3.10, 3.11, 3.12, 3.24, 3.25 ), jointly and severally, represents and warrants to the Investor that each of the statements contained in this Section 3 is true and complete as of the date of this Agreement and the date of the Initial Closing as follows:

 

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3.1                                Organization, Good Standing and Qualification . The Company is duly incorporated, validly existing and in good standing under the Laws of the Cayman Islands. Each of the PRC Subsidiaries is validly existing and in good standing with its business license and articles of association in full force and effect under, and in compliance with, the Laws of the PRC. Each other Group Company, if any, is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation. Each Group Company has all requisite legal and corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now conducted, and is duly qualified to transact business in each jurisdiction it conducts its business. As of the date hereof, the Company was formed solely to acquire and hold the equity interests in the WFOE, and since its formation, has not engaged in any other business and has not incurred any Liability (except for transactions between the Company and other Group Companies).

 

3.2                                Capitalization and Voting Rights .

 

(i)                                      Company. (A) As set forth in Schedule VII , immediately after the Initial Closing, the authorized share capital of the Company shall be US$50,000 divided into 5,000,000,000 shares of par value US$0.00001 each comprising of (i) 2,920,061,989 Ordinary Shares of par value US$0.00001 each, of which 1,138,705,583 are issued and outstanding, (ii) 442,174,065 Series A Preferred Shares of par value US$0.00001 each (the “ Series A Preferred Shares ”), all of which are issued and outstanding, (iii) 553,299,062 Series B Preferred Shares of par value US$0.00001 each (the “ Series B Preferred Shares ”), all of which are issued and outstanding, (iv) 119,688,525 Series B-1 Preferred Shares (the “ Series B-1 Preferred Shares ”), all of which are issued and outstanding, and (v) 651,629,045 Series C Preferred Shares of par value US$0.00001 each (the “ Series C Preferred Shares ”), all of which are issued and outstanding, (vi) 223,478,358 Series D Preferred Shares of par value US$0.00001 each (the “ Series D Preferred Shares) , all of which are issued and outstanding, (vii) 89,668,956 Series D-1 Preferred Shares of par value US$0.00001 each (the “ Series D-1 Preferred Shares ”, and together with the Series A Preferred Shares, Series B Preferred Shares, Series B-1 Preferred Shares, Series C Preferred Shares, and Series D Preferred Shares, the “ Preferred Shares ”), all of which are issued and outstanding. As of the Initial Closing, the Company shall have reserved (a) 226,153,637 Ordinary Shares for issuance to officers, directors, employees, consultants or service providers of the Company pursuant to the 2012 Stock Incentive Plan, which was adopted by the Board of Directors in 2013, or such other equity incentive plans that are approved by the Board, 44,536,997 of which remain available for grant, (b) 442,174,065 Ordinary Shares for issuance upon conversion of the Series A Preferred Shares, (c) 533,299,062 Ordinary Shares for issuance upon conversion of the Series B Preferred Shares, (d) 119,688,525 Ordinary Shares for issuance upon conversion of the Series B-1 Preferred Shares, (e) 651,629,045 Ordinary Shares for issuance upon conversion of the Series C Preferred Shares, (f)223,478,358 Ordinary Shares for issuance upon conversion of the Series D Preferred Shares, and (g) 89,668,956 Ordinary Shares for issuance upon conversion of the Series D-1 Preferred Shares. The rights, privileges and preferences of the Ordinary Shares and Preferred Shares are as set forth in the Memorandum and Articles. Section 3.2(i)  of the Disclosure Schedule set forth as of (1) the date hereof, (2) immediately prior to the Initial Closing, and (3) immediately after the Initial Closing, the outstanding and authorized Equity Securities of each Group Company, the record and beneficial holders thereof, the issuance date, and the terms of any vesting applicable thereto.

 

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(B) As set forth in Schedule VII , immediately after the Subsequent Closing, the authorized share capital of the Company shall be US$50,000 divided into 5,000,000,000 shares of par value US$0.00001 each comprising of (i) 2,920,061,989 Ordinary Shares of par value US$0.00001 each, of which 1,124,547,327 are issued and outstanding, (ii) 442,174,065 Series A Preferred Shares of par value US$0.00001 each, all of which are issued and outstanding, (iii) 553,299,062 Series B Preferred Shares of par value US$0.00001 each, all of which are issued and outstanding, (iv) 119,688,525 Series B-1 Preferred Shares, all of which are issued and outstanding, and (v) 651,629,045 Series C Preferred Shares of par value US$0.00001 each , all of which are issued and outstanding, (vi) 223,478,358 Series D Preferred Shares of par value US$0.00001 each, all of which are issued and outstanding, (vii) 89,668,956 Series D-1 Preferred Shares of par value US$0.00001 each, all of which are issued and outstanding.

 

(ii)                                   No Other Securities . Except as (a) set forth in Section 3.2(i) , (b) the conversion privileges of the Preferred Shares and (c) certain rights provided in the Shareholders’ Agreement, there are no and at the Initial Closing there will not be any authorized or outstanding Equity Securities of any Group Company. No Group Company is a party or subject to any agreement that affects or relates to the voting or giving of written consents with respect to, or the right to cause the registration, redemption, or repurchase of, any Equity Security of such Group Company.

 

(iii)                                Issuance and Status . All presently outstanding Equity Securities of each Group Company were duly and validly issued (or subscribed for) in compliance with all applicable Laws, preemptive rights of any Person, and applicable Contracts and are fully paid and non-assessable. All share capital of each Group Company is and as of the Initial Closing shall be free of any and all Liens (except for any restrictions on transfer under the Ancillary Agreements or applicable securities Laws). There are no (a) resolutions pending to change the share capital of any Group Company or cause the liquidation, winding up, or dissolution of any Group Company or (b) dividends which have accrued or been declared but are unpaid by any Group Company. The registered capital of each Group Company (if applicable) has been fully paid, and such capital contribution has been duly verified by a certified accountant registered in the PRC or relevant written payment evidence provided by the Group Company (if applicable) or the financial statement provided by the Group Company (if applicable).

 

(iv)                               Vesting . No Contracts of any Group Company relating to its Equity Securities provides for acceleration of vesting (or lapse of a repurchase right) or other changes in the vesting provisions or other terms of such agreement or understanding upon the occurrence of any event or combination of events. No Group Company has ever adjusted or amended the exercise price of any share options previously awarded, whether through amendment, cancellation, replacement grant, repricing, or any other means.

 

3.3                                Corporate Structure; Subsidiaries. Exhibit A sets forth a complete structure chart as of the date hereof showing Group Companies, indicating the ownership and Control relationships among all Group Companies, and the Founders, the Founder Holdcos, Zhu, and Haiyan’s Holdco. No Group Company owns or Controls, or has ever owned or Controlled, directly or indirectly, any interest or share in any other Person or is or was a participant in any joint venture, partnership or similar arrangement. No Group Company is obligated to make any investment in or capital contribution in or on behalf of any other Person.

 

3.4                                Authorization. Each Warrantor has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and

 

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perform its obligations thereunder. All actions on the part of each Warrantor (and, as applicable, its officers, directors, employees and shareholders) necessary for the authorization, execution and delivery of the Transaction Documents to which it is a party, the performance of all obligations of each Warrantor thereunder, and, in the case of the Company, the authorization, issuance (or reservation for issuance), sale and allotment of the Series D-1 Preferred Shares, have been taken or will be taken prior to the Initial Closing. This Agreement has been duly executed and delivered by each Warrantor. This Agreement and each of the Transaction Documents are, or when executed and delivered by such Warrantor will be, valid and legally binding obligations of such Warrantor, enforceable against such Warrantor in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other Laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

 

3.5                                Valid Issuance of Securities. The Series D-1 Preferred Shares, when issued, allotted and paid for in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and non-assessable, free from any Liens (except for any restrictions on transfer under applicable securities Laws and under the Ancillary Agreements). The Conversion Shares have been reserved for issuance and, upon issuance in accordance with the terms of the Memorandum and Articles, will be duly and validly issued, fully paid and non-assessable, free from any Liens (except for any restrictions on transfer under applicable securities Laws and under the Ancillary Agreements). The issuance of the Series D-1 Preferred Shares is not subject to any preemptive rights, rights of first refusal or similar rights.

 

3.6                                Approvals. Except for Circular 698 filings, no other Approval with respect to or on the part of any Group Company, any Founder, any Founder Holdco, Haiyan’s Holdco or Zhu is required in connection with its valid execution, delivery, or performance of the transactions contemplated by this Agreement or the Transaction Documents or the offer, sale, issuance or reservation for issuance of the Series D-1 Preferred Shares or the Conversion Shares.

 

3.7                                Offering . The offer, sale and issuance of the Series D-1 Preferred Shares and the Conversion Shares, as contemplated by the Transaction Documents, are exempt from the qualification, registration and prospectus delivery requirements of the Securities Act and any other applicable securities Laws.

 

3.8                                Permits . Each Group Company has all material franchises, authorizations, approvals, permits, certificates and licenses, including without limitation any special approvals or permits required under applicable Laws (“ Permits ”) necessary for its respective business and operations as now conducted or planned to be conducted. Each Permit is valid and in full force and effect. No Group Company is in default or violation of any Permit. No Group Company has received any written notice from any Governmental Authority regarding any actual or possible default or violation of any Permit. Each Permit will remain in full force and effect upon the consummation of the transactions contemplated hereby for not less than one (1) year after the Initial Closing. To the Knowledge of the Warrantors, no suspension, cancellation or termination of any such Permits is pending, threatened or imminent.

 

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3.9                                Compliance with Laws and Governmental Orders .

 

(i)                                      Each Group Company (including the ownership thereof, the operation of its business, and the ownership and use of its assets) has been and is in compliance with all applicable Laws.

 

(ii)                                   Each Warrantor and each of its respective directors, officers, and employees, and to the Knowledge of each Warrantor, each of its agents and other persons authorized to act on his or its behalf (collectively, “ Representatives ”), are in compliance with and have complied with all applicable anti-bribery, anti-corruption, anti-money laundering, recordkeeping and internal controls Laws, Office of Foreign Assets Control Guide and Foreign Account Tax Compliance Act and any treaty, convention, understanding or other agreement between or among Governmental Authorities to comply with, facilitate, supplement, implement or otherwise related to the foregoing (collectively, the “ Compliance Laws ”). Without limiting the foregoing, no Warrantor nor any Representative (to the Knowledge of each Warrantor with respect to its agents and other persons authorized to act on its behalf) has, directly or indirectly, offered, authorized, promised, condoned, participated in, or received notice of any allegation of:

 

(a)                                  the making of any gift or payment of anything of value to any Public Official by any Person to obtain any improper advantage, affect or influence any act or decision of any such Public Official, or assist any Group Company in obtaining or retaining business for, or with, or directing business to, any Person;

 

(b)                                  the taking of any action by any Person which (i) would violate the Foreign Corrupt Practices Act of the United States of America (the “ FCPA ”), as amended, if taken by an entity subject to the FCPA or (ii) could reasonably be expected to constitute a violation of any applicable Compliance Laws; or

 

(c)                                   the making of any false or fictitious entries in the books or records of any Group Company by any Person.

 

(iii)                                None of the Founders or Key Employees are or were Public Officials. No Founder or Key Employee has been involved on behalf of a Governmental Authority in decisions as to whether any Group Company or the Investor would be awarded business or that otherwise could benefit any Group Company or the Investor, or in the appointment, promotion, or compensation of persons who will make such decisions. If applicable, no Founder or Key Employee will use their government positions to influence acts or decisions of a Governmental Authority for the benefit of any Group Company or the Investor. No Founder or Key Employee will meet or communicate with Public Officials on behalf of any Group Company or the Investor prior to the completion of the transactions contemplated hereby without advising the Investor in writing in advance of such meeting or communication.

 

(iv)                               The business of each Group Company as now conducted and proposed to be conducted (including any business proposed to be conducted by entities that are not currently existing as of the Initial Closing) are in compliance with all Laws and regulations that may be applicable, including without limitation all Laws of the PRC with respect to mergers, acquisitions, foreign investment and foreign exchange transactions.

 

(v)                                  No event has occurred and no circumstance exists that (with or without notice or lapse of time) (a) may constitute or result in a material violation by any Group

 

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Company of, or a failure on the part of such Group Company to comply with, any applicable Law or (b) may give rise to any obligation on the part of a Group Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature.

 

(vi)                               No Group Company has received any notice from any Governmental Authority regarding (a) any actual, alleged, possible or potential material violation of, or material failure to comply with, any applicable Law or (b) any actual, alleged, possible or potential material obligation on the part of such Group Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. To the Knowledge of the Warrantors, the Company is not under investigation with respect to a violation of any applicable Law.

 

(vii)                            None of the Warrantors and other Group Companies has been subject to any indictment, convicted in any criminal case, subject to government investigation for bribery or found by a court of providing misleading information in any matter.

 

3.10                         Certain Regulatory Matters .

 

(i)                                      The Founders, the Founder Holdcos, Haiyan’s Holdco, Zhu, and the Group Companies have obtained any and all Approvals from applicable Governmental Authorities and have fulfilled any and all filings and registration requirements with applicable Governmental Authorities necessary in respect of the Founders, the Founder Holdcos, Haiyan’s Holdco, Zhu and their investment in the Group Companies, and in respect of the Group Companies and their operations, respectively. All filings and registrations with applicable Governmental Authorities required in respect of the Group Companies, the Founder Holdcos, the Founders, Haiyan’s Holdco, and Zhu, including but not limited to the registrations with the Ministry of Commerce (or any predecessors), the Ministry of Information Industry, the SAIC, SAFE, the tax bureau, customs authorities, product registration authorities, health regulatory authorities and the local counterpart of each of such Governmental Authorities, as applicable, have been duly completed in accordance with applicable Law. No Founder, Founder Holdco, or Group Company, and to the Knowledge of each Warrantor, neither Haiyan’s Holdco nor Zhu, has received any letter or notice from any applicable Governmental Authorities notifying it of the revocation of any Approval issued to it or the need for compliance or remedial actions in respect of the activities carried out directly or indirectly by any Founder, any Founder Holdco, Haiyan’s Holdco, Zhu, or Group Company. Each Group Company has been conducting its business activities within the permitted scope of business or is otherwise operating its businesses in full compliance with all relevant Laws and Governmental Orders. No Founder or Group Company has reason to believe that any Approval requisite for the conduct of any part of its business, which is subject to periodic renewal will not be granted or renewed by the relevant Governmental Authorities.

 

(ii)                                   Each holder or beneficiary owner of Equity Securities of the Company (each, a “ Company Security Holder ”), who is a “Domestic Resident” as defined in Circular 37 issued by the SAFE on July 4, 2014 (as supplemented by implementing rules and regulations and by any successor rule or regulation under PRC law, including but not limited to any rule or regulation interpreting or setting forth provisions for implementation of any of the foregoing, “ Circular 37 ”) has complied with any applicable reporting and/or registration requirements under Circular 37 and any other applicable SAFE rules and regulations, (collectively, the “ SAFE Rules and Regulations ”). Neither the Warrantors nor, to the Knowledge of the Warrantors, any of the Company Security Holders has received any oral or

 

17



 

written inquiries, notifications, orders or any other forms of official correspondence from SAFE or any of its local branches with respect to any actual or alleged non-compliance with the SAFE Rules and Regulations and the Company and the Company Security Holders have made all oral or written filings, registrations, reporting or any other communications required by SAFE or any of its local branches. The WFOE has obtained all certificates, approvals, permits, licenses, registration receipts and any similar authorization necessary under PRC Laws to conduct foreign exchange transactions (collectively, the “ Foreign Exchange Authorization ”) as now being conducted by it, and believes it can obtain, without undue burden or expense, any such Foreign Exchange Authorization for the conduct of foreign exchange transactions as planned to be conducted. All existing Foreign Exchange Authorization held by the WFOE is valid and the WFOE is not in default under any of such Foreign Exchange Authorization.

 

3.11                         Compliance with Other Instruments . No Group Company is in violation, breach or default of its Charter Documents. The execution, delivery and performance by each Group Company, each Founder, each Founder Holdco, Haiyan’s Holdco and Zhu of and compliance with each of the Transaction Documents, and the consummation of the transactions contemplated hereby and thereby, will not result in (i) any such violation, breach or default, or be in conflict with or constitute, with or without the passage of time or the giving of notice or both, a default under (a) the Charter Documents of any Group Company, (b) any Material Contract, or (c) any applicable Law, (ii) the creation or imposition of any material Lien upon, or with respect to, any of the properties, assets or rights of any Group Company, or (iii) any termination, modification, cancellation, or suspension of any material right of, or any augmentation or acceleration of any material obligation of, any Group Company.

 

3.12                         Actions and Governmental Orders. There is no Action pending or, to the Knowledge of any Warrantor, threatened against any Group Company or any of the officers, directors or employees of any Group Company with respect to their businesses or proposed business activities, nor is any Warrantor aware of any basis for any of the foregoing, including with respect to any Action involving the prior employment of any of the employees of any Group Company, their use in connection with such Group Company’s business of any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with prior employers. There is no Governmental Order in effect and binding on any Group Company or their respective assets or properties. There is no Action by any Group Company pending or which such Person intends to initiate against any third party. No Government Authority has at any time challenged or questioned in writing the legal right of any Group Company to conduct its business as presently being conducted or proposed to be conducted. No Group Company has received any opinion or memorandum or advice from legal counsel to the effect that it is exposed, from a legal standpoint, to any liability or disadvantage which may be material to its business.

 

3.13                         Charter Documents; Books and Records. The Charter Documents of each Group Company are in the form provided to the Investor. Each Group Company has made available to the Investor or its counsel a copy of its minute books. Such copy is true, correct and complete, and contains all amendments and all minutes of meetings and actions taken by its shareholders and directors since the time of formation through the date hereof and reflects all transactions referred to in such minutes accurately in all material respects. Each Group Company maintains its books of accounts and records in the usual, regular and ordinary manner, on a basis consistent with prior practice and in compliance with applicable Laws,

 

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and which permits its Financial Statements (as defined below) to be prepared in accordance with Applicable Accounting Principles.

 

3.14                         Financial Statements. The Company has delivered to the Investor true, correct and complete copies of (A) the audited balance sheets, income statements and cash flow statements for each PRC Subsidiary as of and for the twelve-months ended December 31, 2015 (the “ Statement Date ”), and (B) the unaudited balance sheets, income statements and cash flow statements for each PRC Subsidiaries as of and for the three-month period ending September 30, 2016. The financial statements referred to above are collectively referred herein as the “ Financial Statements ”. The Financial Statements (i) have been prepared in accordance with the books and records of the Group, (ii) fairly present in all material respects the financial condition and position of the Group as of the dates indicated therein and the results of operations and cash flows of the Group for the periods indicated therein, except in the case of unaudited financial statements for the absence of notes, and (iii) were prepared in accordance with the Applicable Accounting Principles applied on a consistent basis throughout the periods involved. All of the accounts receivable owing to any of the Group Companies, including without limitation all accounts receivable set forth on the Financial Statements, constitute valid and enforceable claims and are good and collectible in the ordinary course of business, net of any reserves shown on the Financial Statements (which reserves are adequate and were calculated on a basis consistent with the Applicable Accounting Principles), and no further goods or services are required to be provided in order to complete the sales and to entitle the applicable Group Company to collect in full. There are no material contingent or asserted claims, refusals to pay, or other rights of set-off with respect to any accounts receivable of the Group Companies to the Knowledge of the Warrantors.

 

3.15                         Changes. Since the Statement Date, the Group has operated its business in the ordinary course consistent with its past practice, there has not been any Material Adverse Effect or any material change in the way the Group conducts its business, no Group Company has entered into any transaction outside of the ordinary course of business consistent with its past practice, and there has not been by or with respect to any Group Company:

 

(i)                                      any purchase, acquisition, sale, lease, disposal of or other transfer of any assets that are individually or in the aggregate material to its business, whether tangible or intangible, other than the purchase or sale of inventory in the ordinary course of business consistent with its past practice, or any acquisition (by merger, consolidation or other combination, or acquisition of stock or assets, or otherwise) of any business or other Person or division thereof;

 

(ii)                                   any waiver, termination, settlement or compromise of a valuable right or of a debt;

 

(iii)                                any incurrence, creation, assumption, repayment, satisfaction, or discharge of (1) any material Lien (other than Permitted Liens) or (2) any indebtedness or guarantee, or the making of any loan or advance (other than reasonable and normal advances to employees for bona fide expenses that are incurred in the ordinary course of business consistent with its past practice), or the making of any investment or capital contribution;

 

(iv)                               any amendment to any Material Contract, any entering into of any new Material Contract, or any termination of any Contract that would have been a Material

 

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Contract if in effect on the date hereof, or any amendment to any Charter Document, or any amendment to or waiver under any Charter Document;

 

(v)                                  any declaration, setting aside or payment or other distribution in respect of any Equity Securities, or any direct or indirect redemption, purchase or other acquisition of any Equity Securities;

 

(vi)                               any damage, destruction or loss, whether or not covered by insurance, adversely affecting the assets, properties, financial condition, operations or business of any Group Company;

 

(vii)                            any material change in accounting methods or practices or any revaluation of any of its assets;

 

(viii)                         except in the ordinary course of business consistent with its past practice, settlement of any claim or assessment in respect of any material Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of any material Taxes, entry or change of any material Tax election, change of any method of accounting resulting in a material amount of additional Tax or filing of any material amended Tax Return;

 

(ix)                               any material change in any compensation arrangement or agreement with any employee, officer, director, or shareholder;

 

(x)                                  any resignation or termination of employment of any senior manager (i.e., the chief executive officer, the chief financial officer, the chief technology officer, the president, the general manager or any other manager with the title of “vice-president” or higher, similarly hereafter) or Key Employee of any Group Company;

 

(xi)                               any sale, assignment or transfer of any Company Intellectual Property that could reasonably be expected to result in a Material Adverse Effect;

 

(xii)                            receipt of notice that there has been a loss of, or material order cancellation by, any major customer of any Group Company;

 

(xiii)                         to the Warrantors’ Knowledge, any other event or condition of any character, other than events affecting the economy or the Company’s industry generally, that could be reasonably be expected to result in a Material Adverse Effect;

 

(xiv)                        any commencement or settlement of any Action; or

 

(xv)                           any agreement or commitment to do any of the things described in this Section 3.15 except pursuant to this Agreement or the Ancillary Agreements.

 

3.16                         Liabilities. No Group Company has any Liabilities except for (i) liabilities set forth in the Financial Statements that have not been satisfied since the Statement Date, and (ii) current liabilities incurred since the Statement Date in the ordinary course of the Group’s business consistent with its past practices.

 

3.17                         Material Contracts. A true, fully-executed copy of each Material Contract has been delivered to the Investor. Each Material Contract is a valid and binding agreement of the Group Company that is a party thereto, the performance of which does not and will not

 

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violate any applicable Law or Governmental Order, and is in full force and effect, and such Group Company has duly performed all of its obligations under each Material Contract to the extent that such obligations to perform have accrued, and no breach or default, alleged breach or alleged default, or event which would (with the passage of time, notice or both) constitute a breach or default thereunder by such Group Company or, to the Knowledge of the Warrantors, any other party or obligor with respect thereto, has occurred, or as a result of the execution, delivery, and performance of the Transaction Documents will occur. No Group Company has given notice (whether or not written) that it intends to terminate a Material Contract or that any other party thereto has breached, violated or defaulted under any Material Contract. No Group Company has received any notice (whether written or not) that it has breached, violated or defaulted under any Material Contract or that any other party thereto intends to terminate such Material Contract. For the purpose of this Agreement, the term “ Material Contract ” means any Contract to which a Group Company is bound that (a) involves obligations (contingent or otherwise) or payments in excess of US$200,000 individually or in the aggregate, (b) involves Intellectual Property that is material to a Group Company (other than generally-available “off-the-shelf” shrink-wrap software licenses obtained by the Group on non-exclusive and non-negotiated terms) other than the business contracts of any Group Company in the ordinary course of business which involves any kind of Intellectual Property, (c) restricts the ability of a Group Company to compete or to conduct or engage in any business or activity or in any territory, (d) relates to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any Equity Securities, (e) involves any provisions providing exclusivity, “change in control”, “most favored nations”, rights of first refusal or first negotiation or similar rights, or grants a power of attorney, agency or similar authority, (f) is with an officer, director, shareholder or Affiliate, (g) involves indebtedness, an extension of credit, a guaranty or assumption of any obligation, or the grant of a Lien, (h) involves the lease, license, sale, use, disposition or acquisition of a material amount of assets or of a business, (i) involves the waiver, compromise, or settlement of any material dispute, claim, litigation or arbitration, (j) involves the ownership or lease of, title to, use of, or any leasehold or other interest in, any real or personal property (except for personal property leases involving payments of less than US$25,000 per annum), (k) involves the establishment, contribution to, or operation of a partnership, joint venture or involving a sharing of profits or losses, or any investment in, loan to or acquisition or sale of the securities, equity interests or assets of any Person, (l) is with any Key Employee, (m) is between a Group Company and another Group Company, (n) is with a Governmental Authority or state-owned enterprise, (o) is a Control Document or (p) is otherwise material to a Group Company. A true and correct list of the Material Contracts is set forth in Schedule 3.17 of the Disclosure Schedule.

 

3.18                         Title; Properties .

 

(i)                                      Title . The Group Companies have good and valid title to, or a valid leasehold interest in, all of their assets, whether real, personal or mixed, purported to be owned by them (including but not limited to all such assets reflected in the Financial Statements), free and clear of any Liens, other than Permitted Liens. The foregoing assets collectively represent in all material respects all assets, rights and properties necessary for the conduct of the business of the Group in the manner conducted during the periods covered by the Financial Statements. Except for leased items, no Person other than a Group Company owns any interest in any such assets. All leases of real or personal property to which a Group Company is a party are fully effective and afford the Group Company valid leasehold possession of the real or personal property that is the subject of the lease.

 

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(ii)                                   Real Property . No Group Company owns any real property or has any easements, licenses, rights of way, or other interests in or to real property (“ Real Property ”). All leasehold properties of the Group are held under valid, binding and enforceable leases of a Group Company. To the Knowledge of the Warrantors, all structures, improvements and appurtenances on the Real Property lie wholly within the boundaries of such Real Property and do not encroach upon the property of, or otherwise conflict with the property rights of, any adjoining property owner. To the Knowledge of the Warrantors, all structures and improvements on the Real Properties, and appurtenances thereto, and the roof, walls and other structural components which are part thereof, and the heating, air conditioning, plumbing and other mechanical facilities thereof, are in good condition and repair in all material respects (reasonable wear and tear excepted) and without structural defects. There are no facilities, services, assets or properties shared with any other Person, which is not a Group Company, which are used in connection with the business of the Group.

 

(iii)                                Personal Property . All machinery, vehicles, equipment and other tangible personal property owned or leased by a Group Company are (a) in good condition and repair in all material respects (reasonable wear and tear excepted) and (b) not obsolete or in need in any material respect of renewal or replacement, except for renewal or replacement in the ordinary course of business.

 

3.19                         Intellectual Property Rights .

 

(i)                                      Company Intellectual Property . The Group owns, has the sufficient rights (including but not limited to the rights of development, maintenance, licensing and sale) to, or otherwise has the licenses to use all Intellectual Property (“ Company Intellectual Property ”) (including Company Owned IP and Licensed IP, each as defined below) necessary and sufficient to conduct its business and any business as proposed to be conducted by the Group without any conflict with or infringement of the rights of any other Person. Section 3.19(i)(A)  of the Disclosure Schedule sets forth a complete list of all patents, trademarks, service marks, trade names, domain names, copyrights and other forms of Intellectual Property (“ Company Registered IP ”) for which registrations have been obtained throughout the world (and all extensions or reissues of, any of the foregoing throughout the world) that are owned by, or registered or applied for in the name of, any Group Company. In addition to the Company Registered IP, all Intellectual Property owned by any Group Company but not covered under Company Registered IP together with the Company Registered IP are hereby referred to as the “ Company Owned IP ”. Section 3.19(i)(B)  of the Disclosure Schedule sets forth a complete list of all Intellectual Property used by any Group Company through license from third parties (other than generally available “off-the-shelf” shrink-wrap software licenses obtained by the Group on non-exclusive and non-negotiated terms) (“ Licensed IP ”).

 

(ii)                                   IP Ownership . All of Company Registered IP are owned by, registered or applied for solely in the name of a Group Company, are valid and subsisting and have not been abandoned, and all necessary registration, maintenance and renewal fees with respect thereto and currently due have been satisfied. No Group Company or any of its employees, officers or directors has taken any actions or failed to take any actions that would cause any of Company Intellectual Property to be invalid, unenforceable or not subsisting. No funding or facilities of a Governmental Authority or a university, college, other educational institution or research center was used in the development of any Company Intellectual Property. No Company Owned IP is the subject of any security interest, Lien, license or other Contract granting rights therein to any other Person. No Group Company has (a) transferred

 

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or assigned, (b) granted a license to, or (c) provided to any Person any Company Owned IP material to its business as now conducted and as proposed to be conducted, to any Person. No Group Company is or has been a member or promoter of, or contributor to, any industry standards bodies, patent pooling organizations or similar organizations that could require or obligate a Group Company to grant or offer to any Person any license or right to any Company Owned IP. No Company Owned IP is subject to any proceeding or outstanding Government Order or settlement agreement or stipulation that restricts in any manner the use, transfer or licensing thereof, or any Group Company’s products or services, by the Company or may affect the validity, use or enforceability of such Company Owned IP. Each of the Founders and Key Employees has assigned and transferred to the Company or the WFOE any and all of his Intellectual Property related to the business currently conducted or proposed to be conducted by any Group Company.

 

(iii)                                Infringement, Misappropriation and Claims . No Group Company has violated, infringed or misappropriated in any material respect any Intellectual Property of any other Person, nor has any Group Company received any written notice alleging any of the foregoing. To the Knowledge of the Warrantors, no Person has violated, infringed or misappropriated any Company Intellectual Property, and no Group Company has given any written notice to any other Person alleging any of the foregoing. No Group Company has agreed to indemnify any Person for any infringement, violation or misappropriation of any Intellectual Property. Each of (A) the legal proceeding commenced by Nuance Communications, Inc. and certain of its subsidiaries (collectively, “Nuance”) against the Company and certain of its subsidiaries in the United States District Court for the District of Delaware entitled Nuance Communications, Inc., et al. v. Shanghai Han Xiang (CooTek) Information Technology Co., Ltd. , Civil Action No. 13-095, (B) the complaint filed by Nuance in the United States International Trade Commission entitled In the Matter of Certain Mobile Handset Devices and Related Touch Keyboard Software , Inv. No. 337-TA-864, and (C) the legal proceeding commenced by Han Xiang in the Shanghai First Intermediate People’s Court entitled Shanghai Han Xiang (CooTek) Information Technology Co., Ltd. v. Nuance Communications, Inc. et al. , No.(2013) Hu Yi Zhong Min Wu (Zhi) Chuzi 98 has been (i) completely and irrevocably terminated by the relevant parties with the approval by the relevant tribunals and (ii) fully settled among the relevant parties in accordance with the Settlement Agreement entered thereby on October 21, 2013 (the “ Settlement Agreement ”). The Settlement Agreement is effective and binding upon all the parties thereto. The Company has duly performed all its obligations under the Settlement Agreement, including having made all payments due from the Company under the Settlement Agreement. The Company has not breached any undertaking or commitment it made under the Settlement Agreement. Other than restrictions on the Company’s TouchPal products that are older than the V5.5 and V5.6 series, there is no restriction of any sort on the sale or delivery of any of the Company’s products in the United States or any other jurisdiction under the Settlement Agreement.

 

(iv)                               Assignments and Prior IP . All employees, contractors, agents and consultants of a Group Company who are or were involved in the creation of any Intellectual Property for such Group Company have executed an assignment of inventions agreement that vests in the Group Company exclusive ownership of all right, title and interest in and to such Intellectual Property, to the extent not already provided by Law. To the Knowledge of the Warrantors, it will not be necessary to utilize any inventions, trade secrets or proprietary information or other Intellectual Property of any of its employees or of any other Person (whether a former employee of a Group Company or otherwise), except for inventions, trade

 

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secrets or proprietary information that have been properly assigned to and are exclusively owned by a Group Company. To the Knowledge of the Warrantors, none of the officers, employees and consultants currently or previously employed or otherwise engaged by any Group Company is in violation of any current or prior confidentiality, non-competition or non-solicitation obligations to any Group Company or to any other Persons, including former employers. None of the Key Employees of any Group Company is obligated under any Contract, or subject to any Governmental Order, that would interfere with the use of his or her best efforts to promote the interests of the Group or that would conflict with the business of the Group as presently conducted.

 

(v)                                  Protection of IP . The Group has taken any and all reasonable and appropriate steps to register, protect, maintain and safeguard the Company Intellectual Property and has had executed appropriate nondisclosure and confidentiality agreements and made all appropriate filings, registrations and payments of fees in connection with the foregoing. Without limiting the foregoing, all current and former officers, employees, consultants and independent contractors of the Group and all suppliers, customers, distributors, and other third parties having access to any trade secret or proprietary information of any Group Company, its customers or business partners have executed and delivered to such Group Company an agreement requiring the protection of such trade secret or proprietary information.

 

3.20                         Labor and Employment Matters .

 

(i)                                      Key Employees . Schedule V enumerates each Key Employee of each Group Company, along with each such individual’s title, department, employment start date and PRC ID card number. Each Key Employee is currently devoting all of his or her business time to the conduct of the business of the Group. No Key Employee has given any notice of an intent to resign, and no Group Company has any intention of terminating the employment of any Key Employee. To the Knowledge of the Warrantors, no Key Employee of any Group Company is obligated under, or in material violation of any term of, any Contract or any Governmental Order relating to the right of any such individual to be employed by, or to contract with, such Group Company. No Group Company has received any notice alleging that any such violation has occurred.

 

(ii)                                   Interference with Group’s Interest . To the Warrantors’ Knowledge, no employee of any Group Company is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with such employee’s ability to promote the interest of the Group Companies or that would conflict with the Group Companies’ business. Neither the execution or delivery of the Transaction Documents, nor the carrying on of the Company’s business by the employees of the Group Companies, nor the conduct of the business as now conducted and as presently proposed to be conducted, will, to the Warrantors’ knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated.

 

(iii)                                Equity Awards . The Company has not made any representations regarding equity incentives to any officer, employee, director or consultant that are inconsistent with the share amounts and terms set forth in the Company’s board minutes.

 

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(iv)                               Former Employees . Each former Key Employee whose employment was terminated by the Company has entered into an agreement with the Company providing for the full release of any claims against the Company or any related party arising out of such employment.

 

(v)                                  Benefit Plans . Section 3.20(v)  of the Disclosure Schedule sets forth each and every employee benefit plan maintained, established or sponsored by any Group Company, or in which any Group Company participates in or contributes to in any jurisdiction, including without limitation, the PRC (the “ Employee Benefit Plans ”). There is no other pension, retirement, profit-sharing, deferred compensation, bonus, incentive or other employee benefit program, arrangement, agreement or understanding to which any Group Company contributes, is bound, or under which any employees or former employees (or their beneficiaries) are eligible to participate or derive a benefit. Each Group Company has made all required contributions under all the Employee Benefit Plans including without limitation all contributions required to be made under the PRC social insurance and housing schemes, and has complied in any respect with all applicable laws of any jurisdiction, in relation to the Employee Benefit Plans.

 

(vi)                               Employees’ Compliance . To the Warrantors’ knowledge, none of the Key Employees or directors of any Group Company during the previous four (4) years, has been (a) subject to voluntary or involuntary petition under any applicable bankruptcy laws or any provincial insolvency laws or the appointment of manager, a receiver or similar officer by a court for his business or property; (b) convicted in a criminal proceeding or named as a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (c) subject to any order, judgment, or decree (not subsequently reversed, suspended, or vacated) of any court of competent jurisdiction permanently or temporarily enjoining him from engaging, or otherwise imposing limits or conditions on his engagement in any securities, investment advisory, banking, insurance, or other type of business or acting as an officer or director of a public company; or (d) found by a court of competent jurisdiction in a civil action or by any relevant regulatory organization to have violated any applicable securities, commodities, or unfair trade practices law, which such judgment or finding has not been subsequently reversed, suspended, or vacated.

 

(vii)                            Actions; Compliance . No Group Company is a party to any collective bargaining agreements or other Contract with any union or guild, and there are no labor unions, works council or other organizations representing any employee of any Group Company. No employee of the Group Companies is owed any back wages or other compensation for services rendered (except for the current pay period or as otherwise set forth on the Financial Statements). There is no, and there has not been in the last three (3) years, any Action relating to the violation or alleged violation of any Law by any Group Company pertaining to labor relations or employment matters, including any charge or complaint filed by an employee with any Governmental Authority or any Group Company. Each Group Company has complied in any respect with all Laws relating to employment, wages, hours, overtime, working conditions, benefits, retirement, termination, Taxes, and health and safety. Each Group Company is in compliance with each Law relating to its provision of any form of social insurance (“ Social Insurance ”), and has paid, or made provision for the payment of, all Social Insurance contributions required under applicable Law. There has not been, and there is not now any pending or, to the Knowledge of the Warrantors, threatened strike, union organization activity, lockout, slowdown, picketing, or work stoppage with respect to the employees of any Group Company or any unfair labor

 

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practice charge against any Group Company. There is no pending internal investigation related to any employee or consultant of any Group Company.

 

3.21                         Insurance. Each Group Company has in full force and effect fire, casualty and other insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to reasonably replace any of its properties and material assets that might be damaged or destroyed and in amounts customary for companies similarly situated. The Company has delivered true, correct and complete copies of the insurance policies maintained by each Group Company as well as all material claims made thereunder in the past three years. There is no material claim pending thereunder as to which coverage has been questioned, denied or disputed. All premiums due and payable under all such policies and bonds have been timely paid, and each Group Company is otherwise in compliance in all material respects with the terms of such policies and bonds. All such policies and bonds are in full force and effect.

 

3.22                         Tax Matters .

 

(i)                                      Each Group Company (a) has timely filed all Tax Returns that are required to have been filed by it with any Governmental Authority, (b) has timely paid all Taxes owed by it which are due and payable (whether or not shown on any Tax Return) and withheld and remitted to the appropriate Governmental Authority all Taxes which it is obligated to withhold and remit from amounts owing to any employee, creditor, customer or third party, and (c) has not waived any statute of limitations with respect to Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency other than, in the case of clauses (a) and (b), unpaid Taxes that are in contest with Tax authorities by Group Company in good faith or nonmaterial in amount.

 

(ii)                                   Each Tax Return referred to in paragraph (i) above was properly prepared in compliance with applicable Law and was (and will be) true, correct and complete. None of such Tax Returns contains a statement that is false or misleading or omits any matter that is required to be included or without which the statement would be false or misleading. No reporting position was taken on any such Tax Return which has not been disclosed to the appropriate Tax authority or in such Tax Return, as may be required by Law. All records relating to such Tax Returns or to the preparation thereof required by applicable Law to be maintained by applicable Group Company have been duly maintained. No written claim has been made by a Government Authority in a jurisdiction where the Group does not file Tax Returns that any Group Company is or may be subject to taxation by that jurisdiction.

 

(iii)                                The assessment of any additional Taxes with respect to the applicable Group Company for periods for which Tax Returns have been filed is not expected to exceed the recorded Liability therefor in the most recent balance sheet in the Financial Statements (as defined below), and there are unresolved questions or claims concerning any Tax Liability of any Group Company. Since the Statement Date (as defined below), no Group Company has incurred any liability for Taxes outside the ordinary course of business or otherwise inconsistent with past custom and practice. Each Group Company has set up adequate reserves for the payment of all Taxes not yet due and payable that adequately covers all taxable periods ending prior to the Initial Closing. There is no pending dispute with, or notice from, any Tax authority relating to any of the Tax Returns filed by any Group Company, and to the Knowledge of the applicable Group Company and each of the Warrantors, there is no proposed Liability for a deficiency in any Tax to be imposed upon the properties or assets of any Group Company.

 

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(iv)                               No Group Company has been the subject of any examination or investigation by any Tax authority relating to the conduct of its business or the payment or withholding of Taxes that has not been resolved or is currently the subject of any examination or investigation by any Tax authority relating to the conduct of its business or the payment or withholding of Taxes. Each Group Company has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts due or owning to any employee, independent contractor, creditor, stockholder or other third party. No Group Company is responsible for the Taxes of any other Person by reason of contract, successor liability or otherwise. None of the Group Companies have waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment, deficiency, or has made any request in writing for such extension or waiver.

 

3.23                         Related Party Transactions . Except for the Transaction Documents, the Control Documents and employment and confidentiality agreements, there are no Related Party Contracts nor is there currently any proposed Related Party Contract. Each Related Party Contract is on terms and conditions as favorable to the applicable Group Company as would have been obtainable by it at the time in a comparable arm’s-length transaction with an unrelated party. Except as otherwise disclosed in Section 3.23 of the Disclosure Schedule, no Related Party has any direct or indirect ownership interest in any Person (other than a Group Company) with which a Group Company is affiliated or with which a Group Company has a business relationship, or any Person (other than a Group Company) that competes with any Group Company (except that a Related Party may have a passive investment of less than 3% of the stock of any publicly traded company that engages in the foregoing). No Related Party has any interest, either directly or indirectly, in (i) any Person which purchases from or sells, licenses or furnishes to a Group Company any goods, property, intellectual or other property rights or services or (ii) any Contract to which a Group Company is a party or by which it may be bound or affected. None of the Group Companies is indebted, directly or indirectly, to any Related Party, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of business or relocation expenses of employees of such Group Company.

 

3.24                         No Brokers . No Warrantor has any Contract with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement or by any of the Transaction Documents, and none of them has incurred any Liability for any brokerage fees, agents’ fees, commissions or finders’ fees in connection with any of the Transaction Documents or the consummation of the transactions contemplated therein.

 

3.25                         Disclosure. The Company has provided the Investor with all the information regarding the Group Companies requested by the Investor for deciding whether to purchase the Series D-1 Preferred Shares. No representation or warranty of the Warrantors contained in this Agreement or any certificate furnished or to be furnished to the Investor at the Initial Closing under this Agreement, when taken as a whole, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. Except as set forth in this Agreement or the Disclosure Schedule, to the Knowledge of the Warrantors, there is no fact that the Company has not disclosed to the Investor in writing and of which any of its officers, directors or executive employees has knowledge and that has had or would reasonably be expected to have an adverse effect upon the financial condition, operating results, assets, customer or supplier relations, employee relations or business prospects of any Group Company.

 

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3.26                         Environmental and Safety Laws. To the Knowledge of the Warrantors, no Group Company is in violation of any applicable statute, law, or regulation relating to the environment or occupational health and safety, except where such failure would not have a Material Adverse Effect on such Group Company’s business or properties, and no material expenditures are or will be required in order to comply with any such existing statute, law or regulation.

 

3.27                         Minutes Book. The minutes books of each Group Company since formation of such Group Company contain a complete summary of all meetings and actions taken by directors and shareholders or owners of such Group Company since its time of formation, and reflect all transactions referred to in such minutes accurately in all material respects.

 

3.28                         Manufacturing, Marketing, and Development Rights. No Group Company has granted rights to manufacture, produce, assemble, license, market, or sell its respective products or services to any other person and is not bound by any agreement that affects any Group Company’s exclusive rights to develop, manufacture, assemble, distribute, market or sell its respective products or services.

 

3.29                         Business Plan and Budget. The Company has delivered to the Investor on or before the date of this Agreement a business plan and budget for 2016 (the “ Business Plan ”). Such Business Plan was prepared in good faith based upon assumptions and projections which the Company and the Founders believe are reasonable and not misleading.

 

3.30                         Entire Business. There are no facilities, services, assets or properties shared with any entity other than the Group Company, which are used in connection with the business of the Domestic Companies.

 

3.31                         Confidential Information and Invention Assignment Agreements. Each current and former employee, director, consultant, and officer of the Company or any Group Company has executed an agreement with the Company or such Group Company regarding confidentiality and proprietary information substantially in the form or forms delivered to the Investor (the “ Confidential Information Agreements ”). No current or former Key Employee has excluded works or inventions from his or her assignment of inventions pursuant to such Key Employee’s Confidential Information Agreement. The Company and any Group Company are not aware that any of the Key Employees is in violation thereof.

 

3.32                         Technology Exportation Law. None of the technologies of the software products developed and sold by the Domestic Companies falls within the scope of the technologies whose exportation is prohibited or restricted by the amended Catalogue of Technologies Prohibited or Restricted from Export ( 《中国禁止出口或限制出口技术目录(修订版)》 ).

 

3.33                         Control Documents .

 

(i)                                      The Control Documents enable the Company to consolidate the financial statements with the Domestic Companies. Each party to the Control Documents has the legal right, power and authority (corporate and other) to enter into and perform its obligations under each Control Document to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of, and has authorized, executed and delivered, each Control Document to which it is a party.

 

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(ii)                                   Each executed Control Document constitutes a valid and legally binding obligation of the parties named therein enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, and (b) as limited by Laws relating to the availability of specific performance, injunctive relief or other remedies in the nature of equitable remedies.

 

(iii)                                Each Control Document is in proper legal form under applicable Law of the PRC for the enforcement thereof against each of the parties thereto in the PRC without further action by any of them except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

 

(iv)                               The execution and delivery by each party named in each Control Document, and the performance by such party of its obligations thereunder and the consummation by it of the transactions contemplated therein shall not (a) result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice, any provision of its corporate documents as in effect at the date hereof, any applicable Law, or any contract to which a member of the Group Companies is a party or by which a member of the Group Companies is bound, (b) accelerate, or constitute an event entitling any Person to accelerate, the maturity of any indebtedness or other liability of any member of the Group Companies or to increase the rate of interest presently in effect with respect to any indebtedness of any member of the Group Companies, or (c) result in the creation of any lien upon any of the properties or assets of any member of the Group Companies.

 

(v)                                  All consents required in connection with the Control Documents have been made or unconditionally obtained in writing, and no such consent has been withdrawn or is subject to any condition precedent, which has not been fulfilled or performed.

 

(vi)                               Each Control Document is in full force and effect and no party to any Control Document is in breach or default in the performance or observance of any of the terms or provisions of such Control Document. None of the parties to any Control Document has sent or received any communication regarding termination of or intention not to renew any Control Document, and no such termination or non-renewal has been threatened by any of the parties thereto.

 

3.34                         Litigation. There are no actions, suits, proceedings or investigations pending against any of the Group or its properties (nor has any of the Group received written notice of any threat thereof nor does any of the Group have any knowledge of any such threat) before any court or governmental agency. The foregoing includes, without limitation, actions pending or threatened in writing (or other threat of which any of the Group has knowledge) involving the prior employment of any of the Group’s employees, directors and officers, their use in connection with the Group’s business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. None of the Group is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by any of the Group currently pending or which the Group intends to initiate.

 

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3.35                         Liquidation. For each of the Group, there is (a) no meeting has been convened and no order, petition or resolution has been passed for the winding-up, amalgamation, reconstruction, reorganization, administration, dissolution, liquidation, merger or consolidation or analogous procedure of any of the Group; (b) no notice of appointment in respect of any of the Group of any receiver, administrator, trustee, custodian or other similar officer has been served and (c) no entering into any letter of intent, memorandum of understanding or other similar document (i) with any representative of any corporation or corporations regarding the merger of the Company with or into any such corporation or corporations, (ii) with any representative of any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Group or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company would be disposed of, or (iii) regarding any other form of liquidation, dissolution or winding up of the Group.

 

3.36                         Representations, Warranties, and Covenants of and Relating to the Founders .

 

(i)                                      Each of the Founders have the capacity for civil rights and capacity for civil conduct according to the applicable Laws as of the date hereof.

 

(ii)                                   There is no action, suit, proceeding, claim, arbitration or investigation pending against the Founders in connection with his involvement with any member of the Group Companies. None of the Founders is a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality and there is no action, suit, proceeding, claim, arbitration or investigation which any of the Founders intends to initiate in connection with his involvement with any member of the Group Companies.

 

(iii)                                Each of the Founders is not bankrupt for the purpose of the Bankruptcy Ordinance (Chapter 6 of The Laws of Hong Kong) or any equivalent or similar legislation or regulations in in other jurisdictions. Each of the Founders has not taken any action nor have any steps been taken or legal proceedings been started or, threatened against him for his bankruptcy or for the appointment of a guardian, trustee, nominee or similar officer of him or of any or all of his assets or revenues.

 

(iv)                               Each of the Founders is not in default under any law, regulation, judgment, order, authorisation, agreement or obligation applicable to him or his assets or revenues, the consequences of which default could materially and adversely affect his financial condition or his ability to perform his obligations under the Transaction Documents and no event of default or prospective event of default has occurred.

 

(v)                                  Each of the Founders is of full age and is not mentally incapacitated for the purpose of the Mental Health Ordinance (Chapter 136 of The Laws of Hong Kong), and fully understands the content of this Agreement and other the Transaction Documents to which he is a party.

 

4.                                       Representations and Warranties of the Investor to the Company. The Investor hereby represents and warrants to the Company that each of the statements contained in this Section 4 is true and complete as of the date of this Agreement and the date of the Initial Closing as follows:

 

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4.1                                Status. The Investor is an entity duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or formation.

 

4.2                                Authorization. The Investor has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and perform its obligations thereunder. All action on the part of the Investor (and, as applicable, its officers, directors and shareholders) necessary for the authorization, execution and delivery of the Transaction Documents to which it is a party, and the performance of all obligations of the Investor thereunder, has been taken or will be taken prior to the Initial Closing. This Agreement has been duly executed and delivered by the Investor. This Agreement and each of the Transaction Documents are, or when executed and delivered by the Investor will be, valid and legally binding obligations of the Investor, enforceable against the Investor in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other Laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

 

4.3                                Financing. The Investor will be able to use corresponding sufficient and its own funds to perform its relevant obligations under this Agreement and to consummate the transactions contemplated hereunder, including payment in full of the Purchase Price.

 

5.                                       Representations, Warranties, and Covenants of and Relating to Repurchase of Repurchased Shares.

 

5.1                                Representations, Warranties, and Covenants of and Relating to the Selling Shareholders. Each Selling Shareholder hereby, severally and not jointly, represents and warrants to the Company that each of the statements contained in this Section 5.1 is true and complete as of the date of this Agreement and the date of the Initial Closing for Qualcomm and as of the Subsequent Closing for Founder Holdcos as follows:

 

(i)                                      Such Selling Shareholder is duly incorporated and validly existing and in good standing under the applicable laws of the jurisdiction of its incorporation or formation.

 

(ii)                                   Such Selling Shareholder has the power and authority to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party. The execution, delivery and performance by such Selling Shareholder of this Agreement and the other Transaction Documents to which it is a party and the transactions contemplated herein and therein have been duly authorized by all necessary action of such Selling Shareholder.

 

(iii)                                Immediately prior to the Initial Closing for Qualcomm and to the Subsequent Closing for Founder Holdcos, such Selling Shareholder is the sole legal and beneficial owner of, and holds good and valid title to, its Repurchased Shares, free from any encumbrances.

 

(iv)                               The Repurchased Shares held by such Selling Shareholder has been duly and validly issued, fully paid and non-assessable.

 

(v)                                  There is no action, suit, proceeding, claim, arbitration or investigation pending against such Selling Shareholder in connection with its holding of the Repurchased

 

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Shares. Such Selling Shareholder is not a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality relating to its Repurchased Shares and there is no action, suit, proceeding, claim, arbitration or investigation which any of the Selling Shareholders intends to initiate in connection with its involvement with any member of the Group Companies.

 

(vi)                               Such Selling Shareholder is not bankrupt for the purpose of the Bankruptcy Ordinance (Chapter 6 of The Laws of Hong Kong) or any equivalent or similar legislation or regulations in in other jurisdictions. Such Selling Shareholder has not taken any action nor have any steps been taken or legal proceedings been started or, threatened against it for its bankruptcy or for the appointment of a guardian, trustee, nominee or similar officer of it or of any or all of its assets or revenues.

 

(vii)                            Such Selling Shareholder is not in default under any law, regulation, judgment, order, authorisation, agreement or obligation applicable to its assets or revenues, the consequences of which default could materially and adversely affect its financial condition or its ability to perform its obligations under the Transaction Documents and no event of default or prospective event of default has occurred.

 

(viii)                         Such Selling Shareholders fully understands the content of this Agreement and other the Transaction Documents to which it is a party.

 

5.2                                Representations, Warranties, and Covenants of and Relating to the Company. The Company hereby represents and warrants to each Selling Shareholders that each of the statements contained in this Section 5.2 is true and complete as of the date of this Agreement and the date of the Initial Closing for Qualcomm and of the Subsequent Closing for Founder Holdcos as follows:

 

(i)                                      The Company has the power and authority to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party and the transactions contemplated herein and therein have been duly authorized by all necessary action of the Company.

 

(ii)                                   The Company fully understands the content of this Agreement and other the Transaction Documents to which it is a party.

 

(iii)                                The Company shall use its own funds sufficient to perform its relevant obligations under this Agreement and to consummate the transactions contemplated hereunder, including payment in full of the Qualcomm Repurchase Price at the Initial closing and the Founder Holdcos Repurchase Price at the Subsequent Closing.

 

6.                                       Conditions of the Investor’ Obligations at the Initial Closing. The obligations of the Investor to consummate the Initial Closing under Section 2 of this Agreement, unless otherwise waived in writing by the Investor, are subject to the fulfillment on or before the Initial Closing of each of the following conditions:

 

6.1                                Representations and Warranties. Except as set forth in the Disclosure Schedule, each of the representations and warranties of the Warrantors contained in Section 3 shall be true, correct, complete and not misleading when made and shall be true, correct, complete and not misleading on and as of the Initial Closing with the same effect as though

 

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such representations and warranties had been made on and as of the date of the Initial Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true, correct and complete as of such particular date.

 

6.2                                Performance. Each Warrantor shall have performed and complied with all agreements, obligations and conditions contained in the Transaction Documents that are required to be performed or complied with by them, on or before the Initial Closing.

 

6.3                                Authorizations. All Approvals of any competent Governmental Authority or of any other Person that are required to be obtained by any Warrantor in connection with the consummation of the transactions contemplated by the Transaction Documents (including, but not limited to, those related to the lawful issuance and sale of the Series D-1 Preferred Shares, those related to the repurchase and the cancellation of the Repurchase Shares, the authorization and reservation of the Conversion Shares) (including without limitation any waivers of rights of first refusal, preemptive rights, put or call rights, or other rights triggered by the Transaction Documents, if any) shall have been duly obtained and effective as of the Initial Closing.

 

6.4                                Proceedings and Documents. All corporate and other proceedings in connection with the transactions to be completed at the Initial Closing and all documents incident thereto, including without limitation written approval from all of the then current holders of equity interests of each Group Company, as applicable, with respect to this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, shall have been completed in form and substance satisfactory to the Investor, and the Investor shall have received all such counterpart original or other copies of such documents as it may reasonably request.

 

6.5                                Memorandum and Articles. The Memorandum and Articles shall have been duly adopted by all necessary action of the members of the Company, and such adoption shall have become effective upon the Initial Closing with no alternation or amendment.

 

6.6                                Closing Certificate . (A) The chief executive officer of the Company, and (B) each of the Founders and the Founder Holdcos, shall have executed and delivered to the Investor at the Initial Closing separate certificates dated as of the Initial Closing (i) stating that the representations and warranties of the Warrantors contained in Section 3 are true, correct, and complete; (ii) stating that the conditions specified in this Section 6 have been fulfilled as of the Initial Closing; (iii) attaching thereto copies of all resolutions approved by the shareholders and boards of directors of the parties to the Transaction Documents (other than the individuals and the Investor) related to the transactions contemplated hereby; and (iv) attaching thereto copies of the Certificate of Good Standing and the Certificate of Incumbency with respect to the Company from the applicable authority(ies) in the Cayman Islands dated no earlier than ten (10) Business Days prior to the Initial Closing.

 

6.7                                Ancillary Agreements. Each of the parties to the Shareholders’ Agreement and all other Ancillary Agreements (other than the Investor) shall have been executed and delivered such agreements to the Investor.

 

6.8                                Opinions of Counsel. The Investor shall have received:

 

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(i)                                      from Han Kun Law Offices, PRC counsel for the Company, an opinion, addressed to the Investor, dated as of the Initial Closing, in customary form and substance satisfactory to the Investor;

 

(ii)                                   from Travers Thorp Alberga, Cayman Islands counsel for the Company, an opinion, addressed to the Investor, dated as of the Initial Closing, relating to the transactions contemplated by this Agreement, in customary form and substance satisfactory to the Investor.

 

6.9                                Due Diligence. Legal, financial and operational due diligence shall all be completed to the satisfaction of the Investor.

 

6.10                         Internal Approval. The necessary internal approvals, including without limitation to the approval of the investment committee of the Investor, have been duly obtained by the Investor.

 

6.11                         No Material Adverse Effect. There shall not have occurred an event which would give rise to a Material Adverse Effect since the date hereof.

 

7.                                       Conditions of Qualcomm’s Obligations at Initial Closing. The obligations of Qualcomm to consummate the Initial Closing under Section 2 of this Agreement, unless otherwise waived in writing by Qualcomm, are subject to the fulfillment on or before the Initial Closing of each of the following conditions:

 

7.1                                Representations and Warranties . The representations and warranties of the Company contained in Section 5.2 shall be true and complete when made and shall be true and complete on and as of the Initial Closing with the same effect as though such representations and warranties had been made on and as of the date of the Initial Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true and complete as of such particular date.

 

7.2                                Closing Certificate . (A) The chief executive officer of the Company, and (B) each of the Founders and the Founder Holdcos, shall have executed and delivered to Qualcomm at the Initial Closing separate certificates dated as of the Initial Closing (i) stating that the representations and warranties of the Warrantors contained in Section 3 are true, correct, and complete; (ii) stating that the conditions specified in this Section 6 have been fulfilled as of the Initial Closing; (iii) attaching thereto copies of all resolutions approved by the shareholders and boards of directors of the parties to the Transaction Documents (other than the individuals, Qualcomm and the Investor) related to the transactions contemplated hereby; and (iv) attaching thereto copies of the Certificate of Good Standing and the Certificate of Incumbency with respect to the Company from the applicable authority(ies) in the Cayman Islands dated no earlier than ten (10) Business Days prior to the Initial Closing.

 

7.3                                Transaction Documents. The Company shall have executed the Transaction Documents to which it is a party and delivered the same to the other parties thereto.

 

8.                                       Conditions of the Company’s Obligations at Initial Closing. The obligations of the Company to consummate the Initial Closing under Section 2 of this Agreement, unless otherwise waived in writing by the Company, are subject to the fulfillment on or before the Initial Closing of each of the following conditions:

 

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8.1                                Representations and Warranties . The representations and warranties of the Investor contained in Section 4 and of Qualcomm contained in Section 5.1 shall be true and complete when made and shall be true and complete on and as of the Initial Closing with the same effect as though such representations and warranties had been made on and as of the date of the Initial Closing, except in either case for those representations and warranties that address matters only as of a particular date, which representations will have been true and complete as of such particular date.

 

8.2                                Performance . The Investor and Qualcomm shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by the Investor on or before the Initial Closing.

 

8.3                                Transaction Documents. The Investor and/or Qualcomm shall have executed the Transaction Documents to which it is a party and delivered the same to the other parties thereto.

 

9.                                       Covenants and Other Agreements .

 

9.1                                Use of Proceeds. The Company shall use the proceeds of the sale of Series D-1 Preferred Shares pursuant to this Agreement only for the payment of the Repurchase Price, business expansion, research and development and general working capital of the Group; provided that, other than making the payment of the Repurchase Price pursuant this Agreement (if applicable), the Company shall not use the proceeds to repurchase, redeem, or cancel any junior securities to the Series D-1 Preferred Shares or to make any payments to shareholders, directors, or officers of the Group or affiliates of the Group or any of the foregoing unless in connection with a bona fide arms-length transaction approved by the Board and the Investor; and in any event, the Company shall not use the proceeds to acquire the shares or securities of any company listed on any stock exchange. The Investor shall have the right to monitor the use of the proceeds.

 

9.2                                Executory Period Covenants. Between the date of this Agreement and the Initial Closing, unless the Investor consent in writing otherwise:

 

(i)                                      Pre-Closing Actions. As promptly as practicable, each Warrantor shall: (a) use best efforts to take all actions required of such Party and to do all other things reasonably necessary, proper or advisable to consummate the transactions contemplated under the Transaction Documents; (b) file or supply, or cause to be filed or supplied, all applications, notifications and information required to be filed or supplied by such Warrantor pursuant to Law in connection with the Transaction Documents and the issuance of the Series D-1 Preferred Shares pursuant hereto and the consummation of the other transactions contemplated under the Transaction Documents; (c) use best efforts to obtain, or cause to be obtained, all consents (including any consents required under any Contract) necessary to be obtained by such Party in order to consummate the transactions contemplated pursuant to the Transaction Documents; and (d) coordinate and cooperate with the other Parties in exchanging such information and supplying such assistance as may be reasonably requested by the other Parties in connection with any filings and other actions to be made or taken in order to consummate the transactions contemplated pursuant to the Transaction Documents.

 

(ii)                                   Non-Violation. Pending the Initial Closing, none of the Warrantors, without the prior written consent of the Investor, shall take any action which (a) would render

 

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any of the representations or warranties made by the Warrantors in any Transaction Document untrue if given with reference to the facts and circumstances then existing or (b) would result in any of the covenants contained in any Transaction Document becoming incapable of performance. Each Warrantor shall promptly advise the Investor of any action or event of which such Warrantor becomes aware which would have the effect of making incorrect any such representations or warranties if given with reference to facts and circumstances then existing or which has the effect of rendering any such covenants incapable of performance.

 

(iii)                                Conduct of Business. Except as otherwise permitted by this Agreement or with the prior written consent of the Investor, from the date hereof to the date of the Initial Closing, the Warrantors shall (a) carry on the Group’s business in the ordinary course consistent with past practice and in substantially the same manner as conducted prior to the date hereof and use best efforts to preserve its relationships with customers, suppliers and others having business dealings with the Group; and (b) not do any act or thing which would require the consent of the Investor under the Shareholders Agreement had the transactions contemplated hereunder been consummated.

 

(iv)                               Negative Covenants. No Warrantor shall (a) waive, release or assign any material right or claim, (b) take any action that would reasonably be expected to materially impair the value of any Group Company, (c) sell, purchase, assign, lease, transfer, pledge, encumber or otherwise dispose of any material asset, (d) issue, sell, or grant any Equity Security, (e) declare, issue, make, or pay any dividend or other distribution with respect to any Equity Security, (f) incur any indebtedness for borrowed money or capital lease commitments or assume or guarantee for any indebtedness of any Person, (g) make any material change in any method of accounting or accounting practice used by any Group Company, other than any such changes required by Applicable Accounting Principles, (h) enter into any Contract or other transaction with an Affiliate, or (i) authorize or commit to do any of the foregoing.

 

(v)                                  Exclusivity. From the date hereof until the Long-Stop Date, the Warrantors shall not, and they shall not permit any of their representatives or any member of the Group to, solicit, initiate, facilitate, engage in any discussions or negotiations with respect to, adopt, approve, commit to, or conclude any investment transaction with, or any sale of any member of the Group or the business or equity thereof to, any third party, whether directly or indirectly. The Warrantors shall, and shall cause their representatives and the other members of the Group to, immediately terminate all existing activities, discussions and negotiations with any third parties with respect to the foregoing, and if any of them hereafter receives any correspondence or communication that constitutes, or could reasonably be expected to lead to, any such transaction, they shall immediately give notice thereof (including the third party and the material terms of such transaction) to the Investor.

 

(vi)                               Financial Statements. Each Warrantor shall furnish to the Investor as soon as practicable after the end of each quarter between the date hereof and the Initial Closing, and in any event within fifteen (15) business days after each such quarter, the unaudited financial statements of each such entity for the quarter then ended, which shall present fairly, in all material respects, the unaudited financial position of such entity as of the end of such quarter, in conformity with Applicable Accounting Principles consistently applied with the Financial Statements, except for noncompliance with the footnote disclosure requirements under Applicable Accounting Principles and for year-end adjustments, and subject to such other exceptions as may be indicated in the notes thereto.

 

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(vii)                            Access and Information . The Warrantors shall permit the Investor, or any representative thereof, at their own expense, to (a) visit and inspect the properties of the Group Companies, (b) inspect the contracts, books of account, records, ledgers, and other documents and data of the Group Companies, (c) discuss the business, affairs, finances and accounts of the Group Companies with officers and employees of the Group Companies, and (d) review such other information as the Investor reasonably request, in each case during normal business hours with reasonable prior notices and in such a manner so as not to unreasonably interfere with the normal operations of the Group Companies. No information or knowledge obtained pursuant to this Section or otherwise by the Investor in connection with their due diligence will affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the Parties to consummate the transactions. All the information or knowledge obtained by the Investor pursuant to this Sub-Section (vii) or any other information obtained by the Investor in connection with their due diligence of the Group Companies shall be deemed as confidential information and shall not be disclosed without the written approval of the Company.

 

9.3                                Compliance with Circular 37 . If requested by the SAFE Rules and Regulations, the Company (and/or any other Group Company and/or Founders, the Founder Holdcos, Haiyan’s Holdco and/or Zhu, as the case may be) shall, as promptly as practicable after the Subsequent Closing, take all requisite action to apply for and complete any necessary filing or update filing under the SAFE Rules and Regulations.

 

9.4                                Post-Closing Covenants . As soon as reasonably practicable following the Closing (as case may be), the Group Companies shall take all actions described in Schedule IV .

 

9.5                                Restriction on Indirect Transfers. The Parties agree that the transfer restrictions set forth in the Transaction Documents shall not be capable of being avoided by the holding of the Equity Securities indirectly through a Person that can itself be sold in order to dispose of an indirect interest in the Equity Securities free of such restrictions. Without limiting the generality of the foregoing, any transfer or other disposal of any shares (or other interest) in the Founder Holdcos shall be treated as being a transfer of the Equity Securities held by the Founder Holdco, and the provisions of this Agreement that apply in respect of the transfer of the Equity Securities shall thereupon apply in respect of the Equity Securities so held. Without prejudice to the generality of the foregoing and notwithstanding anything to the contrary contained herein, without the prior written approval of the Investor:

 

(i)                                      Each of the ultimate natural-person shareholders of the Founder Holdcos, including, without limitation, the Founders, shall not, and the Founders shall cause such natural-person shareholders not to, directly or indirectly, sell, assign, transfer, pledge, hypothecate, mortgage, encumber or otherwise dispose through one or a series of transactions any equity interest held, directly or indirectly, by him or her in the Founder Holdcos to any person; and the Founder Holdcos or Haiyan’s Holdco shall not, and the Founders shall cause the Founder Holdcos, respectively, not to, issue to any Person any equity securities of the Company or any options or warrants for, or any other securities exchangeable for or convertible into, such equity securities of the Company.

 

(ii)                                   The Founders shall not, and shall not cause or permit any other Person to, directly or indirectly, sell, assign, transfer, pledge, hypothecate, mortgage, encumber or otherwise dispose through one or a series of transactions any equity interest held or controlled by him or her in the Company to any Person. Any transfer in violation of this Section 7.5 shall

 

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be void and the Company hereby agrees it will not effect such a transfer nor will it treat any alleged transferee as the holder of such equity interest without the prior written approval of the Investor.

 

9.6                                Memorandum and Articles. The Memorandum and Articles shall be duly filed with the Registrar of Companies of the Cayman Islands as soon as practicable, but in any event, no later than within thirty (30) days after the Initial Closing.

 

9.7                                Compliance with Anti-corruption Laws . At any time after the Initial Closing, the Company shall not, and shall not permit any of its Subsidiaries or Affiliates or any of its or their respective directors, officers, managers, employees, independent contractors, representatives or agents to, promise, authorize or make any payment to, or otherwise contribute any item of value to, directly or indirectly, to any third party, including any non-U.S. official, in each case, in violation of the FCPA, or any other applicable anti-bribery or anti-corruption law. At any time after the Initial Closing, the Company shall, and shall cause each of its Subsidiaries and Affiliates to, cease all of its or their respective activities, as well as remediate any actions taken by the Company, its Subsidiaries or Affiliates, or any of their respective directors, officers, managers, employees, independent contractors, representatives or agents in violation of the FCPA, or any other applicable anti-bribery or anti-corruption law. At any time after the Initial Closing, the Company shall, and shall cause each of its Subsidiaries and Affiliates to, maintain systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) to ensure compliance with the FCPA, or any other applicable anti-bribery or anti-corruption law.

 

9.8                                Passive Foreign Investment Company. The Company shall use its commercially reasonable efforts not to become a “controlled foreign corporation” or “passive foreign investment company” under the U.S. Internal Revenue Code of 1986.

 

9.9                                Tax Filing . The Company shall respectively report the repurchase of Qualcomm Repurchased Shares and Founder Holdcos Repurchased Shares contemplated hereunder to the relevant PRC Tax Authority. The Company has the right to withhold from the Repurchase Price the estimated payable tax amount occurred under Circular 698 and upon the final assessment of the tax obligations under Circular 698, the Company shall pay from the withheld amount the actual payable tax amount. In respect of each Selling Shareholder, if the actual payable tax amount is less than the withheld amount, the Company shall return such balance to such Selling Shareholder; if the actual payable tax amount, as calculated based upon the applicable law and the requirements of competent tax authority, is larger than the withheld amount, if required by the Company and to the extent permissible by the applicable law, each Selling Shareholder shall pay the applicable shortfall amounts directly to the tax authority. However, the Company shall consult with Qualcomm on the tax filings and remittance of tax amounts on Qualcomm’s behalf.

 

10.                                Confidentiality .

 

10.1                         Disclosure of Terms. The terms and conditions of the Transaction Documents (collectively, the “ Financing Terms ”), including their existence, shall be considered confidential information and shall not be disclosed by any of the Parties to any other Person except in accordance with the provisions set forth below.

 

10.2                         Permitted Disclosures. Notwithstanding the foregoing, (i) each member of the Group , Qualcomm and the Investor, as appropriate, may disclose any of the Financing

 

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Terms to its current or bona fide prospective Investor, employees, investment bankers, lenders, accountants and attorneys, in each case only where such Persons are under appropriate nondisclosure obligations; (ii) the Investor and/or Qualcomm may disclose any of the Financing Terms to the fund manager, the employees, the directors and officers of the Investor and/or Qualcomm or the Investor and/or Qualcomm’s Affiliates, and (iii) the Investor and/or Qualcomm may disclose any of the Financing Terms to its potential or actual transferees or assignees with respect to the shares in the Company or the rights under the Transaction Documents, thereof so long as such Persons are under appropriate nondisclosure obligations.

 

10.3                         Legally Compelled Disclosure. In the event that any Party is requested or becomes legally compelled (including without limitation, pursuant to securities Laws) to disclose the existence or content of any of the Financing Terms hereof in contravention of the provisions of this Section 10 , such Party (the “ Disclosing Party ”) shall to the extent permissible under law promptly provide the other Parties with written notice of that fact so that such other Parties may seek a protective order, confidential treatment or other appropriate remedy. In such event, the Disclosing Party shall furnish only that portion of the information that is legally required and shall exercise reasonable efforts to obtain reliable assurance that confidential treatment will be given to such information to the extent reasonably requested by the other Parties.

 

10.4                         Other Exceptions. Notwithstanding any other provision of this Section 10 , the confidentiality obligations of the Parties shall not apply to: (i) information which a restricted Party learns from a third party having the right to make the disclosure, provided the restricted Party complies with any restrictions imposed by the third party; or which a restricted Party independently developed by itself; (ii) information which is in the restricted Party’s possession prior to the time of disclosure by the protected Party and not acquired by the restricted Party under a confidentiality obligation; (iii) information which enters the public domain without breach of confidentiality by the restricted Party; (iv) disclosures to a Party’s accountants, attorneys or other professional advisors so long as they agree to keep such disclosures confidential.

 

11.                                Indemnity .

 

11.1                         The Warrantors shall, jointly and severally, indemnify, defend and hold harmless (“ Indemnify ”) the Investor on demand for any claims, losses, liabilities, damages, deficiencies, costs and expenses, including without limitation any diminution in value of the Preferred Shares or assets, legal fees and expenses of investigation and defense (the “ Indemnifiable Loss ”) incurred by the Investor, their respective officers, directors, employees, agents or Affiliates directly or indirectly resulting from, arising out of or relating to (i) any inaccuracy in, or breach of, a representation or warranty of any Warrantor contained herein, except for those representations and warranties that already contain any materiality qualification, as to which the Warrantors shall Indemnify the Investor for any Indemnifiable Loss resulting from any inaccuracy in, or breach of, a representation or warranty as so qualified, or (ii) any failure by any Warrantor to perform or comply with any covenant, agreement or obligation contained herein.

 

11.2         In addition, the Founders shall (a) be responsible for any Tax liability that any member of the Group Companies incurs or suffers that is attributable to any period before the Initial Closing; and (b) pay or discharge any liability, obligation, expense, fine, penalty or interest that would be incurred by or imposed on any member of the Group Companies as the

 

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result of, arising from or relating to any absence or deficiency in its payment of Tax liability that is accrued prior to the Initial Closing, including but not limited to deficiency in social insurance and housing reserve contributions by any member of the Group Companies for its staff members, whether such Tax liabilities are reflected in the Financial Statements or not.; and (ii) the failure to complete the registration with SAFE in accordance with the Circular 37 by any Founders, Zhu Haiyan or employee of the Group Companies as of the date of the Initial Closing who is required to complete such Circular 37 registration in connection with previous rounds of financing of the Company.

 

11.3         With respect to any Indemnifiable Loss arising from or in connection with a single occurrence or event, the Warrantors and/or the Founders (as applicable) shall then be liable for all such Indemnifiable Losses.

 

11.4         The indemnity obligations of the Warrantors and the Founders that are determined to arise hereunder shall be satisfied by such Warrantors or the Founders by remittance of immediately available funds to the Investor.

 

11.5         In the event that the termination of the employment of the Founders by the Group Companies results in material breach of, a representation or warranty of any Warrantor contained herein or a failure by any Warrantor to perform or comply with any covenant, agreement or obligation contained herein, the Founders shall be responsible for any liabilities arising therefrom under this Agreement.

 

11.6         The Parties agree that in no event the Investor will be liable to any profit losses, material or goodwill damages incurred by the Group Companies, or any consequential, incidental, indirect, special or punitive damages.

 

11.7         Tax Indemnity. Each Warrantor shall jointly and severally indemnify and hold harmless the Investor and its affiliates, partners, officers and directors against any depletion or reduction in value of the Company’s assets or increase in the Company’s liabilities arising out of, or resulting from, any claim of taxation or contravention of any Laws or regulations made in respect of any transactions effected prior to the Initial Closing. Any losses, liabilities, damages, liens, penalties, costs and expenses, including reasonable advisor’s fees and other reasonable expenses of investigation and defense of any of the foregoing (but excluding any consequential, speculative or punitive damages), incurred by the Investor as a result of the liabilities of any Warrantor as set forth in this section shall be deemed as Indemnifiable Loss. Each Warrantor shall promptly, and in any event within thirty (30) days of receipt of notice thereof, reimburse the Investor and their respective Affiliates, partners, officers and directors for all expenses reasonably incurred by them, as incurred, in connection with investigating such depletion or reduction in value of the Company’s assets or increase in the Company’s liabilities.

 

11.8         Survival of Warranties. Unless otherwise set forth in this Agreement, the representations and warranties of the Warrantors shall survive the execution and delivery of this Agreement and the Initial Closing for a period of thirty-six (36) months, provided that the representations and warranties in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.19 and 3.22 shall survive until the expiration of the relevant statute of limitations. The covenants and agreements shall survive the execution and delivery of this Agreement and the Closing (as the case may be) until performed in accordance with their terms.

 

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12.           Miscellaneous .

 

12.1         Further Assurances. Upon the terms and subject to the conditions herein, each of the Parties agrees to use its commercially reasonable efforts to take or cause to be taken all action, to do or cause to be done, to execute such further instruments, and to assist and cooperate with the other Parties in doing, all things necessary, proper or advisable under applicable Laws or otherwise to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the other Transaction Documents and, to the extent reasonably requested by another Party, to enforce rights and obligations pursuant hereto or thereto.

 

12.2         Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties whose rights or obligations hereunder are affected by such terms and conditions. This Agreement, and the rights and obligations hereunder, shall not be assigned without the mutual written consent of the Investor, Qualcomm (with respect to an assignment by the Company) and the Company, provided that the Investor may, without consent of the other Parties under this Agreement, assign its rights and obligations to an Affiliate of the Investor. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the Parties or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

12.3         Governing Law. This Agreement shall be governed by and construed under the Laws of Hong Kong, without regard to principles of conflict of laws thereunder.

 

12.4         Dispute Resolution .

 

(i)            Any dispute, controversy or claim arising out of, in connection with or relating to this Agreement, including the interpretation, validity, invalidity, breach or termination thereof, shall be settled by arbitration.

 

(ii)           The arbitration shall be conducted in Hong Kong under the Hong Kong International Arbitration Centre Administered Arbitration Rules in force when the Notice of Arbitration is submitted in accordance with the said Rules. The number of arbitrators shall be three. The arbitration shall be conducted in the English language.

 

(iii)          Each Party shall cooperate with the other in making full disclosure of and providing complete access to all information and documents requested by the other in connection with such arbitration proceedings, subject only to any doctrine of legal privilege or any confidentiality obligations binding on such Party.

 

(iv)          The costs of arbitration shall be borne by the losing Party, unless otherwise determined by the arbitration tribunal.

 

(v)           When any dispute occurs and when any dispute is under arbitration, except for the matters in dispute, the Parties shall continue to fulfill their respective obligations and shall be entitled to exercise their rights under this Agreement.

 

41



 

(vi)          The award of the arbitration tribunal shall be final and binding upon the Parties, and the prevailing Party may apply to a court of competent jurisdiction for enforcement of such award.

 

(vii)         Regardless of anything else contained herein, any Party shall be entitled to seek preliminary injunctive relief from any court of competent jurisdiction pending the conclusion of the arbitration.

 

(viii)        In order to facilitate the comprehensive resolution of related disputes, and upon request of any Party to the arbitration proceeding, the arbitration tribunal may consolidate the arbitration proceeding with any other arbitration proceeding(s) involving any of the Parties relating to this Agreement or any other Transaction Documents in connection therewith. The arbitration tribunal shall not consolidate such arbitrations unless it determines that (i) there are issues of fact or law common to the two proceedings so that a consolidated proceeding would be more efficient than separate proceedings, and (ii) no party would be prejudiced as a result of such consolidation through undue delay or otherwise. In the event of different rulings on this question by the arbitration tribunal constituted hereunder and the tribunal(s) constituted under any of the Transaction Agreements, the ruling of the tribunal constituted under this Agreement shall prevail.

 

12.5         Notices. Any notice required or permitted pursuant to this Agreement shall be given in writing and shall be given either personally or by sending it by courier service, fax, electronic mail or similar means to the address as set forth in Schedule VI (or at such other address as such Party may designate by fifteen (15) days’ advance written notice to the other Parties given in accordance with this Section 12.5) . Where a notice is given personally, delivery shall be deemed to have been effected on receipt (or when delivery is refused). Where a notice is sent by courier service, service of the notice shall be deemed to be effected by properly addressing, pre-paying and sending through an internationally-recognized courier the notice, with a confirmation of delivery, and to have been effected on receipt (or when delivery is refused). Where a notice is sent by fax or electronic mail, service of the notice shall be deemed to be effected by properly addressing, and sending such notice through a transmitting organization, with a written confirmation of delivery, and to have been effected on the day the same is sent as aforesaid if sent during normal business hours of the recipient on a business day thereof and otherwise on the next business day thereof.

 

12.6         Rights Cumulative . Each and all of the various rights, powers and remedies of a Party will be considered to be cumulative with and in addition to any other rights, powers and remedies which such Party may have at law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such Party.

 

12.7         Fees and Expenses. If the transactions contemplated hereby proceed to the Initial Closing successfully, the Company shall bear all costs and expenses incurred in connection with the Transaction Documents up to a maximum of US$200,000. Except as otherwise provided in this Agreement, in the event that the transactions contemplated hereby are not consummated, the Investor and the Company shall bear its own costs and expenses incurred in connection with the Transaction Documents separately; in the event that the transactions contemplated hereby are not consummated due to the Founders’ or the Company’s voting against the Transaction, the Company shall bear all the reasonable costs and expenses incurred by the Investor in connection with the Transaction Documents up to a

 

42



 

maximum of US$200,000. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing Party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such Party may be entitled.

 

12.8         Finder’s Fee. Each Warrantor agrees, jointly and severally, to indemnify and hold harmless the Investor from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

 

12.9         Severability. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. If, however, any provision of this Agreement shall be invalid, illegal, or unenforceable under any such applicable Law in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such Law, or, if for any reason it is not deemed so modified, it shall be invalid, illegal, or unenforceable only to the extent of such invalidity, illegality, or limitation on enforceability without affecting the remaining provisions of this Agreement, or the validity, legality, or enforceability of such provision in any other jurisdiction.

 

12.10       Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of each of (i) the Company, (ii) the Founders, and (iii) the Investor. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each of the Parties.

 

12.11       No Waiver . Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof will not be deemed a waiver of such term, covenant, or condition, nor will any waiver or relinquishment of, or failure to insist upon strict compliance with, any right, power or remedy hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or remedy at any other time or times.

 

12.12       Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any other Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by Law or otherwise afforded to any Party, shall be cumulative and not alternative.

 

12.13       No Presumption. The Parties acknowledge that each Party has been represented by counsel in connection with this Agreement. Accordingly, any rule of law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it, has no application and is expressly waived. If any claim is made by a Party relating to any conflict, omission or ambiguity in the provisions of

 

43



 

this Agreement, no presumption or burden of proof or persuasion will be implied because this Agreement was prepared by or at the request of any Party or its counsel.

 

12.14       Headings and Subtitles; Interpretation. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Unless a provision hereof expressly provides otherwise: (i) the term “or” is not exclusive; (ii) words in the singular include the plural, and words in the plural include the singular; (iii) the terms “herein”, “hereof”, and other similar words refer to this Agreement as a whole and not to any particular section, subsection, paragraph, clause, or other subdivision; (iv) the term “including” will be deemed to be followed by “, but not limited to,”; (v) the masculine, feminine, and neuter genders will each be deemed to include the others; (vi) the terms “shall”, “will”, and “agrees” are mandatory, and the term “may” is permissive; (vii) the term “day” means “calendar day”, and (viii) all references to dollars or to “US$” are to currency of the United States of America (and shall be deemed to include reference to the equivalent amount in other currencies).

 

12.15       Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Facsimile and e-mailed copies of signatures shall be deemed to be originals for purposes of the effectiveness of this Agreement.

 

12.16       Entire Agreement. This Agreement and the Transaction Documents, together with all schedules and exhibits hereto and thereto, constitute the full and entire understanding and agreement among the Parties with regard to the subjects hereof and thereof, and supersede all other agreements between or among all of the Parties with respect to the subject matters hereof and thereof, and no Party shall be liable or bound to any other Party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein.

 

12.17       No Third Party Beneficiaries. Except otherwise provided in the Agreement, the provisions of this Agreement are intended solely to benefit the Parties of this Agreement and, to the extent not prohibited by Applicable Law (including without limitation to, Contracts (Right of Third Parties) Ordinance), shall not be construed as conferring any benefit upon any creditor of the Parties (and no such creditor shall be a third party beneficiary of this Agreement), or any other Person shall have any duty or obligation to any creditor of the Parties, nor shall any party other than the Parties to rely on the Rights of Third Parties Ordinance to claim for any rights thereunder. Notwithstanding any other term of this Agreement, the consent of any person who is not a party to this Agreement is not required for any variation of, amendment to, or release, rescission, or termination of, this Agreement.

 

[The remainder of this page has been left intentionally blank]

 

44


 

IN WITNESS WHEREOF, the Parties have executed this Share Purchase Agreement as of the date first written above.

 

COMPANY:

COOTEK (CAYMAN) INC.

 

 

 

 

 

 

 

By:

/s/ ZHANG KAN

 

 

Name: ZHANG KAN

 

 

Title: Director

 

HK SUBSIDIARY

COOTEK HONG KONG LIMITED

 

 

 

 

 

 

 

By:

/s/ ZHANG KAN

 

 

Name: ZHANG KAN

 

 

Title: Director

 

WOFE

SHANGHAI CHU LE (COOTEK) INFORMATION TECHNOLOGY CO., LTD.

 

上海触乐信息科技有限公司

 

 

 

 

 

 

By:

/s/ ZHANG KAN

 

 

Name: ZHANG KAN

 

 

Title: Legal Representative

 

SIGNATURE PAGE TO SHARE PURCHASE AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties have executed this Share Purchase Agreement as of the date first written above.

 

OFFSHORE SUBSIDIARIES:

TOUCHPAL HK CO., LIMITED

 

 

 

 

 

 

By:

/s/ ZHANG KAN

 

 

 

Name: ZHANG KAN

 

 

 

Title: Director

 

 

 

 

 

TOUCHPAL, INC.

 

 

 

 

 

By:

/s/ LI QIAOLING

 

 

 

Name: LI QIAOLING

 

 

 

Title: President

 

SIGNATURE PAGE TO SHARE PURCHASE AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties have executed this Share Purchase Agreement as of the date first written above.

 

HOLD CO.s:

KAN’S GLOBAL COOLSTUFF

 

INVESTMENT INC.

 

 

 

 

 

By:

/s/ ZHANG KAN

 

 

Name: ZHANG KAN

 

 

Title: Director

 

 

 

 

 

 

 

JIALIANG’S GLOBAL CREATIVITY

 

INVESTMENT INC.

 

 

 

 

 

By:

/s/ WANG JIALIANG

 

 

Name: WANG JIALIANG

 

 

Title: Director

 

 

 

 

 

 

 

LQL GLOBAL INNOVATION

 

INVESTMENT INC.

 

 

 

By:

/s/ LI QIAOLING

 

 

Name: LI QIAOLING

 

 

Title: Director

 

 

 

 

 

 

 

JIAN’S GLOBAL COOLSTUFF

 

INVESTMENT INC.

 

 

 

 

 

By:

/s/ WANG JIAN

 

 

Name: WANG JIAN

 

 

Title: Director

 

SIGNATURE PAGE TO SHARE PURCHASE AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties have executed this Share Purchase Agreement as of the date first written above.

 

DOMESTIC COMPANIES:

SHANGHAI HAN XIANG (COOTEK) INFORMATION TECHNOLOGY CO., LTD.

 

上海汉翔信息技术有限公司

 

 

 

 

 

By:

/s / ZHANG KAN

 

 

Name: ZHANG KAN

 

 

Title: Legal Representative

 

 

 

 

 

 

 

SHANGHAI CHU BAO (COOTEK) INFORMATION TECHNOLOGY CO., LTD.

 

上海触宝信息技术有限公司

 

 

 

 

 

By:

/s/ ZHANG KAN

 

 

Name: ZHANG KAN

 

 

Title: Legal Representative

 

SIGNATURE PAGE TO SHARE PURCHASE AGREEMENT

 


 

IN WITNESS WHEREOF, the Parties have executed this Share Purchase Agreement as of the date first written above.

 

HAIYAN’S HOLDCO:

HAIYAN’S GLOBAL CREATIVITY

 

INVESTMENT INC.

 

 

 

 

 

By:

/s/ ZHU HAIYAN

 

 

Name:

ZHU HAIYAN

 

 

Title:

Director

 

SIGNATURE PAGE TO SHARE PURCHASE AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties have executed this Share Purchase Agreement as of the date first written above.

 

INVESTOR:

HG QIANDAO LIMITED

 

 

 

By:

/s/ Lu Binghui

 

Name:

Lu Binghui

 

Title:

Director

 

SIGNATURE PAGE TO SHARE PURCHASE AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties have executed this Share Purchase Agreement as of the date first written above.

 

FOUNDERS:

ZHANG KAN

 

 

 

 

 

/s/ ZHANG KAN

 

 

 

 

 

WANG JIALIANG

 

 

 

 

 

/s/ WANG JIALIANG

 

 

 

 

 

LI QIAOLING

 

 

 

 

 

/s/ LI QIAOLING

 

 

 

 

 

WANG JIAN

 

 

 

 

 

/s/ WANG JIAN

 

 

 

 

ZHU HAIYAN

ZHU HAIYAN

 

 

 

 

 

/s/ ZHU HAIYAN

 

SIGNATURE PAGE TO SHARE PURCHASE AGREEMENT

 



 

IN WITNESS WHEREOF, the Parties have executed this Share Purchase Agreement as of the date first written above.

 

Qualcomm

QUALCOMM INTERNATIONAL INC.

 

 

 

 

 

By:

/s/ Adam Schwenker

 

Name:

Adam Schwenker

 

Title:

Authorized Signatory

 

 

Address:

 

 

Attention:

James Shen

 

Tel:

 

 

Fax No.:

 

 

 

SIGNATURE PAGE TO SHARE PURCHASE AGREEMENT

 


 

SCHEDULE I

 

LIST OF FOUNDERS

 

Founder

 

ID/Passport No.

 

 

 

ZHANG Kan

 

***

 

 

 

WANG Jialiang

 

***

 

 

 

LI Qiaoling

 

***

 

 

 

WANG Jian

 

***

 



 

SCHEDULE II

 

LIST OF FOUNDER HOLDCOS

 

Founder Holdcos

 

Kan’s Global CoolStuff Investment Inc. (“Kan’s Company”)

 

LQL Global Innovation Investment Inc. (“LQL’s Company”)

 

Jian’s Global CoolStuff Investment Inc. (“Jian’s Company”)

 

Jialiang’s Global Creativity Investment Inc. (“Jialiang’s Company”)

 



 

SCHEDULE III-A

 

SCHEDULE OF THE INVESTOR

 

 

 

Type &

 

Number of Series D-1 Preferred

 

 

 

Name

 

Jurisdiction

 

Shares to be Purchased

 

Purchase Price

 

HG Qiandao Limited

 

British Virgin Islands

 

89,668,956

 

US$

20,000,000

 

Total

 

89,668,956

 

US$

20,000,000

 

 



 

SCHEDULE III-B

 

SCHEDULE OF THE SELLING SHAREHOLDERS

 

 

 

 

 

Number of Shares

 

 

 

 

 

Class of

 

to Repurchase and

 

Repurchase

 

Selling Shareholders

 

Shares

 

Cancel

 

Price

 

Kan’s Global CoolStuff Investment Inc.

 

Ordinary Shares

 

3,775,535

 

US$

800,000

 

LQL Global Innovation Investment Inc.

 

Ordinary Shares

 

3,775,535

 

US$

800,000

 

Jialiang’s Global Creativity Investment Inc.

 

Ordinary Shares

 

3,775,535

 

US$

800,000

 

Jian’s Global CoolStuff Investment Inc.

 

Ordinary Shares

 

2,831,651

 

US$

600,000

 

Qualcomm International, Inc.

 

Series A Preferred Shares

 

9,438,838

 

US$

2,000,000

 

Total

 

 

 

23,597,094

 

US$

5,000,000

 

 


 

SCHEDULE IV

 

Post Covenants

 

1.               If requested by the Applicable Law or Governmental Authority, Chu Bao shall apply for and obtain the Internet Publishing License on its current and proposed business as soon as possible and in no events be later than ninety (90) days from the date as requested by the Applicable Law or Governmental Authority.

 

2.               the PRC Subsidiaries shall, and shall cause each of the landlords/lessors which the PRC companies entered a leasing contract with, to submit to the relevant housing administrative authorities and complete the registration or filing procedures in respect of the leased real properties as soon as possible and in no events be later than ninety (90) days from the Initial Closing.

 



 

SCHEDULE V

 

LIST OF KEY EMPLOYEES

 

Name

 

ID/Passport Number

 

Title

 

Employment Start Date

 

 

 

 

 

 

 

Zhang Kan

 

***

 

CSA

 

June 1, 2010

Wang Jialiang

 

***

 

CEO

 

June 1, 2010

Li Qiaoling

 

***

 

CMO

 

June 1, 2010

Wang Jian

 

***

 

CTO

 

June 1, 2010

RenTeng

 

***

 

Architect

 

July 1, 2010

 



 

SCHEDULE VI

 

NOTICE ADDRESSES

 

For the purpose of the notice provisions contained in this Agreement, the following are the initial addresses of each Party:

 

If to each Group Company, the Founders or the Founder Holdcos:

 

Attention: ZHANG KAN

Tel:

Fax No.:

E-mail

 

If to Haiyan’s Holdco or Zhu:

 

Attention: ZHU HAIYAN

Tel:

Fax No.:

 

If to Qualcomm:

 

Attention: James Shen

Tel:

Fax No.:

 

If to the Investor

 

Attention: WANG BAOHUA

Tel:

Fax No:

 


 

SCHEDULE VII CAPITALIZATION

 

Immediately prior to the Initial Closing:

 

 

 

 

 

AUTHORIZED SHARE CAPITAL:

 

US$50,000 comprising of 5,000,000,000 shares, par value

 

 

US$0.00001 per share, including 3,000,292,107 Ordinary Shares, 451,612,903 Series A

 

 

Preferred Shares, 553,299,062 Series B Preferred Shares, 119,688,525 Series B-1 Preferred

 

 

Shares, 651,629,045 Series C Preferred Shares and 223,478,358 Series D Preferred Shares.

 

 

 

 

 

Number of

 

Number of

 

Number of

 

Number of

 

Number of

 

 

 

 

 

 

 

Number of

 

Series A

 

Series B

 

Series B-1

 

Series C

 

Series D

 

 

 

 

 

 

 

Ordinary

 

Preferred

 

Preferred

 

Preferred

 

Preferred

 

Preferred

 

Number of

 

 

 

Shareholders

 

Shares

 

Shares

 

Shares

 

Shares

 

Shares

 

Shares

 

Total Shares

 

%

 

Kan’s Global CoolStuff Investment Inc.

 

250,000,000

 

0

 

0

 

0

 

0

 

0

 

250,000,000

 

7.9658

%

LQL Global Innovation Investment Inc.

 

219,400,000

 

0

 

0

 

0

 

0

 

0

 

219,400,000

 

6.9908

%

Jialiang’s Global Creativity Investment Inc.

 

219,400,000

 

0

 

0

 

0

 

0

 

0

 

219,400,000

 

6.9908

%

Haiyan’s Global Creativity Investment Inc.

 

92,551,946

 

0

 

0

 

0

 

0

 

0

 

92,551,946

 

2.9490

%

Jian’s Global CoolStuff Investment Inc.

 

131,200,000

 

0

 

0

 

0

 

0

 

0

 

131,200,000

 

4.1805

%

Qiming Venture Partners II,L.P.

 

0

 

312,204,386

 

79,635,753

 

26,034,766

 

63,988,280

 

8,816,163

 

490,679,348

 

15.6346

%

Qiming Venture Partners II-C, L.P.

 

0

 

27,338,322

 

6,973,342

 

2,279,746

 

5,603,163

 

771,991

 

42,966,564

 

1.3691

%

Qiming Managing Directors Fund II, L.P.

 

0

 

4,543,313

 

1,158,889

 

378,868

 

931,181

 

128,296

 

7,140,547

 

0.2275

%

Orange Capital Management

 

0

 

53,763,441

 

0

 

0

 

0

 

0

 

53,763,441

 

1.7131

%

Qualcomm International, Inc.

 

0

 

53,763,441

 

27,427,495

 

2,855,962

 

0

 

0

 

84,046,898

 

2.6780

%

SIG China Investments Master Fund III, LLLP

 

0

 

0

 

269,602,205

 

88,139,183

 

56,418,099

 

9,716,450

 

423,875,937

 

13.5061

%

Sycamore Capital Holdings Limited

 

0

 

0

 

38,884,933

 

0

 

0

 

0

 

38,884,933

 

1.2390

%

ESOP (reserved for issuance)

 

226,153,637

 

0

 

0

 

0

 

0

 

0

 

226,153,637

 

7.2060

%

Alibaba Investment Limited

 

0

 

0

 

129,616,445

 

0

 

0

 

0

 

129,616,445

 

4.1300

%

Sequoia Capital China GF Holdco III-A, Ltd.

 

0

 

0

 

0

 

0

 

524,688,322

 

9,716,450

 

534,404,772

 

17.0279

%

CHANCE TALENT MANAGEMENT LIMITED

 

0

 

0

 

0

 

0

 

0

 

97,164,504

 

97,164,504

 

3.0960

%

New Alliance CC Limited

 

0

 

0

 

0

 

0

 

0

 

48,582,252

 

48,582,252

 

1.5480

%

TRANQUILITY COMMUNICATIONS LIMITED

 

0

 

0

 

0

 

0

 

0

 

48,582,252

 

48,582,252

 

1.5480

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total*

 

1,138,705,583

 

451,612,903

 

553,299,062

 

119,688,525

 

651,629,045

 

223,478,358

 

3,138,413,476

 

100

%

 


* On a fully diluted basis, including shares to be issued under the ESOP, but not including shares to be issued upon conversion of the Preferred Shares.

 


 

Immediately after the Initial Closing:

 

 

 

AUTHORIZED SHARE CAPITAL:

US$50,000 comprising of 5,000,000,000 shares, par value

 

US$0.00001 per share, including 2,920,061,989 Ordinary Shares, 442,174,065 Series A

 

Preferred Shares, 553,299,062 Series B Preferred Shares, 119,688,525 Series B-1 Preferred

 

Shares, 651,629,045 Series C Preferred Shares, 223,478,358 Series D Preferred Shares and

 

89,668,956 Series D-1 Preferred Shares.

 

 

 

 

 

Number of

 

Number of

 

Number of

 

Number of

 

Number of

 

Number of

 

 

 

 

 

 

 

Number of

 

Series A

 

Series B

 

Series B-1

 

Series C

 

Series D

 

Series D-1

 

 

 

 

 

 

 

Ordinary

 

Preferred

 

Preferred

 

Preferred

 

Preferred

 

Preferred

 

Preferred

 

Number of

 

 

 

Shareholders

 

Shares

 

Shares

 

Shares

 

Shares

 

Shares

 

Shares

 

Shares

 

Total Shares

 

%

 

Kan’s Global CoolStuff Investment Inc.

 

250,000,000

 

0

 

0

 

0

 

0

 

0

 

0

 

250,000,000

 

7.7672

%

LQL Global Innovation Investment Inc.

 

219,400,000

 

0

 

0

 

0

 

0

 

0

 

0

 

219,400,000

 

6.8165

%

Jialiang’s Global Creativity Investment Inc.

 

219,400,000

 

0

 

0

 

0

 

0

 

0

 

0

 

219,400,000

 

6.8165

%

Haiyan’s Global Creativity Investment Inc.

 

92,551,946

 

0

 

0

 

0

 

0

 

0

 

0

 

92,551,946

 

2.8755

%

Jian’s Global CoolStuff Investment Inc.

 

131,200,000

 

0

 

0

 

0

 

0

 

0

 

0

 

131,200,000

 

4.0763

%

Qiming Venture Partners II,L.P.

 

0

 

312,204,386

 

79,635,753

 

26,034,766

 

63,988,280

 

8,816,163

 

0

 

490,679,348

 

15.2449

%

Qiming Venture Partners II-C, L.P.

 

0

 

27,338,322

 

6,973,342

 

2,279,746

 

5,603,163

 

771,991

 

0

 

42,966,564

 

1.3349

%

Qiming Managing Directors Fund II, L.P.

 

0

 

4,543,313

 

1,158,889

 

378,868

 

931,181

 

128,296

 

0

 

7,140,547

 

0.2219

%

Orange Capital Management

 

0

 

53,763,441

 

0

 

0

 

0

 

0

 

0

 

53,763,441

 

1.6704

%

Qualcomm International, Inc.

 

0

 

44,324,603

 

27,427,495

 

2,855,962

 

0

 

0

 

0

 

74,608,060

 

2.3180

%

SIG China Investments Master Fund III,

 

0

 

0

 

269,602,205

 

88,139,183

 

56,418,099

 

9,716,450

 

0

 

423,875,937

 

13.1694

%

Sycamore Capital Holdings Limited

 

0

 

0

 

38,884,933

 

0

 

0

 

0

 

0

 

38,884,933

 

1.2081

%

ESOP (reserved for issuance)

 

226,153,637

 

0

 

0

 

0

 

0

 

0

 

0

 

226,153,637

 

7.0264

%

Alibaba Investment Limited

 

0

 

0

 

129,616,445

 

0

 

0

 

0

 

0

 

129,616,445

 

4.0271

%

Sequoia Capital China GF Holdco III-A,

 

0

 

0

 

0

 

0

 

524,688,32

 

9,716,450

 

0

 

534,404,772

 

16.6034

%

CHANCE TALENT MANAGEMENT

 

0

 

0

 

0

 

0

 

0

 

97,164,504

 

0

 

97,164,504

 

3.0188

%

New Alliance CC Limited

 

0

 

0

 

0

 

0

 

0

 

48,582,252

 

0

 

48,582,252

 

1.5094

%

TRANQUILITY COMMUNICATIONS LIMITED

 

0

 

0

 

0

 

0

 

0

 

48,582,252

 

0

 

48,582,252

 

1.5094

%

HG Qiandao Limited

 

0

 

0

 

0

 

0

 

0

 

0

 

89,668,956

 

89,668,956

 

2.7859

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total*

 

1,138,705,583

 

442,174,065

 

553,299,062

 

119,688,525

 

651,629,045

 

223,478,358

 

89,668,956

 

3,218,643,594

 

100

%

 


* On a fully diluted basis, including shares to be issued under the ESOP, but not including shares to be issued upon conversion of the Preferred Shares.

 


 

Immediately after the Subsequent Closing:

 

 

 

AUTHORIZED SHARE CAPITAL:

US$50,000 comprising of 5,000,000,000 shares, par value

 

US$0.00001 per share, including 2,920,061,989 Ordinary Shares, 442,174,065 Series A

 

Preferred Shares, 553,299,062 Series B Preferred Shares, 119,688,525 Series B-1 Preferred

 

 

Shares, 651,629,045 Series C Preferred Shares, 223,478,358 Series D Preferred Shares and

 

 

89,668,956 Series D-1 Preferred Shares.

 

 

 

 

 

Number of

 

Number of

 

Number of

 

Number of

 

Number of

 

Number of

 

 

 

 

 

 

 

Number of

 

Series A

 

Series B

 

Series B-1

 

Series C

 

Series D

 

Series D-1

 

 

 

 

 

 

 

Ordinary

 

Preferred

 

Preferred

 

Preferred

 

Preferred

 

Preferred

 

Preferred

 

Number of

 

 

 

Shareholders

 

Shares

 

Shares

 

Shares

 

Shares

 

Shares

 

Shares

 

Shares

 

Total Shares

 

%

 

Kan’s Global CoolStuff Investment Inc.

 

246,224,465

 

0

 

0

 

0

 

0

 

0

 

0

 

246,224,465

 

7.6838

%

LQL Global Innovation Investment Inc.

 

215,624,465

 

0

 

0

 

0

 

0

 

0

 

0

 

215,624,465

 

6.7288

%

Jialiang’s Global Creativity Investment Inc.

 

215,624,465

 

0

 

0

 

0

 

0

 

0

 

0

 

215,624,465

 

6.7288

%

Haiyan’s Global Creativity Investment Inc.

 

92,551,946

 

0

 

0

 

0

 

0

 

0

 

0

 

92,551,946

 

2.8882

%

Jian’s Global CoolStuff Investment Inc.

 

128,368,349

 

0

 

0

 

0

 

0

 

0

 

0

 

128,368,349

 

4.0059

%

Qiming Venture Partners II,L.P.

 

0

 

312,204,386

 

79,635,753

 

26,034,766

 

63,988,280

 

8,816,163

 

0

 

490,679,348

 

15.3123

%

Qiming Venture Partners II-C, L.P.

 

0

 

27,338,322

 

6,973,342

 

2,279,746

 

5,603,163

 

771,991

 

0

 

42,966,564

 

1.3408

%

Qiming Managing Directors Fund II, L.P.

 

0

 

4,543,313

 

1,158,889

 

378,868

 

931,181

 

128,296

 

0

 

7,140,547

 

0.2228

%

Orange Capital Management

 

0

 

53,763,441

 

0

 

0

 

0

 

0

 

0

 

53,763,441

 

1.6778

%

Qualcomm International, Inc.

 

0

 

44,324,603

 

27,427,495

 

2,855,962

 

0

 

0

 

0

 

74,608,060

 

2.3282

%

SIG China Investments Master Fund III,

 

0

 

0

 

269,602,205

 

88,139,183

 

56,418,099

 

9,716,450

 

0

 

423,875,937

 

13.2276

%

Sycamore Capital Holdings Limited

 

0

 

0

 

38,884,933

 

0

 

0

 

0

 

0

 

38,884,933

 

1.2135

%

ESOP (reserved for issuance)

 

226,153,637

 

0

 

0

 

0

 

0

 

0

 

0

 

226,153,637

 

7.0574

%

Alibaba Investment Limited

 

0

 

0

 

129,616,445

 

0

 

0

 

0

 

0

 

129,616,445

 

4.0448

%

Sequoia Capital China GF Holdco III-A,

 

0

 

0

 

0

 

0

 

524,688,322

 

9,716,450

 

0

 

534,404,772

 

16.6768

%

CHANCE TALENT MANAGEMENT

 

0

 

0

 

0

 

0

 

0

 

97,164,504

 

0

 

97,164,504

 

3.0321

%

New Alliance CC Limited

 

0

 

0

 

0

 

0

 

0

 

48,582,252

 

0

 

48,582,252

 

1.5161

%

TRANQUILITY COMMUNICATIONS LIMITED ( 静康通 讯有限公司 )

 

0

 

0

 

0

 

0

 

0

 

48,582,252

 

0

 

48,582,252

 

1.5161

%

HG Qiandao Limited

 

0

 

0

 

0

 

0

 

0

 

0

 

89,668,956

 

89,668,956

 

2.7982

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total*

 

1,124,547,327

 

442,174,065

 

553,299,062

 

119,688,525

 

651,629,045

 

223,478,358

 

89,668,956

 

3,204,485,338

 

100

%

 


* On a fully diluted basis, including shares to be issued under the ESOP, but not including shares to be issued upon conversion of the Preferred Shares.

 


EXHIBIT A

 

GROUP COMPANIES STRUCTURE CHART

 

 

“Qiming 1” means Qiming Venture Partners II, L.P.

“Alibaba” means Alibaba Holdings Limited

“Qiming 2” means Qiming Venture Partners II-C, L.P.

“Sequoia” means Sequoia Capital China GF Holdco III-A, Ltd.

“Qiming 3” means Qiming Managing Directors Fund II, L.P.

“CCBI” means CHANCE TALENT MANAGEMENT LIMITED

“Orange” means Orange Capital Management

“New Alliance” means New Alliance CC Limited

“Qualco mm” means Qualcomm International, Inc.

“Tranquility” means TRANQUILITY COMMUNICATIONS LIMITED

“SIG” means SIG China Investments Master Fund III, LLLP

“Syca more” means Sycamore Capital Holdings Limited

 

 


 

EXHIBIT B

 

FORM OF SIXTH AMENDED AND RESTATED MEMORANDUM AND ARTICLES

OF ASSOCIATION

 



 

EXHIBIT C

 

FORM OF FIFTH AMENDED AND RESTATED SHAREHOLDERS’

AGREEMENT

 




Exhibit 10.12

 

Audience Network Terms

 

These Audience Network Terms ( “Audience Network Terms” ) are made and entered into by and between Facebook, Inc. and Facebook Ireland Limited ( “FB” ) and the person or entity accepting these Audience Network Terms ( “Publisher” ). These Audience Network Terms are deemed accepted and agreed to by Publisher on the date that Publisher indicates its assent to these Audience Network Terms by clicking “agree” or “ accept” (the “Effective Date” ). If you are accepting on behalf of a legal entity, you represent and warrant that you are an authorized representative of such entity with the authority to bind it to these Audience Network Terms.

 

1.               General Terms. FB will work with Publisher to facilitate the placement of third party and/or FB advertisements or other commercial or sponsored content ( “Ads” ) on certain of Publisher’s properties, which may include Publisher’s mobile applications, mobile websites and video players on approved websites and apps, as set forth in the Audience Network Policy (as defined below) and approved by FB in its sole discretion ( “Publisher Properties” ). If applicable, FB will work with Publisher to facilitate the placement of Ads on Publisher’s articles displayed on Facebook through use of Facebook Instant Articles ( “Publisher Instant Articles” ) or Publisher’s instant games displayed through Facebook’s products or services through use of Facebook Instant Games ( “Publisher Instant Games” , together with Publisher Instant Articles, “Publisher Instant Properties” ). Publisher agrees that these Audience Network Terms will apply to any use by Publisher of the Audience Network Service (defined below); provided, however, that Section 3 will not apply to Publisher’s use of the Audience Network Service for Publisher Instant Articles. As between FB and Publisher, FB retains exclusive ownership of the Audience Network Service (which, for clarity, excludes Publisher Properties and Publisher Instant Properties).

 

2.               Audience Network Participation. Publisher agrees that FB may serve Ads on the Publisher Properties and Publisher Instant Properties (the “Audience Network Service” ). Publisher will participate in the Audience Network Service during the Term in accordance with these Audience Network Terms. Publisher (a) understands and agrees that FB may change, withdraw, or discontinue the Audience Network Service in its sole discretion and FB will use good faith efforts to provide Publisher with notice of the same; and (b) agrees that to the extent Publisher elects to report to FB problems, issues, ideas, feedback and suggestions for enhancements to and improvements to performance of the Audience Network Service ( “Program Feedback” ), such Program Feedback is entirely voluntary on part of Publisher and may be used without obligation of any kind to Publisher.

 



 

3.               Implementation

 

1.               Publisher will comply with the Audience Network Service specifications provided by FB from time-to-time to enable proper delivery, display, tracking and reporting of Ads, including without limitation, by not modifying, misusing or deriving data from the technology (e.g., the FB SDK, FB tags, or FB API’s, as applicable) provided to Publisher by FB (the “FB Tools” ). FB may modify, suspend, or terminate your access to, or discontinue the availability of the FB Tools at any time.

 

2.               With respect to the Publisher Properties and Publisher Instant Games, Publisher will integrate the applicable FB Tools provided by FB in connection with the Audience Network Service as soon as reasonably practicable. During the Term, if FB provides an updated version of the FB Tools, Publisher will update the Publisher Properties and Publisher Instant Games to include the updated version of such FB Tools as soon as reasonably practicable.

 

3.               Publisher will comply with FB’s Audience Network Policy (currently available at https://developers.facebook.com/docs/audience-network/policy) (the “Audience Network Policy” ) and FB’s Platform Policy (currently available at https://developers.facebook.com/policy/). Publisher will be solely responsible for all aspects of the Publisher Properties and Publisher Instant Games, including all content therein.

 

4.               Any placement of Ads on the Publisher Properties and Publisher Instant Games will be subject to the Audience Network Policy.

 

4.               Payment.

 

1.               Each month during the Term, for all Publisher Properties and Publisher Instant Properties on which Ads were displayed during the previous month, FB will pay Publisher a percentage of Net Revenue (defined below) arising from such Publisher Properties and Publisher Instant Properties for the previous month as solely determined by FB. All payments will be made in accordance with this Section 4.1 unless otherwise agreed to by FB in writing. “Net Revenue” means (a) the amounts actually collected by FB from advertisers for Ads displayed on Publisher Properties and Publisher Instant Properties, minus (b) deductions for fraud, bad debt, chargebacks, refunds, credit card processing fees, and any other third party fees. Publisher agrees to accurately complete and timely provide to FB any forms or documentation that FB determines is required to set up payment to Publisher, and Publisher may update such payment information upon notice to FB provided that such information is complete and accurate and Publisher has the requisite authority to provide such information. Subject to the foregoing, approximately 21 days following the end of the calendar month in which the transaction occurred, FB will pay Publisher the Net Revenue associated with such calendar month. In the event a payment from FB to Publisher for any given pay period would be less than One Hundred United States Dollars ($ 100.00), FB reserves the right to roll such payment over month to month until such threshold is met (unless Publisher’s account is being deactivated or terminated), at which time FB will make the applicable payment to

 



 

Publisher. FB reserves the right to deduct from any payments due or payable to Publisher any amounts that are past due and remain uncollected by FB from Publisher in connection with any other FB product or service.

 

2.               Publisher will not, and will not authorize or encourage any third party to, directly or indirectly, generate impressions, clickthroughs, conversions or other actions with respect to an Ad through any automated, deceptive, fraudulent or otherwise invalid means, including through repeated manual clicks, the use of “robots” or other automated tools, or by payment of money, false representation, or any illegal or otherwise invalid for end users to take actions with respect to an Ad. Notwithstanding anything to the contrary in these Audience Network Terms, FB will not be liable for any payment (a) based on such fraudulent activity or invalid activity, as determined by FB in its discretion, or (b) in the event of any breach by Publisher of these Audience Network Terms (including the Audience Network Policy) during any applicable pay period. FB reserves the right to withhold payment or charge back Publisher’s account due to any of the foregoing pending FB’s investigation, or in the event that an advertiser whose Ads are displayed in connection with Publisher Properties or Publisher Instant Properties defaults on payment for such Ads. FB’s records and figures will be used to determine all payments.

 

3.               Publisher will provide FB with applicable tax forms, documents, or certifications as may be required by applicable law for FB to satisfy any information reporting and/or withholding tax obligations with respect to any payments hereunder. Where applicable, Publisher agrees that Publisher will be solely responsible for compliance with local tax regulations. Where applicable within the European Union, Publisher (A) agrees that FB will prepare and issue VAT invoices under self-billing arrangement, (B) acknowledges and accepts the validity of such self-billed invoices, and (C) agrees that Publisher will be responsible for timely remittance to applicable tax authorities of any tax amounts on such self-billed invoices that were paid to Publisher by FB.

 

5.               Privacy and Data.

 

1.               With respect to Publisher Properties, Publisher will (a) comply with all applicable privacy and data laws and regulations and industry and government guidelines (including but not limited to, the Children’s Online Privacy Protection Act (COPPA) and the Digital Advertising Alliance’s Self-Regulatory Principles); and (b) provide (i) robust and sufficiently prominent notice to and obtain the necessary consent in accordance with applicable laws from users regarding the collection, sharing and use of data by FB and its affiliates that, at a minimum, includes a clear and prominent notice that third parties, including FB, may use cookies, web beacons, and other storage technologies to collect or receive information from Publisher Properties and use that information to provide measurement services and target ads, (ii) information on how users can opt-out of the collection and use of information for ad targeting, and (iii) information on

 



 

where a user can access a mechanism for exercising such choice (e.g., providing links to: http://www.aboutads.info/choices and http://www.youronlinechoices.eu). In jurisdictions that require informed consent for the storing and accessing of cookies or other information on an end user’s device (such as but not limited to the European Union), Publisher must ensure, in a verifiable manner, that an end user provides any necessary consent before Publisher uses the FB Tools to enable FB to store and access cookies or other information on the end user’s device. (For suggestions on implementing consent mechanisms, visit Facebook’s Cookie Consent Guide for Sites and Apps).

 

2.               Publisher will not collect or store any data collected, derived or obtained from any Ad or use of the Audience Network Service ( “FB Advertising Data” ), except solely as necessary to implement the Audience Network Service in accordance with these Audience Network Terms. Without limiting the generality of the foregoing restriction, Publisher agrees that it will not (a) collect, store, or use any information about any user derived from the Ad served by FB to such user on the Publisher Properties and Publisher Instant Properties, including information derived from the content of the Ad creative, a user’s engagement with the Ad, or the content accessed by a user after navigating to the Ad landing page; (b) use (i) data from the Audience Network Service to categorize a user of Publisher Properties as a FB user, (ii) identifiers provided by FB to retarget users or deliver advertising based on user behaviors apart from the Audience Network Service, or (iii) any FB Advertising Data to build or enhance profiles, including any profiles associated with any personally identifiable information, mobile device identifier, or other unique identifier that identifies any particular individual, user, browser, computer or device; or (c) directly or indirectly, transfer or sell any FB Advertising Data to any third party. FB will comply with its own publicly-posted privacy policy in connection with FB’s performance under these Audience Network Terms. In addition, with respect to Publisher Properties, Publisher will (y) deploy administrative, physical and technical safeguards that prevent unauthorized access to any FB Advertising Data in its possession or control; and (z) provide FB with reasonably prompt written notice as soon as it becomes aware that it has or is likely to breach any of the terms set forth in this Section. To the extent that FB processes personal data through Publisher Properties to provide the Audience Network Service subject to the General Data Protection Regulation (Regulation (EU) 2016/679) (the “GDPR” ), FB acknowledges that it is a data controller of that personal data.

 

6.               Confidentiality. “Confidential Information” of a party means any and all nonpublic product plans or business plans disclosed by such party to the other party in connection with the Audience Network Service, and that is marked or designated as confidential at the time of disclosure. During and after the Term, each party (a) will use the same degree of care to protect the Confidential Information of the other party as it uses to protect its own most highly confidential information, but in no circumstances less than reasonable care;

 



 

and (b) will not disclose the Confidential Information of the other party to any person or entity other than its officers, employees, and consultants who need access to such Confidential Information to effect the intent of these Audience Network Terms and who are bound by written confidentiality obligations consistent with this Section. The foregoing confidentiality obligations impose no obligations with respect to information which: (w) was in a party’s possession before receipt from the other party; (x) is or becomes a matter of public knowledge through no fault of a party; (y) was rightfully disclosed to a party by a third party without restriction on disclosure; or (z) is developed by a party without use of the Confidential Information of the other party as can be shown by documentary evidence. A party may make disclosures to the extent required by law or court order, provided such party makes commercially reasonable efforts to provide the other party with notice of such disclosure as promptly as possible and provides reasonable cooperation to the other party in connection with any attempt to contest or limit such disclosure. Without limiting the foregoing, Publisher will not issue any press release or otherwise make any public statements or disclosures (including to the internet press, e.g., any blogs) regarding these Audience Network Terms and the transactions contemplated hereby or consummated hereunder or about the relationship of the parties without the prior written approval of FB.

 

7.               Term and Termination. The term of these Audience Network Terms will begin on the Effective Date and continue until terminated in accordance with this Section 7 ( “Term” ). These Audience Network Terms may be terminated by either party with or without cause immediately upon written notice to the other party; provided, however, that if Publisher provides written notice of termination, such termination will be deemed effective only after Publisher ceases to use the Audience Network Service. Sections 2.b and 5–8 of these Audience Network Terms will survive any termination or expiration of the Audience Network Terms.

 

8.               Miscellaneous. These Audience Network Terms govern Publisher’s use of the Audience Network Service. The Audience Network Service (including the FB Tools) is part of “Facebook” under FB’s Terms of Service (currently at https://www.facebook.com/legal/terms/update, the “Terms of Service” ), which is incorporated herein by reference, and Publisher’s use of the Audience Network Service (including the FB Tools) is deemed part of Publisher’s use of and actions on “ Facebook.” In the event of any conflict or inconsistency between the provisions of these Audience Network Terms and the provisions of the Terms of Service, the provisions of these Audience Network Terms will control, but only with respect to the subject of these Audience Network Terms. The provisions of the Terms of Service will survive any termination or expiration of these Audience Network Terms to the extent Publisher continues to use any other features or services of FB thereafter. FB may update or modify these Audience Network Terms with thirty (30) days prior written notice to Publisher (via email or by posting notice on the FB site), provided that Publisher

 



 

may elect to terminate during such thirty (30) day period with written notice to FB, which termination shall be effective at the end of such period. Publisher’s continued use of the Audience Network Service after such period will be deemed Publisher’s acceptance of the updated Audience Network Terms.

 

Last Modified April 30, 2018

 




Exhibit 10.13

 

Skip to content

 

GOOGLE DOUBLECLICK PLATFORM SERVICES TERMS AND CONDITIONS

 

These GOOGLE DOUBLECLICK PLATFORM SERVICES TERMS AND CONDITIONS and any Service Specific Terms (the “ Terms ”) govern, in conjunction with the terms and conditions of the applicable Order Form(s) and, if applicable, addendums (collectively with the Terms, the “ Agreement ”), Company’s use of the platform services (“ Services ”) provided by Google LLC or the Google Affiliate stated in the applicable Order Form(s) and, if applicable, addendums (“ Google ”). Each Order Form that incorporates these Terms will be a separate Agreement. Any use of the term “including” in the Agreement will mean “including, but not limited to.”

 

1.                    Definitions. The following capitalized terms will have the associated meanings for purposes of the Agreement. Any definitions included in these Terms or any related Order Form(s) will have the same meaning throughout the Agreement.

 

·               1.1 Ad(s) ” means advertising content.

·              1.2 Affiliate ” means, with respect to a party, an entity that directly or indirectly controls, is controlled by or is under common control with such party.

·              1.3 Beta Feature ” means any Service feature that is identified by Google, including via the applicable Service user interface or via other communications to Company, as “Beta”, “Alpha”, “Experimental”, “Limited Release” or “Pre-Release” or that is otherwise identified by Google as unsupported.

·              1.4 Brand Features ” means each party’s trade names, trademarks, logos and other distinctive brand features.

·              1.5 Client ” means an advertiser, network publisher or other third party, if any, on whose behalf Company utilizes a Service.

·              1.6 Company Content ” means any content served to End Users that is not provided by Google (including the content of all Ads served via the Services).

·              1.7 Company Partner ” means for Target Properties, (i) the owner (if not Company) of those Target Properties, (ii) the third party co-branding the Target Properties with Company, or (iii) the third party for whom Company is white labeling the Target Properties.

·              1.8 Confidential Information ” means information that one party (or an Affiliate) discloses to the other party under the Agreement, and that is marked as confidential or would normally be considered confidential information under the circumstances. It does not include information that is independently developed by the recipient, is lawfully given to the recipient by a third party without confidentiality obligations, or becomes public through no fault of the recipient.

·              1.9 Data ” means data derived from Company’s use of the Services.

·              1.10 Effective Date ” has the meaning set forth in the Order Form.

·              1.11 End Users ” means individual human end users of a Target Property.

·              1.12 Intellectual Property Rights ” means all copyrights, moral rights, patent rights, trademarks, rights in or relating to Confidential Information and any other

 



 

intellectual property or similar rights (registered or unregistered) throughout the world.

·              1.13 Order Form ” means an order form, schedule or other agreement that is subject to these Terms and sets forth pricing and other terms with respect to a particular Service. All Order Forms incorporate and are governed by the terms and conditions contained herein.

·              1.14 Policies ” mean the (i) Google Platforms Program Policies available at https://support.google.com/platformspolicy?hl=en ; (ii) the Google DoubleClick Ad Exchange (AdX) Seller Program Guidelines available at https://www.google.com/intl/en/doubleclick/adxseller/guidelines.html ; (iii) the EU user consent policy available at https://www.google.com/about/company/user-consent-policy.html ; and (iv) any other policy and implementation guidelines identified in an applicable Order Form or provided by Google to Company (in each case, as modified from time to time).

·              1.15 Service Fees ” mean the service, transaction, product and other fees set forth in the Order Form(s) or in an applicable user interface for a Service.

·              1.16 Service Specific Terms ” means, for each Service, the additional terms and conditions that apply to such Service that are available at the link provided in the applicable Order Form for the Service.

·              1.17 Subcontractor ” means a subcontractor, consultant, third-party service provider or agent engaged by either party (or a Client of such party) in connection with its use or provision of Services.

·              1.18 Tag ” means code (e.g., HTML) or a web beacon (e.g., pixel tag, clear GIF) that requests the delivery of an Ad or tracks an Ad impression or click.

·              1.19 Target Properties ” means properties on which an Ad is served via the Services (i.e., web sites, consent-based email publications, approved software applications or other properties as approved by Google).

 

2.                    Changes to the Services or the Agreement. Google may modify these Terms (including URLs referenced in these Terms and the content within such URLs) from time to time. Google may also modify URLs referenced in an Order Form and the content within such URLs from time to time. Any modifications to these Terms or the URLs referred to in this Agreement will be available at the relevant URL (or a different URL that Google may provide from time to time). Changes to these Terms (including changes to the content within URLs) will not apply retroactively and will become effective 30 days after they are posted, except that changes to URL references will be effective immediately.

 

3.                    The Parties’ Obligations; Prohibited Acts.

 

·               3.1 Google will:

 

a.               provide the applicable Services described in the Order Form(s) entered into by Company, and obtain all rights necessary to provide such Services under the Agreement;

 



 

b.               provide Company access to web-based training and support if and where available for any particular Service;

c.                use current industry-standard security measures in connection with its provision of Services;

d.               promptly notify Company of any breach of Google security resulting in unauthorized third party access to the Data; and

e.                provide the Services in compliance with all applicable privacy and export laws, rules, regulations and sanctions programs, including applicable Internet advertising industry guidelines (e.g., the self-regulatory principles/code of conduct of the Network Advertising Initiative, the Interactive Advertising Bureau and the Digital Advertising Alliance).

 

·              3.2 Company will:

 

a.               use the Services in compliance with all applicable Policies (as such Policies may be updated from time to time) and at all times the burden of proof in establishing such compliance remains with Company;

b.               be solely responsible for all use of Services (including trafficking Ads, implementing Tags, utilization of Third Party Data Provider Segments sourced by Company, the acts and omissions of all Company Partners and Clients);

c.                obtain all rights necessary to use, and necessary to permit Company or Google, as the case may be, to use the Data under the terms of the Agreement, including from Company Partners, Target Property owners (if not Company), End Users and Clients;

d.               use the Services in compliance with all applicable privacy and export laws, rules, regulations and sanctions programs, including applicable Internet advertising industry guidelines (e.g., the self-regulatory principles/code of conduct of the Network Advertising Initiative, the Interactive Advertising Bureau and the Digital Advertising Alliance); and

e.                ensure that each of its Target Properties utilizing a Service contains a privacy policy that discloses (i) the usage of third-party technology and (ii) the data collection and usage resulting from the Services, provided that those privacy policies need not expressly identify Google or any Service, unless otherwise required by law, rule or regulation; and advise its Clients and Company Partners in writing that each of their web sites and Target Properties must comply with the foregoing

 

·              3.3 Prohibited Acts. Company will not, and will not assist or knowingly permit any third party to:

 

a.               pass information to Google that Google could use or recognize as personally identifiable information;

b.               misappropriate any part of a Service or modify, disassemble, decompile, reverse engineer, copy, reproduce or create derivative works from or in respect to Services or any part of a Service;

c.                damage or tamper with any part of a Service;

d.               knowingly breach any Service security measure; or

 



 

e.                provide Google any Ad that (x) when viewed or clicked on by an End User’s computer, causes such End User’s computer to download any software application, or (y) is illegal.

 

4.                    Payments.

 

·              4.1 Google Payments to Company.

 

a.               For each applicable Service (i.e., if an Order Form requires Google to pay Company a Revenue Share Percentage, as such term is defined in the applicable Service Specific Terms), Google will pay Company an amount equal to the Revenue Share Percentage of Net Ad Revenues (as such term is defined in the applicable Service Specific Terms) attributable to a calendar month.

b.               Google payment to Company will be made in the month following the calendar month in which the applicable Ads were displayed, subject to any minimum payment threshold set forth in the applicable Service Specific Terms.

c.                Google payment to Company will be based on Google’s accounting which may be filtered to exclude (i) invalid queries, impressions, conversions, or clicks, and (ii) any amounts refunded to advertisers in connection with Company’s failure to comply with this Agreement, as reasonably determined by Google.

d.               Google payment to Company will be treated as inclusive of tax (if applicable) and will not be adjusted for tax purposes. If Google is obligated to withhold any taxes from its payments to Company, Google will notify Company of this and will make the payments net of the withheld amounts. Google will provide Company with original or certified copies of tax payments (or other sufficient evidence of tax payments) if any such payments are made by Google.

e.                In addition to other rights and remedies that Google may have, Google may offset any payment obligations to Company that Google may incur under the Agreement against any undisputed, past due product or service fees owed to Google by Company under agreement(s) between Company and Google.

f.                 Google may withhold and offset against its payment obligations under these Terms, or require Company to pay to Google within 30 days of any invoice, any amounts Google may have overpaid to Company in prior periods.

 

·              4.2 Company Payments to Google.

 

a.               For each applicable Service, Google will invoice (or send a statement of financial activity to) Company for Service Fees, if applicable, in the month following the calendar month in which the Service Fees are incurred. Company will pay Google the Service Fees (other than any Service Fees disputed in good faith) and other invoiced amounts (if any) within 30 days of the invoice date (“ Payment Due Date ”), in the currency and at the

 



 

exchange rate (if any) specified in the applicable Order Form and by electronic transfer to the account notified to it by Google or such other means expressly agreed to in writing by the parties. Unless otherwise expressly agreed, Service Fees payable under an Order Form are additional to Service Fees payable under other Order Forms.

b.               Upon 30 days’ prior notice to Company, Google may, in its sole discretion, if Google determines that there is any credit risk associated with Company, require Company to prepay Google an amount equal to not more than 2 months of reasonably anticipated or actual Service Fees under the applicable Order Form.

c.                Google may charge interest at a rate of 1.5% per month (or the highest rate permitted by law, if less from the date payment is due until the date of actual payment on any Service Fees which are overdue (other than Service Fees disputed in good faith). Company will pay reasonable expenses and attorneys’ fees Google incurs in collecting late payments not disputed in good faith.

d.               The Service Fees are exclusive of taxes. Company will pay all taxes and other government charges related to or arising from use of the Services (except for taxes on Google’s net income).

e.                If Company fails to pay Service Fees invoiced by Google (other than Service Fees disputed in good faith) within 10 days following the Payment Due Date, Google may suspend each applicable Service (for which the Service Fees are overdue) after 10 days’ notice to Company.

f.                 In addition to other rights and remedies Google may have, Google may offset the Service Fees payable by Company under the Agreement against any payment obligations to Company that Google may incur under the Agreement.

g.                If applicable, Company will not exceed its aggregate credit line as determined by Google in its sole discretion (and made available if requested) and Google will not be obligated to provide any Services in excess of such credit line. Google reserves the right to change or retract any credit line at any time in its sole discretion.

 

5.                    Intellectual Property. Except to the extent expressly stated otherwise in the Agreement, neither party will acquire any right, title or interest in any Intellectual Property Rights owned or licensed by the other party.

 

6.                    Brand Features. Google may use Company’s Brand Features as necessary for Google to provide the Services (e.g., if Company makes its inventory available on a transparent basis via the Services, Google may display Company’s Brand Features to advertisers). Other than the limited license set forth in the preceding sentence, Google will not use Company’s Brand Features (including for marketing and promotional purposes) without Company’s prior written approval.

 



 

7.                    Confidentiality. The receiving party will not disclose the Confidential Information of the disclosing party, except to Affiliates, employees, agents or professional advisors of the receiving party who need to know it and who have agreed in writing (or in the case of professional advisors are otherwise bound) to keep it confidential. The receiving party will ensure that those people and entities use the Confidential Information of the disclosing party only to exercise rights and fulfill obligations under the Agreement, and that they keep it confidential. The receiving party may also disclose Confidential Information when required by law after giving reasonable notice to the disclosing party, if permitted by law. For purposes of clarification, Data and the terms and conditions of this Agreement are considered Confidential Information under the Agreement.

 

8.                    Representations and Warranties. Each party represents and warrants that it has all necessary rights and authority to (i) enter into the Terms and each Order Form, and (ii) perform its obligations hereunder and thereunder. Company further represents and warrants that it has all necessary rights and authority to act on behalf of any Clients and Company Partners.

 

9.                    Disclaimers. Except as expressly provided for in the Agreement and to the maximum extent permitted by applicable law, NEITHER PARTY MAKES ANY WARRANTY OF ANY KIND, WHETHER IMPLIED, STATUTORY, OR OTHERWISE, AND EACH PARTY DISCLAIMS, WITHOUT LIMITATION, ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR USE, AND NONINFRINGEMENT (BUT THE FOREGOING WILL NOT LIMIT EITHER PARTY’S IP INFRINGEMENT INDEMNIFICATION OBLIGATIONS SET FORTH IN SECTION 11 OF THESE TERMS).

 

10.             Beta Features. Google will have no liability under the Agreement (including any indemnification obligations) arising out of or related to any use of Beta Features by Company, its Affiliates, or its or their Clients or Company Partners. Any use of Beta Features will be solely at Company’s own risk and may be subject to additional requirements as specified by Google. Google is not obligated to provide support for Beta Features and Google may cease providing Beta Features as part of any Services.

 

11.             Indemnification.

 

·              11.1 Each party (the “ Indemnifying Party ”) will defend and indemnify the other party and its officers, directors, employees and agents (each, an “ Indemnified Party ”) from all third-party claims or liabilities (including reimbursement for reasonable outside attorneys’ fees and disbursements) arising out of or related to the Indemnifying Party’s (i) breach or alleged breach of the Agreement or (ii) infringement of a third party’s U.S. patent, trademark, trade secret or copyright in connection with (x) with respect to Google, the software and other technology used by Google to provide the Services hereunder, and (y) with respect to Company, the creative, technology, data or other materials provided by Company to Google or otherwise provided and utilized by Company in

 



 

connection with the Services hereunder (the indemnification obligation of each party described in this clause (ii), the “ IP Infringement Obligation ”).

·              11.2 In addition, Company will defend and indemnify Google and its Indemnified Parties from all third-party claims or liabilities (including reimbursement for reasonable outside attorneys’ fees and disbursements) arising out of or related to: (i) Company Content, Target Properties or Company’s Brand Features, (ii) any use of Service(s) by a Company Partner, or (iii) any direct claims brought by a Company Partner against Google relating to Google’s provision of the Service(s) for such Company Partner.

·              11.3 Google’s IP Infringement Obligation will not apply to claims to the extent arising from (i) Company’s use of the Service in violation of the Agreement; or (ii) the combination, operation or use of the Service(s) with any product or service not provided or authorized in writing by Google. Company’s IP Infringement Obligation will not apply to claims to the extent arising from Google’s provision of the Service(s) in violation of the Agreement. Without affecting either party’s termination rights and to the maximum extent permitted by law, Sections 11.1 and 11.2 of these Terms state the sole liability of the Indemnifying Party, and the sole remedy of the Indemnified Party, with respect to any third-party claim arising out of the Indemnifying Party’s breach of the Agreement or intellectual property infringement.

·              11.4 The Indemnified Party must (i) promptly notify the Indemnifying Party in writing of the third-party claims (except that failure of the Indemnified Party to promptly notify the Indemnifying Party will not relieve the Indemnifying Party of its indemnification obligations, except to the extent it has been damaged by the failure); (ii) reasonably cooperate with the Indemnifying Party in the defense of the matter and (iii) give the Indemnifying Party primary control of the defense of the matter and negotiations for its settlement. The Indemnified Party may at its expense join in the defense with counsel of its choice. The Indemnifying Party may enter into a settlement only if it (A) involves only the payment of money damages by the Indemnifying Party and (B) includes a complete release of the Indemnified Party; any other settlement will be subject to written consent of the Indemnified Party (not to be unreasonably withheld or delayed).

·              11.5 If a Service becomes, or in Google’s reasonable opinion is likely to become, the subject of an intellectual property infringement claim, then Google will promptly notify Company and, at its sole option and expense, may suspend provision of the applicable Service and either: (x) procure the right to continue providing the Service as contemplated by the Terms; (y) modify the Service to render it non-infringing without adversely affecting use of such Service; or (z) replace the Service with a functionally equivalent, non-infringing service. If the above options are not commercially practicable, either party may terminate the Order Form(s) for the Services impacted.

 



 

12.             Limitation of Liability.

 

·              12.1 EXCEPT FOR (A) INDEMNIFICATION AMOUNTS PAYABLE TO THIRD PARTIES UNDER THE AGREEMENT AND (B) BREACHES OF SECTION 7 (CONFIDENTIALITY) OF THESE TERMS, NEITHER PARTY WILL BE LIABLE UNDER THE AGREEMENT FOR LOST REVENUES, LOSSES, OR EXPENSES RELATED TO SUCH LOST REVENUES, OR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES, EVEN IF THE PARTY KNEW OR SHOULD HAVE KNOWN THAT SUCH DAMAGES WERE POSSIBLE AND EVEN IF DIRECT DAMAGES DO NOT SATISFY A REMEDY.

·              12.2 EXCEPT FOR (I) INDEMNIFICATION AMOUNTS PAYABLE TO THIRD PARTIES UNDER THE AGREEMENT OR (II) AMOUNTS OWED AND PAYABLE UNDER THIS AGREEMENT, NEITHER PARTY WILL BE LIABLE UNDER THE AGREEMENT FOR MORE THAN THE SUM OF (A) SERVICE FEES PAID TO SUCH PARTY UNDER THE AGREEMENT AND (B) AD REVENUES RECEIVED AND RETAINED BY SUCH PARTY, IN EACH CASE, DURING THE 12 MONTHS BEFORE THE CLAIM ARISES.

 

13.             Term; Termination; and Suspension.

 

·              13.1 Term. The term of the Agreement is as set forth in an applicable Order Form(s), unless earlier terminated in accordance with the Agreement.

 

·              13.2 Termination.

 

a.               Either party may terminate an Order Form upon notice with immediate effect if the other party is in material breach of these Terms or the applicable Order Form (which includes any breach by Company of Sections 3.2(a), 3.2(d) or 3.3 of these Terms):

 

i.                       where the breach is incapable of remedy;

ii.                       where the breach is capable of remedy and the party in breach fails to remedy that breach within 30 days after receiving notice from the other party; or

iii.                         more than twice even if the previous breaches were remedied.

 

b.               Google may terminate the Agreement immediately upon notice if pornographic content that is illegal under U.S. law is displayed on any Target Property.

c.                If Google is unable to provide a Service due to any changes in law or regulations, Google may terminate the applicable Order Form related to such Service upon notice to Company.

d.               Upon the expiration or termination of the Agreement for any reason:

 

i.                        all rights and licenses granted by each party will cease immediately; and

ii.                       if requested, each party will use commercially reasonable efforts to promptly return to the other party, or destroy and certify the destruction of, all Confidential Information (excluding Data) disclosed to it by the other party.

 



 

·              13.3 Suspension. If Company or a Company Partner is in violation (or if Google reasonably suspects a violation) of these Terms, then Google may immediately suspend or deactivate Company or Company Partner’s use of all or any part of the applicable Services.

 

14.             Miscellaneous.

 

·              14.1 Assignment. Neither party may assign any part of the Agreement without the written consent of the other, except to an Affiliate where: (a) the assignee has agreed in writing to be bound by the terms of the Agreement; (b) the assigning party remains liable for obligations under the Agreement if the assignee defaults on them; and (c) the assignor has notified the other party of the assignment. Any other attempt to assign is void.

·              14.2 Change of Control. If a party experiences a change of control (for example, through a stock purchase or sale, merger, by operation of law, or other form of corporate transaction): (i) that party will give written notice to the other party within 30 days after the change of control; and (ii) the other party may immediately terminate the Agreement any time between the change of control and 30 days after it receives that written notice.

·              14.3 Conflicting Terms. If there is a conflict between the Terms and a term of an Order Form, the term of the Order Form will govern.

·              14.4 Entire Agreement. The Agreement sets out all terms agreed between the parties and supersedes all other agreements between the parties relating to its subject matter. In entering into the Agreement neither party has relied on, and neither party will have any right or remedy based on, any statement, representation or warranty (whether made negligently or innocently), except those expressly set out in the Agreement.

·              14.5 Force Majeure. Neither party will be liable for failure or delay in performance to the extent caused by circumstances beyond its reasonable control.

·              14.6 Governing Law. ALL CLAIMS ARISING OUT OF OR RELATING TO THE AGREEMENT OR ANY RELATED GOOGLE PRODUCTS OR SERVICES WILL BE GOVERNED BY CALIFORNIA LAW, EXCLUDING CALIFORNIA’S CONFLICT OF LAWS RULES, AND WILL BE LITIGATED EXCLUSIVELY IN THE FEDERAL OR STATE COURTS OF SANTA CLARA COUNTY, CALIFORNIA, USA. THE PARTIES CONSENT TO PERSONAL JURISDICTION AND WAIVE ALL OBJECTIONS TO PROPER VENUE IN THOSE COURTS.

·              14.7 Notices. All notices of termination or breach must be in English, in writing and addressed to the other party’s Legal Department. The address for such notices to Google’s Legal Department is legal-notices@google.com . All other notices must be in English, in writing and addressed to the other party’s primary contact. Notice will be treated as given on receipt, as verified by written or automated receipt or by electronic log (as applicable).

 



 

·              14.8 No Agency. The Agreement does not create any agency, partnership, or joint venture between the parties.

·              14.9 No Waiver. Neither party will be treated as having waived any rights by not exercising (or delaying the exercise of) any rights under the Agreement.

·              14.10 No Third-Party Beneficiaries. The Agreement does not confer any benefits on any third party unless it expressly states that it does.

·              14.11 Severability. If any term (or part of a term) of the Agreement is invalid, illegal or unenforceable, the rest of the Agreement will remain in effect.

·              14.12 Subcontractors.

 

a.               Either party may subcontract any of its obligations under the Agreement, without the written consent of the other party. Each party is liable for the acts and omissions of its Subcontractors.

b.               If Company (or its Clients or Company Partners) engage a Subcontractor that is recommended by Google or is a Google partner (including Google certified partners):

 

i.                                 Company acknowledges and agrees that the products and services provided by such Subcontractor are not provided by Google and Google makes no representations or warranties about such Subcontractor’s performance; and

ii.                                 Company is liable for the acts and omissions of such Subcontractor.

 

·              14.13 Approvals. The parties agree that whenever the Agreement calls for written request or written approval to be provided by either party, unless otherwise expressly stated that e-mail is not acceptable, such request or approval may be provided via email.

·              14.14 Equitable Relief. Nothing in the Agreement will limit a party’s ability to seek equitable relief; except that Company will not seek, in a proceeding filed during the term or for one year after the term, an injunction or an exclusion order of any of the Services or any portion of the Services based on patent infringement.

·              14.15 Survival. Notwithstanding termination or expiration of the Agreement, any provisions of the Agreement that by their nature are intended to survive, will survive termination including, but not limited to: Sections 4 (Payments), 5 (Intellectual Property), 7 (Confidentiality), 9 (Disclaimers), 10 (Beta Features), 11 (Indemnification), 12 (Limitation of Liability), and 14 (Miscellaneous).

 

Last Updated: November 1, 2017

 




Exhibit 10.14

 

DFP Small Business online standard Terms & Conditions

 

PLEASE READ THESE TERMS AND CONDITIONS BEFORE REGISTERING FOR THE DFP SMALL BUSINESS ONLINE PROGRAM. PARTICIPATION IN THE DFP SMALL BUSINESS ONLINE PROGRAM INDICATES THAT YOU ACCEPT THESE TERMS AND CONDITIONS. IF YOU DO NOT ACCEPT THESE TERMS AND CONDITIONS, PLEASE DO NOT REGISTER FOR OR PARTICIPATE IN THE DFP SMALL BUSINESS ONLINE PROGRAM.

 

This agreement (“ Agreement ”) between You and Google Inc. (“Google”) constitutes the DFP Small Business program (the “ Program ”) standard terms and conditions. “ You ” or “ Your ” means any entity identified in an enrollment form submitted by the same or affiliated persons, and/or any agency, network or other third party that You have granted access to Your account and/or Your Program Data (as defined below), which will also be bound by the terms and conditions of this Agreement.

 

1.                    Description of Program. During the Program Term, Google will serve advertisements provided to You by third party advertisers, other than advertisements provided through Google’s AdSense for content service, (“ Program Ad(s) ”) for display on the site(s) which use the Program (“ Program Site(s) ”), based upon the criteria selected by You and/or Your advertisers via protocol and/or user interface provided by Google for accessing the Program, as such protocol and/or user interface may be updated by Google from time to time (“ Program Interface ”). Google may update the list of prohibited content from time to time during the Programs Term upon written notice. Your use of any other Google product or service (e.g., Google AdSense) will be governed by the applicable agreement that You may have with Google.

 

2.                    Implementation of Program. Unless otherwise agreed to by Google in writing, You will implement the Program in a manner that complies with the technical and implementation requirements provided by Google from time to time, including those instructions contained in the documentation regarding the Program Interface. Without limiting the foregoing, You acknowledge and agree to the following:

 

·               2.1

 

Program Obligations. You will be solely responsible for all, without limitation, Program Ad content, Program Ad information, Program Ad URLs, editorial, text, graphic, audiovisual, and other content and any other information You enter into the Program, whether generated by or for You (“Program Data”). You will protect any Program accounts, usernames or passwords and take full responsibility for Your own, and third party, use of any Program accounts, usernames or passwords. Notwithstanding the foregoing, You grant Google permission to utilize a crawl on Your website properties that may ignore robots.txt unless You specifically instruct otherwise the applicable crawler in the robots.txt file, as specified by Google. You may not use the Program to (i) serve anything other than advertisements to Program Sites or (ii) display advertisement formats that

 



 

initiate downloads. Using the Program, You are permitted to serve without charge up to (A) (i) 90 million impressions per month to non-video ad units if You are located in the United States of America, Canada, Australia, or New Zealand; (ii) 200 million impressions per month to non-video ad units if you are located in the Russian Federation, Slovakia, Czech Republic, Greece, Slovenia, Lithuania, Romania, Poland, Ukraine, Hungary, Croatia, Bosnia and Herzegovina, Cyprus, Kenya, Morocco, Estonia, Latvia, Bulgaria, Turkey, Lebanon, Israel, United Arab Emirates, Saudi Arabia, Egypt, South Africa, Mexico, Argentina, Chile, Columbia, Guatemala, Uruguay, Peru, India, Taiwan, Malaysia, Korea, Hong Kong, Indonesia, Pakistan, Thailand, Philippines, China, Vietnam, Bangladesh, or Sri Lanka; or (iii) 150 million impressions per month to non-video ad units if You are not located in any of the countries listed in the preceding clauses (i.e., clauses (A)(i) and (A)(ii)); and (B) 800,000 video advertisement impressions per month (collectively (A) and (B), “Impression Limits”). Notwithstanding anything in Section 5 of this Agreement, You understand and agree that Google may charge You fees if Your usage exceeds the Impression Limits. For avoidance of doubt, such charges will not be subject to the Fees Notice Period set forth in Section 5.

 

·               2.2

 

Policies. Use of the Program is subject to all applicable Google ad specification requirements and policies as may be updated or modified from time to time, including without limitation (i) Your continued compliance with the Program policies, located at support.google.com/platformspolicy, or such other URL as Google may provide from time to time; (ii) the Google Privacy Policy located at www.google.com/policies/privacy/; and (iii) Google Trademark Guidelines located at www.google.com/permissions/trademark/our-trademarks.html (collectively, the “ Program Policies ”). Notwithstanding anything to the contrary, Google will have no obligation to process a request for Program Ads in connection with a pageview of a page on which Program Ads are to be displayed (“ Program Requests ”) that are not sent in compliance with the requirements of this Agreement. While Google does not intend, and does not undertake, to monitor the Program Ads and/or Program Data, if Google is notified by You or otherwise becomes aware and determines in its sole discretion that the Program Ads and/or Program Data or any portion of the Program Ads and/or Program Data or Your trade names, trademarks, service marks, logos, domain names, and other distinctive brand features (“ Brand Features ”): (i) violates the intellectual property rights or any other rights of any third party; (ii) violates any applicable law or is subject to an injunction; (iii) is pornographic, obscene or otherwise violates Google’s Program Policies (as may be updated by Google from time to time in its sole discretion); (iv) is being distributed by You improperly; or (v) may create liability for Google, Google may reject, remove, withdraw from, not display or cease displaying that Program Ad and/or Program Data from the Program entirely with no liability to Google. You will have and abide by an appropriate privacy policy and will comply with all

 



 

applicable laws relating to the collection of information from end users of Program Site(s). You must post a privacy policy on each Program Site and such policy must provide notice of Your use of a cookie that collects anonymous traffic data.

 

·               2.3

 

Prohibited Actions. You will not, and will not allow any third party to: (a) directly or indirectly access, launch and/or activate the Program through or from, or otherwise incorporate the Program in, any software application, website or other means other than the site(s), and then only to the extent expressly permitted herein; (b) transfer, sell, lease, syndicate, sub-syndicate, lend, or use for co-branding, timesharing, service bureau or other unauthorized purposes the Program or access thereto (including, but not limited to ads, including without limitation Program Ads, or any part, copy or derivative thereof); (c) directly or indirectly generate queries, or impressions of or clicks on ads, including without limitation Program Ads, through any automated, deceptive, fraudulent or other invalid means (including, but not limited to, click spam, robots, macro programs, and Internet agents); (d) encourage or require end users or any other persons, either with or without their knowledge, to click on ads, including without limitation Program Ads, through offering incentives or any other methods that are manipulative, deceptive, malicious or fraudulent; (e) modify, adapt, translate, prepare derivative works from, decompile, reverse engineer, disassemble or otherwise attempt to derive source code from the Program, Google’s then current protocol for accessing and implementing the Program (the “Google Protocol”), or any other Google technology, content, data, routines, algorithms, methods, ideas design, user interface techniques, software, materials, and documentation; (f) remove, deface, obscure, or alter Google’s copyright notice, trademarks or other proprietary rights notices affixed to or provided as a part of the Program, the Google Protocol, or any other Google technology, software, materials and documentation; (g) create or attempt to create a substitute or similar service or product through use of or access to any of the Program or proprietary information related thereto; (h) utilize any feature or functionality of the Program, or include anything in Program Data or Program Ads, that could be so utilized, to personally identify and/or personally track individual end users or any other persons; or (i) engage in any action or practice that reflects poorly on Google or otherwise disparages or devalues Google’s reputation or goodwill. Google may terminate the Program, immediately upon written notice if You breach this Section.

 

·               2.4

 

Labeling; Branding and Attribution. The set of Program Ads transmitted by Google in response to a Program Request (a “ Program Results Set ”) will not be identified or displayed with any Google Brand Feature or otherwise attributed to Google.

 

·               2.5

 

No Endorsement. You acknowledge and agree that Google is not affiliated with

 



 

or responsible for any third-party products/services You may choose to manage with the Program. Google does not represent or endorse the quality, accuracy, reliability, integrity or legality of any third party products/services. Google further does not represent or endorse the truth or accuracy of the description of any ads, links, content, advice, opinion, offer, proposal, statement, data or other information from any third party products/services (“ Disclaimed Content ”) that is displayed or distributed through Program. Google hereby disclaims any liability or responsibility for errors or omissions in any Disclaimed Content. Google reserves the right, but will have no responsibility, to edit, modify, refuse to post or remove any Disclaimed Content, in whole or in part, that in Google, in its sole and absolute discretion, deems is objectionable, erroneous, illegal, fraudulent or otherwise in violation of this Agreement.

 

3.                    Program Term. This Agreement will be effective as of the date Google activates Your Program account and will continue unless earlier terminated as provided in this Agreement. You may terminate this Agreement, with or without cause, at any time by sending written notice of Your desire to cancel Your participation in the Program to dfpsb-cancel@google.com (the “ Program Term ”). This Agreement will be deemed terminated within ten (10) business days of Google’s receipt of Your notice. In the event that Google chooses to terminate the Program, Google will provide Customer with thirty (30) business day’s prior notice thereof. Google may investigate any activity that may violate this Agreement. If You violate this Agreement or any Program Policies, Google may in its sole discretion, without notice, terminate this Agreement, or suspend or terminate the participation of Your Program Site in all or part of the Program. For any other violations, Google will give you fourteen (14) days notice period to cure such violations, and if such violation is not cured within fourteen (14) days of Google sending such notice to You, Google may terminate this Agreement, or suspend or terminate the participation of Your Program Site in all or part of the Program. In addition, Google may terminate this Agreement, or suspend or terminate the participation of Your Program Site in all or part of the Program, with or without cause, upon ninety (90) day’s prior notice.

 

4.                    Program Advertiser Obligations. You will be solely responsible for all matters related to Your third party advertisers who provide advertisements to You in connection with the Program (“ Program Advertisers ”), including without limitation the solicitation and trafficking of Program Ads, billing and payment of Program Advertisers, providing all technical support services to Program Advertisers, and handling all other inquiries and disputes of any type or nature.

 

5.                    Program Fee. Google reserves the right to charge fees for Program-related training and, upon ninety (90) days advance notice (the “ Fees Notice Period ”), to charge fees for the Program. In the event that Google charges fees for the Program, You will have the right to terminate the Program during the Fees Notice Period.

 

6.                    License to Program Interface. Google grants to You a limited, non-exclusive and non-sublicensable license during the Program Term to use the Program Interface solely for the purpose of transmitting Program Requests and other required information and receiving Program Results Sets solely to the extent permitted hereunder. Except

 



 

to the limited extent expressly provided in this Agreement, Google does not grant, and You will not acquire, any right, title or interest (including, without limitation, any implied license) in or to any Google intellectual property rights; and all rights not expressly granted herein are reserved to Google.

 

7.                    Data Use. Google may retain and use, subject to the terms of its Privacy Policy, Program Data. Program Data provided by You under this Agreement may not be disclosed as Program Data identifiable to You by Google except to: (a) satisfy any applicable law, regulation, legal process or enforceable governmental request, (b) detect, prevent, or otherwise address fraud or security issues, or (c) protect against imminent harm to the rights, property or safety of Google or the public as required or permitted by law. You agree that Google may aggregate Program Data with data collected from other Program users, and use such aggregated data, provided that Google will only aggregate data in a manner such that no third party could identify which users’ data contributed to the aggregated set.

 

8.                    Confidentiality; Publicity. You agree not to disclose Google Confidential Information without Google’s prior written consent. “ Google Confidential Information ” includes without limitation: (a) all Google software, technology, programming, specifications, materials, guidelines and documentation relating to the Program, including the existence and content of this Agreement and any information provided pursuant to the Agreement; (b) any statistics relating to the performance of the Program; and (c) any other information designated in writing by Google as “Confidential” or an equivalent designation. Google Confidential Information does not include information that has become publicly known through no breach by You or Google, or information that has been (i) independently developed without access to Google Confidential Information as evidenced in writing; (ii) rightfully received by You from a third party; or (iii) required to be disclosed by law or by a governmental authority. You will not use Google’s Brand Features in any news release, public announcement, advertisement, or other form of publicity in relation to this Agreement without securing the prior written consent of Google.

 

9.                    Disclaimer. You acknowledge that the Program is still experimental in nature. Google does not represent or warrant that the Program is reliable, accurate, complete, or otherwise free from defects. Accordingly, the Program is made available for use “as is”, and any use thereof will be undertaken solely at Your own risk. Google reserves the right, in its sole discretion, to include or cease providing the Program at any time (subject to notice as may be required herein), and Google does not give or enter into any conditions, warranties or other terms with regard to the Program. In particular, no condition, warranty or other term is given or entered into to the effect that the Program will be of satisfactory quality, noninfringement or that the Program will be fit for any particular purpose. For the avoidance of doubt, Google does not guarantee the Program will be operable at all times or during any down time (i) caused by outages to any public Internet backbones, networks or servers, (ii) caused by any failures of Your equipment, systems or local access services, (iii) for previously scheduled maintenance or (iv) relating to events beyond Google’s (or its wholly owned subsidiaries’) control such as strikes, riots, insurrection, fires, floods, explosions, war,

 



 

governmental action, labor conditions, earthquakes, natural disasters, or interruptions in Internet services to an area where Google (or its wholly owned subsidiaries) or Your servers are located or co-located.

 

10.             Limitation of Liability. GOOGLE AND ITS WHOLLY OWNED SUBSIDIARIES WILL NOT BE LIABLE TO YOU OR ANY THIRD-PARTY CLAIMANT FOR ANY INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL (INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR LOST DATA COLLECTED THROUGH THE PROGRAM), OR INCIDENTAL DAMAGES, WHETHER BASED ON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY, OR OTHER TORT, BREACH OF ANY STATUTORY DUTY, INDEMNITY OR CONTRIBUTION, OR OTHERWISE, EVEN IF GOOGLE AND/OR ITS SUBSIDIARIES AND AFFILIATES HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE LIMITATIONS OR EXCLUSIONS IN THIS AND THE FOREGOING PARAGRAPH MAY NOT APPLY TO YOU. In any event, Google’s (and its wholly owned subsidiaries’) total cumulative liability to You or any other party for any loss or damages resulting from any claims, demands, or actions arising out of or relating to this Agreement will not exceed U.S. $500.

 

11.             Representations and Warranties. You represent and warrant that: (i) You have and will maintain throughout the Program Term all rights, authorizations and licenses (including without limitation any copyright, trademark, patent, publicity or other rights) that are required with respect to Program Ads or Program Data to permit Google to perform the Services contemplated under this Agreement (including without limitation any rights needed to host, cache, route, transmit, store, copy, modify, distribute, perform, display, reformat, excerpt, analyze, and create algorithms from and derivative works of Program Ads or Program Data); (ii) You will not advertise anything illegal or engage in any illegal or fraudulent business practice; (iii) all of the information provided by You to Google to enroll in the Program is correct and current; (iv) You have all necessary right, power, and authority to enter into this Agreement and to perform the acts required of You hereunder; (v) You have complied and will continue to comply with all applicable laws, statutes, ordinances, and regulations (including without limitation the CAN-SPAM Act of 2003 and any relevant data protection or privacy laws) in Your performance of any acts hereunder; and (vi) You will use commercially reasonable efforts to ensure that an end user is provided with clear and comprehensive information about, and consents to, the storing and accessing of cookies or other information on the end user’s device where such activity occurs in connection with the Program and where providing such information and obtaining such consent is required by law.

 

12.             Indemnify. You agree to indemnify, defend and hold Google, its agents, affiliates, subsidiaries, directors, officers, employees, and applicable third parties (e.g. relevant advertisers, syndication partners, licensors, licensees, consultants and contractors) (collectively “ Indemnified Person(s) ”) harmless from and against any and all third party claims, liability, loss, and expense (including damage awards, settlement amounts, and reasonable legal fees), brought against any Indemnified Person(s),

 



 

arising out of, related to or which may arise from Your use of the Program, the Program Site(s), and/or Your breach of any term of this Agreement.

 

13.             Miscellaneous. All claims arising out of or relating to this Agreement will be litigated exclusively in the federal or state courts of Santa Clara County, California, USA and Google and You consent to personal jurisdiction in those courts. The Agreement constitutes the entire agreement between the parties with respect to the Program. Any notices to Google must be sent to: Google Inc., 1600 Amphitheatre Parkway, Mountain View, CA 94043, USA, with a copy to Legal Department, via first class or air mail or overnight courier, and are deemed given upon receipt. Notice to You may be effected by sending email to the email address specified in Your account, or by posting a message to Your account interface, and is deemed received when sent (for email) or no more than fifteen (15) days after having been posted (for messages in Your Program Interface). Google’s waiver of any default is not a waiver of any subsequent default. Unenforceable provisions will be modified to reflect the parties’ intention, and remaining provisions of the Agreement will remain in full effect. You may not assign any of Your rights hereunder and any such attempt is void. Google and You are not legal partners or agents, but are independent contractors. Sections 7, 8, 9, 10, 11, 12 and 13 will survive any expiration or termination of this Agreement.

 




Exhibit 10.15

 

1. Welcome to AdSense!

 

Thanks for your interest in our search and advertising services (the “Services”)! By using our Services, you agree to (1) these Terms of Service, (2) the AdSense Program Policies , which include but are not limited to the Content Policies , the Webmaster Quality Guidelines , the Ad Implementation Policies , and the EU User Consent policy (collectively, the “AdSense Policies”), and (3) the Google Branding Guidelines (collectively, the “AdSense Terms”). If ever in conflict, these Terms of Service will take precedence over any other terms in the policies and guidelines enumerated in numbers (2) and (3) above. Please read these Terms of Service and the rest of the AdSense Terms carefully.

 

As used in theseTerms of Service, “you” or “publisher” means the individual or entity using the Services (and/or any individual, agent, employee, representative, network, parent, subsidiary, affiliate, successor, related entities, assigns, or all other individuals or entities acting on your behalf, at your direction, under your control, or under the direction or control of the same individual or entity who controls you). “We,” “us” or “Google” means Google Asia Pacific Pte. Ltd., and the “parties” means you and Google.

 

2. Access to the Services; AdSense Accounts

 

Your use of the Services is subject to your creation and our approval of an AdSense Account (an “Account”). We have the right to refuse or limit your access to the Services. In order to verify your Account, from time-to-time we may ask for additional information from you, including, but not limited to, verification of your name, address, and other identifying information. By submitting an application to use the Services, if you are an individual, you represent that you are at least 18 years of age with full capacity for civil conduct. You may

 



 

only have one Account. If you (including those under your direction or control) create multiple Accounts, you will not be entitled to further payment from Google, and your Accounts will be subject to termination, pursuant to the provisions below.

 

By enrolling in AdSense, you permit Google to serve, as applicable, (i) advertisements and other content (“Ads”), (ii) Google search boxes and search results, and (iii) related search queries and other links to your websites, mobile applications, media players, mobile content, and/or other properties approved by Google (each individually a “Property”). In addition, you grant Google the right to access, index and cache the Properties, or any portion thereof, including by automated means. Google may refuse to provide the Services to any Property. Any Property that is a software application and accesses our Services (a) may require preapproval by Google in writing, and (b) must comply with Google’s Software Principles .

 

3. Using our Services

 

You may use our Services only as permitted by the AdSense Terms and any applicable laws. Don’t misuse our Services. For example, don’t interfere with our Services or try to access them using a method other than the interface and the instructions that we provide.

 

You may discontinue your use of any Service at any time by removing the relevant code from your Properties.

 

4. Changes to our Services; Changes to the AdSense Terms

 

We are constantly changing and improving our Services. We may add or remove functionalities or features of the Services at any time, and we may suspend or stop a Service altogether.

 

We may modify the AdSense Terms at any time. We’ll post any modifications to the Terms of Service on this page and any modifications to the AdSense Policies or the Google Branding Guidelines on their respective pages, and you agree to browse these pages on a weekly basis. Changes will generally become effective 30 days after they are posted. However, changes addressing new functions for a Service or changes made for legal reasons will be effective immediately. If you don’t agree to any modified terms in the AdSense Agreement, you’ll have to stop using the affected Services.

 

5. Payment

 

Subject to this Section and Section 6 of these Terms of Service, you will receive a payment related to the number of valid clicks on Ads displayed on your Properties, the number of valid impressions of Ads displayed on your Properties, or other valid events performed in connection with the display of Ads on your Properties,. only if and when Google determines that your Properties have remained in compliance with the AdSense Terms (including all AdSense Policies as identified in Section 1 above) for the entirety of the period for which payment is made and through to the date that the payment is issued.

 

If your Account is in good standing through to the time when Google issues you a payment, we will pay you by the end of the calendar month following any calendar month in which the balance reflected in your Account equals or exceeds the applicable payment threshold. If

 



 

Google is investigating your compliance with the AdSense Terms or you have been suspended or terminated, your payment may be delayed or withheld. To ensure proper payment, you are responsible for providing and maintaining accurate contact and payment information in your Account.

 

If you implement search Services, our payments may be offset by any applicable fees for such Services. In addition, Google may (a) withhold and offset any payments owed to you under the AdSense Terms against any fees you owe us under the AdSense Terms or any other agreement, or (b) require you to refund us within 30 days of any invoice any amounts we may have overpaid to you in prior periods. You are responsible for any charges assessed by your bank or payment provider.

 

Unless expressly authorized in writing by Google, you may not enter into any type of arrangement with a third party where that third party receives payments made to you under the AdSense Terms or other financial benefit in relation to the Services.

 

Payments will be calculated solely based on Google’s accounting. You acknowledge and agree that you are only entitled to payment for your use of the Services for which Google has been paid; if, for any reason, Google does not receive payment from an advertiser or credits such payment back to an advertiser, you are not entitled to be paid for any associated use of the Services. Additionally, if an advertiser whose Ads are displayed on any Property defaults on payment to Google, we may withhold payment or charge back your Account.

 

Google has the right to withhold or adjust payments to you to exclude any amounts Google determines arise from invalid activity. Invalid activity includes, but is not limited to, (i) spam, invalid clicks, invalid impressions, invalid queries, invalid conversions, or other invalid events on Ads generated by any person, bot, automated program or similar device, including through any clicks, impressions, queries, conversions, or other events originating from your IP addresses or computers under your control; (ii) clicks, impressions, queries, conversions, or other events solicited or generated by payment of money, false representation, or requests for end users to click on Ads or take other actions; (iii) Ads served to end users whose browsers have JavaScript disabled or who are otherwise tampering with ad serving or measurement; (iv) any click, impression, query, conversion, or other event occurring on a Property that does not comply with the AdSense Policies; (v) any click, impression, query, conversion, or other event occurring on a Property associated with another AdSense Account you use; and (vi) all clicks, impressions, queries, conversions, or other events in any Account with significant amounts of invalid activity, as described in (i-v) above or with the types of invalid activity indicating intentional misconduct. In the event Google detects invalid activity, either before or after issuing a payment for that activity, Google reserves the right to debit your Account, and adjust future payments accordingly, for all invalid clicks, impressions, queries, conversions, or other events including for all clicks, impressions, queries, conversions, or other events on Properties that do not comply with the AdSense Policies. Additionally, Google may refund or credit advertisers for some or all of the advertiser payments associated with a publisher’s Account. You acknowledge and agree that, whenever Google issues such refunds or credits, you will not be entitled to receive any payment for any associated use of the Services.

 



 

6. Termination, Suspension, and Entitlement to Further Payment

 

Google may at any time, without providing a warning or prior notice, temporarily suspend further payments on your Account, suspend or terminate the participation of any Property in the Services, or suspend or terminate your Account because of, among other reasons, invalid activity or your failure to otherwise fully comply with the AdSense Policies. Google can terminate your participation in the Services, and close your Account, if your Account remains inactive for a period of 6 or more consecutive months. If Google closes your Account due to inactivity, and the balance reflected in your Account equals or exceeds the applicable threshold , we will pay you that balance, subject to our payment provisions in Section 5. If Google closes your Account due to inactivity, you will not be prevented from submitting a new application to use the Services.

 

If Google terminates your Account due to your breach of the AdSense Terms, including, but not limited to, your causing or failing to prevent invalid activity on any Property, or your failure to otherwise fully comply with the AdSense Policies, you will not be entitled to any further payment from Google for any prior use of the Services. If you breach the AdSense Terms or Google suspends or terminates your Account, you (i) are prohibited from creating a new Account, and (ii) may not be permitted to monetize content on other Google products. . If you dispute any payment made or withheld relating to your use of the Services, or, if Google terminates your Account and you dispute your termination, you must notify Google within 30 days of any such payment, non-payment, or termination by submitting an appeal. If you do not, any claim related to the disputed payment or your termination is waived.

 

You may terminate your use of the Services at any time by completing the account cancellation process . Your AdSense Account will be considered terminated within 10 business days of Google’s receipt of your notice. If you terminate your Account and the balance reflected in your Account equals or exceeds the applicable threshold , we will pay you that balance, subject to the payment provisions in Section 5, within approximately 90 days after the end of the calendar month in which you terminated your use of the Services. Any balance reflected in your Account below the applicable threshold will remain unpaid.

 

7. Taxes

 

As between you and Google, Google is responsible for all taxes (if any) associated with the transactions between Google and advertisers in connection with Ads displayed on the Properties. You are responsible for all taxes (if any) associated with the Services, other than taxes based on Google’s net income. All payments to you from Google in relation to the Services will be treated as inclusive of tax (if applicable) and will not be adjusted. If Google is obligated to withhold any taxes from its payments to you, Google will notify you of this and will make the payments net of the withheld amounts. Google will provide you with original or certified copies of tax payments (or other sufficient evidence of tax payments) if any of these payments are made by Google.

 



 

8. Testing

 

You authorize Google to periodically conduct tests that may affect your use of the Services. To ensure the timeliness and validity of test results, you authorize Google to conduct such tests without notice.

 

9. Intellectual Property; Brand Features

 

Other than as set out expressly in the AdSense Terms, neither party will acquire any right, title or interest in any intellectual property rights belonging to the other party or to the other party’s licensors.

 

If Google provides you with software in connection with the Services, we grant you a nonexclusive, non-sublicensable license for use of such software. This license is for the sole purpose of enabling you to use and enjoy the benefit of the Services as provided by Google, in the manner permitted by the AdSense Terms. Other than distributing content via the AdMob SDK, you may not copy, modify, distribute, sell, or lease any part of our Services or included software, or reverse engineer or attempt to extract the source code of that software, unless laws prohibit those restrictions or you have our written permission. You will not remove, obscure, or alter Google’s copyright notice, Brand Features, or other proprietary rights notices affixed to or contained within any Google services, software, or documentation. We grant you a non-exclusive, non-sublicensable license to use Google’s trade names, trademarks, service marks, logos, domain names, and other distinctive brand features (“Brand Features”) solely in connection with your use of the Services and in accordance with AdSense Terms. We may revoke this license at any time. Any goodwill arising from your use of Google’s Brand Features will belong to Google.

 

We may include your name and Brand Features in our presentations, marketing materials, customer lists and financial reports.

 

10. Privacy

 

Our privacy policy explains how we treat your personal data and protect your privacy when you use our Services. By using our Services, you agree that Google can use such data in accordance with our privacy policy. You and Google also agree to the Google Ads Controller-Controller Data Protection Terms .

 

You will ensure that at all times you use the Services, the Properties have a clearly labeled and easily accessible privacy policy that provides end users with clear and comprehensive information about cookies, device-specific information, location information and other information stored on, accessed on, or collected from end users’ devices in connection with the Services, including, as applicable, information about end users’ options for cookie management. You will use commercially reasonable efforts to ensure that an end user gives consent to the storing and accessing of cookies, device-specific information, location information or other information on the end user’s device in connection with the Services where such consent is required by law.

 

11. Confidentiality

 

You agree not to disclose Google Confidential Information without our prior written consent. “Google Confidential Information” includes: (a) all Google software, technology and documentation relating to the Services; (b) click-through rates or other statistics relating to Property performance as pertaining to the Services; (c) the existence of, information about, or

 



 

terms of, any non-public beta or experimental features in a Service; and (d) any other information made available by Google that is marked confidential or would normally be considered confidential under the circumstances in which it is presented. Google Confidential Information does not include information that you already knew prior to your use of the Services, that becomes public through no fault of yours, that was independently developed by you, or that was lawfully given to you by a third party. Notwithstanding this Section 11, you may accurately disclose the amount of Google’s gross payments resulting from your use of the Services.

 

12. Indemnity

 

You agree to indemnify and defend Google, its affiliates, agents, and advertisers from and against any and all third-party claims and liabilities arising out of or related to the Properties, including any content served on the Properties that is not provided by Google; your use of the Services, or your breach of any term of the AdSense Terms. Google’s advertisers are third-party beneficiaries of this indemnity.

 

13. Representations; Warranties; Disclaimers

 

You represent and warrant that (i) you have full power and authority to enter into the AdSense Terms; (ii) you are the owner of, or are legally authorized to act on behalf of the owner of, each Property; (iii) you are the technical and editorial decision maker in relation to each Property on which the Services are implemented and you have control over the way in which the Services are implemented on each Property; (iv) Google has never previously terminated or otherwise disabled an AdSense Account created by you due to your breach of the AdSense Terms, including due to invalid activity; (v) entering into or performing under the AdSense Terms will not violate any agreement you have with a third party or any third-party rights; and (vi) all of the information provided by you to Google is correct and current.

 

OTHER THAN AS EXPRESSLY SET OUT IN THE ADSENSE TERMS, WE DO NOT MAKE ANY PROMISES ABOUT THE SERVICES. FOR EXAMPLE, GOOGLE MAY REFUSE TO SERVE, AS APPLICABLE, (i) ADVERTISEMENTS AND OTHER CONTENT (“ADS”), (ii) GOOGLE SEARCH BOXES AND SEARCH RESULTS, AND (iii) RELATED SEARCH QUERIES AND OTHER LINKS TO YOUR PROPERTIES. WE DO NOT GUARANTEE THAT EVERY PAGE WILL RECEIVE ADS OR THAT GOOGLE WILL SERVE A CERTAIN NUMBER OF ADS. ADDITIONALLY, WE DO NOT MAKE ANY COMMITMENTS ABOUT THE CONTENT WITHIN THE SERVICES, THE SPECIFIC FUNCTION OF THE SERVICES, OR THEIR PROFITABILITY, RELIABILITY, AVAILABILITY, OR ABILITY TO MEET YOUR NEEDS. WE PROVIDE EACH SERVICE “AS IS”.

 

TO THE EXTENT PERMITTED BY LAW, WE EXCLUDE ALL WARRANTIES, EXPRESS, STATUTORY OR IMPLIED. WE EXPRESSLY DISCLAIM THE WARRANTIES OR CONDITIONS OF NONINFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE. TO THE EXTENT SUCH STATUTORY WARRANTIES OR CONDITIONS APPLY AND CANNOT BE EXCLUDED, TO THE EXTENT TO WHICH GOOGLE IS ALLOWED, GOOGLE LIMITS ITS LIABILITY IN RESPECT OF ANY CLAIM UNDER THOSE WARRANTIES OR CONDITIONS TO, AT GOOGLE’S OPTION, THE SUPPLYING OF THE SERVICES AGAIN OR THE PAYMENT OF THE COST OF HAVING

 



 

THE SERVICES SUPPLIED AGAIN.

 

Nothing in this Agreement, including Sections 12, 13 and 14, shall exclude or limit Google’s warranty or liability for losses which may not be lawfully excluded or limited by applicable law. Some jurisdictions do not allow the exclusion of certain warranties or conditions or the limitation or exclusion of liability for loss or damage caused by negligence, breach of contract or breach of implied terms, or incidental or consequential damages. Accordingly, only the limitations which are lawful in your jurisdiction will apply to you and Google’s liability will be limited to the maximum extent permitted by law.

 

14. Limitation of Liability

 

TO THE EXTENT PERMITTED BY LAW, EXCEPT FOR ANY INDEMNIFICATION OBLIGATIONS HEREUNDER OR YOUR BREACH OF ANY INTELLECTUAL PROPERTY RIGHTS, CONFIDENTIALITY OBLIGATIONS AND/OR PROPRIETARY INTERESTS RELATING TO THE ADSENSE TERMS, (i) IN NO EVENT SHALL EITHER PARTY BE LIABLE UNDER THE ADSENSE TERMS FOR ANY CONSEQUENTIAL, SPECIAL, INDIRECT, EXEMPLARY, PUNITIVE DAMAGES, OR LOSSES AND EXPENSES WHETHER IN CONTRACT, TORT OR ANY OTHER THEORY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSSES AND EXPENSES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY, AND (ii) EACH PARTY’S AGGREGATE LIABILITY UNDER THE ADSENSE TERMS IS LIMITED TO THE NET AMOUNT RECEIVED AND RETAINED BY THAT PARTICULAR PARTY IN CONNECTION WITH THIS ADSENSE TERMSDURING THE THREE MONTH PERIOD IMMEDIATELY PRECEDING THE DATE OF THE CLAIM.

 

Each party acknowledges that the other party has entered into the AdSense Terms relying on the limitations of liability stated herein and that those limitations are an essential basis of the bargain between the parties.

 

15. Miscellaneous

 

Entire Agreement; Amendments. The AdSense Terms are our entire agreement relating to your use of the Services and supersedes any prior or contemporaneous agreements on that subject. This AdSense Terms may be amended (i) in a writing signed by both parties that expressly states that it is amending the AdSense Terms t, or (ii) as set forth in Section 4, if you keep using the Services after Google modifies the AdSense Terms.

 

Assignment. You may not assign or transfer any of your rights under the AdSense Terms.

 

Independent Contractors. The parties are independent contractors and the AdSense Terms do not create an agency, partnership, or joint venture.

 

No Third-Party Beneficiaries. Other than as set forth in Section 12, the AdSense Terms do not create any third-party beneficiary rights.

 

No Waiver. Other than as set forth in Section 5, the failure of either party to enforce any provision of the AdSense Terms will not constitute a waiver.

 

Severability. If it turns out that a particular term of the AdSense Terms is not enforceable, the balance of the AdSense Terms t will remain in full force and effect.

 

Survival. Sections 5, 6, 8, 12, 14, and 15 of these Terms of Service will survive termination.

 

Governing Law; Venue. All claims arising out of or relating to AdSense Terms or the Services

 



 

will be governed by California law, excluding California’s conflict of laws rules. The parties will try in good faith to settle any dispute relating to the Agreement (“Dispute”) within 30 days after such Dispute arises. If the Dispute is not resolved within 30 days, it must be resolved by arbitration by the International Centre for Dispute Resolution of the American Arbitration Association and conducted in accordance with its Expedited Commercial Rules in force as of the date of the Agreement. There will be one arbitrator selected by mutual agreement of the parties. The arbitration will be conducted in English in Santa Clara County, California, USA. Either party may apply to any court having jurisdiction for injunctive relief necessary to protect its rights pending resolution of the arbitration. Any decision rendered by the arbitrator will be final and binding on the parties, and judgment thereon may be entered by any court of competent jurisdiction. The arbitrator may order equitable or injunctive relief consistent with the remedies and limitations in the Agreement. All information disclosed in connection with the arbitration, including the existence of the arbitration, will be Confidential Information governed by the confidentiality provision of Section 9. The parties may, however, disclose such information to an appropriate court under confidentiality restrictions, as necessary to seek enforcement of any arbitration award or judgment or to seek any relief permitted under the terms hereof.

 

Force Majeure. Neither party will be liable for inadequate performance to the extent caused by a condition (for example, natural disaster, act of war or terrorism, riot, labor condition, governmental action, and Internet disturbance) that was beyond the party’s reasonable control.

 

Communications. In connection with your use of the Services, we may contact you regarding service announcements, administrative messages, and other information. You may opt out of some of those communications in your Account settings. For information about how to contact Google, please visit our contact page .

 

*                  *                   *

 

16. Service-Specific Terms

 

If you choose to implement any of the following Services on a Property, you also agree to the additional terms identified below:

 

AdMob: the AdMob Publisher Guidelines and Policies .

 

Custom Search Engine: the Custom Search Engine Terms of Service .

 




Exhibit 21.1

 

List of Principal Subsidiaries and Variable Interest Entities of the Registrant

 

Subsidiary

 

Place of Incorporation

TouchPal HK Co., Limited

 

Hong Kong

CooTek Hong Kong Limited

 

Hong Kong

TouchPal, Inc

 

United States

 

Variable Interest Entity

 

Place of Incorporation

Shanghai Chule (CooTek) Information Technology Co., Ltd.

 

People’s Republic of China

Shanghai Chubao (CooTek) Information Technology Co., Ltd

 

People’s Republic of China

 




Exhi bit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the use in this Registration Statement on Form F-1 of our report dated May 10, 2018 relating to the consolidated financial statements of CooTek (Cayman) Inc., its subsidiaries and variable interest entities, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading “Experts” in such Prospectus.

 

 

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP

Deloitte Touche Tohmatsu Certified Public Accountants LLP

 

 

Shanghai, China

 

 

 

August 16, 2018

 

 




Exhib it 99.1

 

COOTEK (CAYMAN) INC.

 

CODE OF BUSINESS CONDUCT AND ETHICS

 

(Adopted by the Board of Directors of CooTek (Cayman) Inc. on August 8, 2018, effective upon the effectiveness of its registration statement on Form F-1 relating to its initial public offering)

 


 

I.                                         PURPOSE

 

This Code of Business Conduct and Ethics (the “ Code ”) contains general guidelines for conducting the business of CooTek (Cayman) Inc. and its subsidiaries and affiliates (collectively, the “ Company ”) consistent with the highest standards of business ethics, and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. To the extent this Code requires a higher standard than required by commercial practice or applicable laws, rules or regulations, the Company adheres to these higher standards.

 

This Code is designed to deter wrongdoing and to promote:

 

·                   honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

·                   full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the U.S. Securities and Exchange Commission (the “ SEC ”) and in other public communications made by the Company;

 

·                   compliance with applicable laws, rules and regulations;

 

·                   prompt internal reporting of violations of the Code; and

 

·                   accountability for adherence to the Code.

 

II.                                    APPLICABILITY

 

This Code applies to all directors, officers and employees of the Company, whether they work for the Company on a full-time, part-time, consultative or temporary basis (each, an “ employee ” and collectively, the “ employees ”). Certain provisions of the Code apply specifically to our chief executive officer, chief financial officer, other chief officers, senior financial officer, controller, senior vice presidents, vice presidents and any other persons who perform similar functions for the Company (each, a “ senior officer ,” and collectively, the “ senior officers ”).

 

The Board of Directors of CooTek (Cayman) Inc. (the “ Board ”) has appointed the head of the Legal Department of CooTek (Cayman) Inc. as the Compliance Officer for the Company (the “ Compliance Officer ”). If you have any questions regarding the Code or would like to report any violation of the Code, please contact the Compliance Officer by email at ombudsman@cootek.cn.

 



 

III.                               CONFLICTS OF INTEREST

 

Identifying Conflicts of Interest

 

A conflict of interest occurs when an employee’s private interest interferes, or appears to interfere, in any way with the interests of the Company as a whole. An employee should actively avoid any private interest that may impact such employee’s ability to act in the interests of the Company or that may make it difficult to perform the employee’s work objectively and effectively. In general, the following are considered conflicts of interest:

 

·                   Competing Business . No employee may be employed by a business that competes with the Company or deprives it of any business.

 

·                   Corporate Opportunity . No employee may use corporate property, information or his/her position with the Company to secure a business opportunity that would otherwise be available to the Company. If an employee discovers a business opportunity that is in the Company’s line of business through the use of the Company’s property, information or position, the employee must first present the business opportunity to the Company before pursuing the opportunity in his/her individual capacity.

 

·                   Financial Interests .

 

(i)                                 No employee may have any financial interest (ownership or otherwise), either directly or indirectly through a spouse or other family member, in any other business or entity if such interest adversely affects the employee’s performance of duties or responsibilities to the Company, or requires the employee to devote time to it during such employee’s working hours at the Company;

 

(ii)                              No employee may hold any ownership interest in a privately held company that is in competition with the Company;

 

(iii)                           An employee may hold less than 5% ownership interest in a publicly traded company that is in competition with the Company; provided that if the employee’s ownership interest in such publicly traded company increases to 5% or more, the employee must immediately report such ownership to the Compliance Officer;

 

(iv)                          Unless pre-approved by the Compliance Officer, no employee may hold any ownership interest in a company that has a business relationship with the Company if such employee’s duties at the Company include managing or supervising the Company’s business relations with that company; and

 

(v)                             Notwithstanding the other provisions of this Code,

 



 

(a) a director or any family member of such director (collectively, “ Director Affiliates ”) or a senior officer or any family member of such senior officer (collectively, “ Officer Affiliates ”) may continue to hold his/her investment or other financial interest in a business or entity (an “ Interested Business ”) that:

 

(1)                      was made or obtained either (x) before the Company invested in or otherwise became interested in such business or entity; or (y) before the director or senior officer joined the Company (for the avoidance of doubt, regardless of whether the Company had or had not already invested in or otherwise become interested in such business or entity at the time the director or senior officer joined the Company); or

 

(2)                      may in the future be made or obtained by the director or senior officer, provided that at the time such investment or other financial interest is made or obtained, the Company has not yet invested in or otherwise become interested in such business or entity;

 

provided that such director or senior officer shall disclose such investment or other financial interest to the Board;

 

(b) an interested director or senior officer shall refrain from participating in any discussion among senior officers of the Company relating to an Interested Business and may not be involved in any proposed transaction between the Company and an Interested Business; and

 

(c) before any Director Affiliate or Officer Affiliate (i) invests, or otherwise acquires any equity or other financial interest, in a business or entity that is in competition with the Company; or (ii) enters into any transaction with the Company, the related director or senior officer shall obtain prior approval from the Audit Committee of the Board.

 

For purposes of this Code, a company or other entity is deemed to be “in competition with the Company” if it competes with the Company’s mobile internet services and mobile advertising services and any other business in which the Company engages in.

 

·                   Loans or Other Financial Transactions . No employee may obtain loans or guarantees of personal obligations from, or enter into any other personal financial transaction with, any company that is a material customer, supplier, business partner or competitor of the Company. This guideline does not prohibit arms-length transactions with recognized banks or other financial institutions.

 

·                   Service on Boards and Committees . No employee may serve on a board of directors or trustees or on a committee of any entity (whether profit or not-for-profit) whose interests could reasonably be expected to conflict with those of the Company. Employees must obtain prior approval from the Board before accepting any such board or committee position. The Company may revisit its approval of any such position at any time to determine whether an employee’s service in such position is still appropriate.

 



 

The above is in no way a complete list of situations where conflicts of interest may arise. The following questions might serve as a useful guide in assessing a potential conflict of interest situation not specifically addressed above:

 

·                   Is the action to be taken legal?

 

·                   Is it honest and fair?

 

·                   Is it in the best interests of the Company?

 

Disclosure of Conflicts of Interest

 

The Company requires that employees fully disclose any situations that could reasonably be expected to give rise to a conflict of interest. If an employee suspects that he/she has a conflict of interest, or a situation that others could reasonably perceive as a conflict of interest, the employee must report it immediately to the Compliance Officer. Conflicts of interest may only be waived by the Board, or the appropriate committee of the Board, and will be promptly disclosed to the public to the extent required by law and applicable rules of the applicable stock exchange.

 

Family Members and Work

 

The actions of family members outside the workplace may also give rise to conflicts of interest because they may influence an employee’s objectivity in making decisions on behalf of the Company. If a member of an employee’s family is interested in doing business with the Company, the criteria as to whether to enter into or continue the business relationship and the terms and conditions of the relationship must be no less favorable to the Company compared with those that would apply to an unrelated party seeking to do business with the Company under similar circumstances.

 

Employees are required to report any situation involving family members that could reasonably be expected to give rise to a conflict of interest to their supervisor or the Compliance Officer. For purposes of this Code, “family members” or “members of employee’s family” include an employee’s spouse, parents, children and siblings, whether by blood, marriage or adoption or anyone residing in such employee’s home.

 

IV.                                GIFTS, MEALS AND ENTERTAINMENT

 

All employees are required to comply with the anti-corruption compliance policy of the Company regarding gifts, meals and entertainment.

 

V.                                     PROTECTION AND USE OF COMPANY ASSETS

 

Employees should protect the Company’s assets and ensure their efficient use for legitimate business purposes only. Theft, carelessness and waste have a direct impact on the Company’s profitability. Any use of the funds or assets of the Company, whether for personal gain or not, for any unlawful or improper purpose is strictly prohibited.

 



 

To ensure the protection and proper use of the Company’s assets, each employee is required to:

 

·                   Exercise reasonable care to prevent theft, damage or misuse of Company property;

 

·                   Promptly report any actual or suspected theft, damage or misuse of Company property;

 

·                   Safeguard all electronic programs, data, communications and written materials from unauthorized access; and

 

·                   Use Company property only for legitimate business purposes.

 

Except as approved in advance by the Chairman of the board of directors, Chief Executive Officer or Chief Financial Officer of the Company, the Company prohibits political contributions (directly or through trade associations) by any employee on behalf of the Company. Prohibited political contributions include:

 

·                   any contributions of the Company’s funds or other assets for political purposes;

 

·                   encouraging individual employees to make any such contribution; and

 

·                   reimbursing an employee for any political contribution.

 

VI.                                INTELLECTUAL PROPERTY AND CONFIDENTIALITY

 

Employees shall abide by the Company’s rules and policies in protecting the intellectual property and confidential information, including the following:

 

·                   All inventions, creative works, computer software, and technical or trade secrets developed by an employee in the course of performing the employee’s duties or primarily through the use of the Company’s assets or resources while working at the Company are the property of the Company.

 

·                   Employees shall maintain the confidentiality of information entrusted to them by the Company or entities with which the Company has business relations, except when disclosure is authorized or legally mandated. Confidential information includes all non-public information that might be of use to competitors, or harmful to the company or its business associates, if disclosed.

 

·                   The Company maintains a strict confidentiality policy. During an employee’s term of employment with the Company, the employee shall comply with any and all written or unwritten rules and policies concerning confidentiality and shall fulfill the duties and responsibilities concerning confidentiality applicable to the employee.

 

·                   In addition to fulfilling the responsibilities associated with his/her position in the Company, an employee may not, without obtaining prior approval from the Company, disclose, announce or publish trade secrets or other confidential business information of the Company, nor may an employee use such confidential information outside the course of his/her duties to the Company.

 



 

·                   Even outside the work environment, an employee must maintain vigilance and refrain from disclosing important information regarding the Company or its business, business associates or employees.

 

·                   An employee’s duty of confidentiality with respect to the confidential information of the Company survives the termination of such employee’s employment with the Company for any reason until such time as the Company discloses such information publicly or the information otherwise becomes available in the public sphere through no fault of the employee.

 

·                   Upon termination of employment, or at such time as the Company requests, an employee must return to the Company all of its property without exception, including all forms of medium containing confidential information, and may not retain duplicate materials.

 

VII.                           ACCURACY OF FINANCIAL REPORTS AND OTHER PUBLIC COMMUNICATIONS

 

The Company is required to report its financial results and other material information about its business to the public and the SEC. It is the Company’s policy to promptly disclose accurate and complete information regarding its business, financial condition and results of operations. Employees must strictly comply with all applicable standards, laws, regulations and policies for accounting and financial reporting of transactions, estimates and forecasts. Inaccurate, incomplete or untimely reporting will not be tolerated and can severely damage the Company and result in legal liability.

 

Employees should be on guard for, and are required to promptly report, any possibility of inaccurate or incomplete financial reporting. Particular attention should be paid to:

 

·                   Financial results that seem inconsistent with the performance of the underlying business;

 

·                   Transactions that do not seem to have an obvious business purpose; and

 

·                   Requests to circumvent ordinary review and approval procedures.

 

The Company’s senior financial officers and other employees working in the finance department have a special responsibility to ensure that all of the Company’s financial disclosures are full, fair, accurate, timely and understandable. These individuals are required to report any practice or situation that might undermine this objective to the Compliance Officer.

 

Employees are prohibited from directly or indirectly taking any action to coerce, manipulate, mislead or fraudulently influence the Company’s independent auditors for the purpose of rendering the financial statements of the Company materially misleading. Prohibited actions include but are not limited to:

 



 

·                   issuing or reissuing a report on the Company’s financial statements that is not warranted in the circumstances (due to material violations of U.S. GAAP, generally accepted auditing standards or other professional or regulatory standards);

 

·                   not performing audit, review or other procedures required by generally accepted auditing standards or other professional standards;

 

·                   not withdrawing an issued report when withdrawal is warranted under the circumstances; or

 

·                   not communicating matters as required to the Company’s Audit Committee.

 

VIII.                      COMPANY RECORDS

 

Accurate and reliable records are crucial to the Company’s business and form the basis of its earnings statements, financial reports and other disclosures to the public. The Company’s records are a source of essential data that guides business decision-making and strategic planning. Company records include, but are not limited to, booking information, payroll, timecards, travel and expense reports, e-mails, accounting and financial data, measurement and performance records, electronic data files and all other records maintained in the ordinary course of business.

 

All Company records must be complete, accurate and reliable in all material respects. There is never an acceptable reason to make false or misleading entries. Undisclosed or unrecorded funds, payments or receipts are strictly prohibited. An employee is responsible for understanding and complying with the Company’s recordkeeping policy. An employee should contact the Compliance Officer if he/she has any questions regarding the recordkeeping policy.

 

IX.                               COMPLIANCE WITH LAWS AND REGULATIONS

 

Each employee has an obligation to comply with the laws of the cities, provinces, regions and countries in which the Company operates. This includes, without limitation, laws covering commercial bribery and kickbacks, patent, copyrights, trademarks and trade secrets, information privacy, insider trading, offering or receiving gratuities, employment harassment, environmental protection, occupational health and safety, false or misleading financial information, misuse of corporate assets and foreign currency exchange activities. Employees are expected to understand and comply with all laws, rules and regulations that apply to their positions at the Company. If any doubt exists about whether a course of action is lawful, the employee should seek advice immediately from the Compliance Officer.

 

X.                                    DISCRIMINATION AND HARASSMENT

 

The Company is firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment based on race, ethnicity, religion, gender, age, national origin or any other protected class. For further information, employees should consult the Compliance Officer.

 



 

XI.                               FAIR DEALING

 

Each employee should endeavor to deal fairly with the Company’s customers, suppliers, competitors and employees. No employee may take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair-dealing practice.

 

XII.                          HEALTH AND SAFETY

 

The Company strives to provide employees with a safe and healthy work environment. Each employee has responsibility for maintaining a safe and healthy workplace for other employees by following environmental, safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions. Violence or threats of violence are not permitted.

 

Each employee is expected to perform his/her duty to the Company in a safe manner, free of any influence of alcohol, illegal drugs or other controlled substances. The use of illegal drugs or other controlled substances in the workplace is prohibited.

 

XIII.                     VIOLATIONS OF THE CODE

 

All employees have a duty to report any known or suspected violation of this Code, including any violation of laws, rules, regulations or policies that apply to the Company. Reporting a known or suspected violation of this Code by others will not be considered an act of disloyalty, but an action to safeguard the reputation and integrity of the Company and its employees.

 

If an employee knows of or suspects a violation of this Code, it is such employee’s responsibility to immediately report the violation to the Compliance Officer, who will work with the employee to investigate his/her concern. All questions and reports of known or suspected violations of this Code will be treated with sensitivity and discretion. The Compliance Officer and the Company will protect the employee’s confidentiality to the extent possible, consistent with the law and the Company’s need to investigate the employee’s concern.

 

It is the Company’s policy that any employee who violates this Code will be subject to appropriate discipline, including termination of employment, based upon the facts and circumstances of each particular situation. An employee’s conduct, if it does not comply with the law or with this Code, can result in serious consequences for both the employee and the Company.

 

The Company strictly prohibits retaliation against an employee who, in good faith, seeks help or reports known or suspected violations. An employee inflicting reprisal or retaliation against another employee for reporting a known or suspected violation will be subject to disciplinary action, including termination of employment.

 



 

XIV.                      WAIVERS OF THE CODE

 

Waivers of this Code will be granted on a case-by-case basis and only in extraordinary circumstances. Waivers of this Code may be made only by the Board, or the appropriate committee of the Board, and may be promptly disclosed to the public if so required by applicable laws and regulations and rules of the applicable stock exchange.

 

XV.                           CONCLUSION

 

This Code contains general guidelines for conducting the business of the Company consistent with the highest standards of business ethics. If employees have any questions about these guidelines, they should contact the Compliance Officer. The Company expects all employees to adhere to these standards. Each employee is separately responsible for his/her actions. Conduct that violates the law or this Code cannot be justified by claiming that it was ordered by a supervisor or someone in higher management positions. If an employee engages in conduct prohibited by the law or this Code, such employee will be deemed to have acted outside the scope of his/her employment. The prohibited conduct will subject the employee to disciplinary action, including termination of employment.

 

* * * * * * * * * * * *

 




Exhibit 99.2

 

 

26/F HKRI Centre One, HKRI Taikoo Hui,

288 Shimen Road (No. 1),

Shanghai 200041, P.R.China

T: (86-21) 5298-5488

F: (86-21) 5298-5492

junhesh@junhe.com

 

LEGAL OPINION

 

To                                 CooTek (Cayman) Inc.

Building 7,

No. 2007, Hongmei Road,

Xuhui District, Shanghai 201103

People’s Republic of China

 

RE                               PRC Legal Opinion on Certain PRC Law Matters

 

August 16, 2018

 

Dear Sirs:

 

We are lawyers qualified in the People’s Republic of China (the “ PRC ”) and are qualified to issue opinions on the PRC Laws (as defined in Section 4). For the purpose of this legal opinion (this “ Opinion ”), the PRC does not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan.

 

We act as PRC counsel to CooTek (Cayman) Inc. (the “ Company ”), a company incorporated under the laws of the Cayman Islands, in connection with (a) the proposed initial public offering (the “ Offering ”) by the Company of the American Depositary Shares (“ ADSs ”), in accordance with the Company’s registration statement on Form F-1, including all amendments or supplements thereto (the “ Registration Statement ”), filed by the Company with the U.S. Securities and Exchange Commission (the “ SEC ”) under the U.S. Securities Act of 1933 (as amended), and (b) the Company’s proposed listing of the ADSs on the New York Stock Exchange ((a) and (b) above collectively, the “ Transactions ”).

 

In so acting, we have examined the Registration Statement, the originals or copies certified or otherwise identified to our satisfaction, of documents provided to us by the Company and such other documents, corporate records, certificates, approvals and other instruments as we have deemed necessary for the purpose of rendering this opinion, including, without limitation, originals or copies of the agreements and certificates issued by PRC authorities and officers of the Company (“ Documents ”). In such examination, we have assumed the accuracy of the factual matters described in the Registration Statement and that the Registration Statement and other documents will be executed by the parties in the forms provided to and reviewed by us. We have also assumed the genuineness of all signatures, seals and chops, the authenticity of all documents submitted to us as originals, and the conformity with the originals of all

 

Beijing Head Office

Shenzhen Office

Dalian Office

Tianjin Office

New York Office

Tel: (86-10) 8519-1300

Tel: (86-755) 2587-0765

Tel: (86-411) 8250-7578

Tel: (86-22) 5990-1301

Tel: (1-212) 703-8702

Fax: (86-10) 8519-1350

Fax: (86-755) 2587-0780

Fax: (86-411) 8250-7579

Fax: (86-22) 5990-1302

Fax: (1-212) 703-8720

 

 

 

 

 

Shanghai Office

Guangzhou Office

Haikou Office

Hong Kong Office

Silicon Valley Office

Tel: (86-21) 5298-5488

Tel: (86-20) 2805-9088

Tel: (86-898) 6851-2544

Tel: (852) 2167-0000

Tel: (1-888) 886-8168

Fax: (86-21) 5298-5492

Fax: (86-20) 2805-9099

Fax: (86-898) 6851-3514

Fax: (852) 2167-0050

Fax: (1-888) 808-2168

 



 

documents submitted to us as copies, and the truthfulness, accuracy and completeness of all factual statements in the documents.

 

1.                            The following terms as used in this Opinion are defined as follows:

 

“Government Agency”

 

means any national, provincial, municipal or local governmental authority, agency or body having jurisdiction over any of the PRC Operating Entities in the PRC.

 

 

 

“Governmental Authorization”

 

means all consents, approvals, authorizations, permissions, orders, registrations, filings, licenses, clearances and qualifications of or with any Government Agency.

 

 

 

“M&A Rules”

 

means the Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors jointly promulgated by the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration of Industry and Commerce, China Securities Regulatory Commission (“CSRC”) and the State Administration of Foreign Exchange of the PRC on August 8, 2006 and as amended on June 22, 2009.

 

 

 

“PRC Group Companies”

 

means the PRC Subsidiaries, the Variable Interest Entities and the subsidiaries of the Variable Interest Entities as set out in Schedule 1 attached hereto. “PRC Group Company” shall be construed accordingly.

 

 

 

“PRC Shareholders”

 

means, collectively, the shareholders of the Variable Interest Entities. “PRC Shareholder” shall be construed accordingly.

 

 

 

“PRC Laws”

 

means any and all laws, regulations, statutes, rules, decrees, notices, and supreme court’s judicial interpretations currently in force and publicly available in the PRC as of the date hereof.

 

 

 

“PRC Subsidiaries”

 

means any and all subsidiaries of the Company established in the PRC which are, directly or indirectly, owned by the Company.

 

 

 

“Prospectus”

 

means the prospectus, including all amendments or supplements thereto, that forms part of the Registration Statement.

 

 

 

“Shanghai Chule”

 

means Shanghai Chule Information Technology

 

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Co., Ltd.

 

 

 

“Shanghai Hanxiang”

 

means Shanghai Hanxiang (CooTek) Information Technology Co., Ltd.

 

 

 

“Shanghai Chu Bao”

 

means Shanghai Chu Bao (CooTek) Information Technology Co., Ltd.

 

 

 

“Shenzhen Molihong”

 

means Molihong (Shenzhen) Network Technology Co., Ltd.

 

 

 

“Ningbo Yingsun”

 

means Ningbo Yingsun Information Technology Co., Ltd.

 

 

 

“Variable Interest Entities”

 

mean Shanghai Hanxiang, Shanghai Chu Bao, Shenzhen Molihong and Ningbo Yingsun.

 

Capitalized terms used herein and not otherwise defined herein shall have the same meanings described in the Registration Statement.

 

2.                             Based upon and subject to the foregoing and subject to the qualifications set out below, we are of the opinion that:

 

(1)              Incorporation and Existence of PRC Group Companies. Each of the PRC Group Companies has been duly incorporated and is validly existing as a limited liability company and has legal person status under the PRC Laws and its business license and articles of association are in full force and effect under, and in compliance with, the PRC Laws. All the equity interests of each of the PRC Group Companies are legally owned by its respective shareholders as the shareholding status set forth in Schedule 1 attached hereto, and to our best knowledge after due and reasonable inquiries, other than the equity interests of Variable Interest Entities, such equity interests are free and clear of all security interest, encumbrances, mortgage, pledge, liens, equities or claims. Except as provided in the VIE Agreements (as defined below), there are no outstanding rights, warrants or options to acquire or instruments convertible into or exchangeable for, nor any agreements or other obligations to issue or other rights to convert any obligation into, any equity interest in any of the PRC Group Companies. All Governmental Authorizations required for the ownership by the shareholders of their respective equity interests in each of the PRC Group Companies have been duly obtained.

 

The branch of the PRC Group Companies named in Schedule 2 ( the “ PRC Branch ”) has been duly incorporated and is validly existing under the PRC Laws and their respective business license is in compliance with the PRC Laws.

 

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(2)              Corporate Structure . The descriptions of the corporate structure of the PRC Group Companies and the arrangements and agreements relating to the Company’s corporate structure (the “ VIE Agreements ”) set forth in “Corporate History and Structure” section of the Registration Statement are true and accurate and nothing has been omitted from such description which would make the same misleading in any material respect. The descriptions of the events and transactions set forth in “Corporate History and Structure” section and “Related Party Transactions” section of the Registration Statement, to the extent that such descriptions are related to matters of the PRC Laws or documents, agreements or proceedings governed by the PRC Laws, are true and accurate and nothing has been omitted from such description which would make the same misleading in any material respects. (i) The ownership structure of each of the PRC Group Companies and the PRC Branch and (ii) to our best knowledge after due and reasonable inquiries, the transactions of acquisition and restructuring involving the PRC Group Companies as described in the “Corporate History and Structure” section of the Prospectus are not in violation of, and immediately after the consummation of the Transactions will not result in violation of, any PRC Laws currently in effect, and no Governmental Authorization or any other necessary steps required under the PRC Laws other than those already obtained is required under the existing PRC Laws for the establishment of such shareholding structures.

 

We are of the opinion that,

 

(a)              Each of the VIE Agreements has been duly authorized, executed and delivered by the applicable PRC Group Companies and PRC Shareholders who are parties thereto and is valid and legally binding to each party to such agreements under the current PRC Laws; each of the applicable PRC Group Companies and PRC Shareholders has, to the extent applicable, taken all necessary corporate actions to authorize the performance thereof; each of the applicable PRC Group Companies and PRC Shareholders has the power and capacity (corporate or otherwise) to enter into and to perform its/his obligations under such VIE Agreements;

 

(b)              Both currently and immediately after giving effect to this Offering, the VIE Agreements among Shanghai Chule, the Variable Interest Entities and their respective shareholders governed by PRC Laws are valid, binding and enforceable;

 

(c)               Except as disclosed in the Registration Statement, no Governmental Authorizations are required under the PRC Laws in connection with

 

4



 

the VIE Agreements or the performance of the terms thereof or for the transactions contemplated thereunder, other than those already obtained, provided, however, any exercise by Shanghai Chule of its rights will be subject to: (a) the approval of and/or registration with the Governmental Agencies for the resulting equity transfer; and (b) the exercise price for equity transfer under the VIE Agreements complying with the PRC Laws;

 

(d)              Each of the VIE Agreements does not and the execution and delivery thereof by the parties thereto, the due performance by each of the parties thereto of its obligations thereunder, and the due consummation by each of the parties thereto of the transactions contemplated therein, did not, do not and will not (A) result in any violation of the provisions of articles of association or business license of such party that is a PRC Group Company or any Governmental Authorization, as applicable; (B) result in any violation of or penalty under any PRC Laws or any decree, judgment or order of any Government Agency or any court in the PRC applicable to such party that is a PRC Group Company or a PRC Shareholder; (C) to the best of our knowledge after due and reasonable inquiries, conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any license, indenture, mortgage, deed of trust, loan agreement, note, lease or any other material agreement or instrument governed by the PRC Laws to which any such party that is a PRC Group Company or a PRC Shareholder or by which any of them is bound or to which any of their property or assets is subject and to the best of our knowledge after due and reasonable inquiries, no such VIE Agreement has been amended or revoked or is liable to be set aside under any PRC Laws for (A), (B) and (C) above. However, there are substantial uncertainties regarding the interpretation and application of current or future PRC Laws and there can be no assurance that the Government Agencies will ultimately take a view that is consistent with our opinion stated above.

 

The statements set forth in the Prospectus under the captions “Risk Factors — Risks Related to Our Corporate Structure” are fair and accurate summaries of the matters described therein, and nothing has been omitted from such summaries that would make the same misleading in any material respect.

 

(3)              M&A Rules. The M&A Rules, in particular the relevant provisions thereof, purport, among other things, to require offshore special purpose vehicles formed for the purpose of obtaining a stock exchange listing outside of PRC and controlled directly or indirectly by Chinese companies or natural

 

5



 

persons, to obtain the approval of the CSRC prior to the listing and trading of their securities on any stock exchange located outside of PRC.

 

Based on our understanding of the PRC Laws, we are of the opinion that the CSRC’s approval is not required for the Transactions, including, but not limited to, the listing and trading of the Company’s ADSs on the New York Stock Exchange, in the context of this Offering, given that (1) Shanghai Chule was incorporated as a wholly foreign-owned enterprise by means of direct investment rather than by merger or acquisition of equity interest or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules that are the beneficial owners of the Company; and (2) no provision in the M&A Rules clearly classifies the contractual arrangement under the VIE Agreements as a type of transactions subject to the M&A Rules.

 

The statements set forth in the Prospectus under the captions “Risk Factors —Risks Related to Doing Business in China —The approval of the China Securities Regulatory Commission may be required in connection with this offering under PRC law” are fair and accurate summaries of the matters described therein, and nothing has been omitted from such summaries that would make the same misleading in any material respect.

 

(4)              Enforceability of Civil Procedures. There is uncertainty as to whether the courts of the PRC would: i) recognize or enforce judgments of United States courts obtained against the Company or directors or officers of the Company predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or ii) entertain original actions brought in each respective jurisdiction against the Company or directors or officers of the Company predicated upon the securities laws of the United States or any state in the United States.

 

The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between the PRC and the country where the judgment is made or on reciprocity between jurisdictions. The PRC does not have any treaties or other agreements with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against the Company or the directors and officers of the Company if they decide that the judgment violates the basic principles of PRC Laws or national sovereignty, security or public interest.

 

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(5)              Taxation . The statements set forth under the caption “Taxation” in the Registration Statement insofar as they constitute statement of PRC tax law, are accurate in all material respects and that such statements constitute our opinion. We do not express any opinion herein concerning any law other than PRC tax law.

 

(6)              Statements in the Prospectus. The statements in the Registration Statement and the Prospectus under the headings “Prospectus Summary”, “Risk Factors”, “Corporate History and Structure”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Enforceability of Civil Liabilities”, “Dividend Policy”, “Business”, “Management”, “Related Party Transactions”, “Regulation”, “Taxation” and “Legal Matters” (other than the financial statements and related schedules and other financial data contained therein to which we express no opinion), to the extent such statements relate to matters of the PRC Laws or documents, agreements or proceedings governed by the PRC Laws, are accurate in all material respects, and fairly present and fairly summarize in all material respects the PRC Laws, documents, agreements or proceedings referred to therein, and nothing has been omitted from such statements which would make the statements, in light of the circumstance under which they were made, misleading in any material aspect.

 

3.                             This Opinion is subject to the following qualifications:

 

(1)              This Opinion relates only to the PRC Laws and we express no opinion as to any other laws and regulations. There is no guarantee that any of the PRC Laws, or the interpretation thereof or enforcement therefor, will not be changed, amended or replaced in the immediate future or in the longer term with or without retrospective effect.

 

(2)              This Opinion is intended to be used in the context which is specifically referred to herein and each section should be looked on as a whole regarding the same subject matter and no part shall be extracted for interpretation separately from this Opinion.

 

(3)              This Opinion is subject to the effects of (i) certain legal or statutory principles affecting the enforceability of contractual rights generally under the concepts of public interest, national security, good faith and fair dealing, applicable statutes of limitation, and the limitations by bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditor’s rights generally; (ii) any circumstance in connection with formulation, execution or performance of any legal documents that would be deemed materially mistaken, clearly unconscionable or fraudulent; (iii) judicial discretion with respect to the availability of injunctive relief, the calculation of damages, and the entitlement of attorneys’ fees and other costs; and (iv) the discretion of any competent PRC legislative, administrative or judicial bodies in exercising their authority in connection

 

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with the interpretation, implementation and application of relevant PRC Laws.

 

This Opinion is rendered to you for the purpose hereof only, and save as provided herein, this Opinion shall not be quoted nor shall a copy be given to any person (apart from the addressee and its legal counsel) without our express prior written consent, except where such disclosure is required to be made by the applicable law or is requested by the SEC or any other regulatory agencies.

 

We hereby consent to the use of this Opinion in, and the filing hereof as an exhibit to, the Registration Statement, and to the use of our firm’s name under the captions “Risk Factors,” “Enforceability of Civil Liabilities,” “Corporate History and Structure,” “Taxation,” and “Legal Matters” in the Registration Statement.. In giving such consent, we do not thereby admit that we fall within the category of the person whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the regulations promulgated thereunder.

 

The remainder of this page is intentionally left blank.

 

8


 

Signature Page

 

Yours faithfully,

 

/s/ JunHe LLP

JunHe LLP

 



 

SCHEDULE 1

 

List of the PRC Group Companies

 

A.                 PRC Subsidiaries

 

Shanghai Chule Information Technology Co., Ltd. (“ 上海触乐信息科技有限公司 ” in Chinese) and its Beijing branch, wholly owned by CooTek HongKong Limited.

 

First tiered companies of which 100% equity interests are directly owned by Shanghai Chule Information Technology Co., Ltd.:

 

Chubao Information Technology (Ningbo) Co., Ltd (“ 触宝信息科技(宁波)有限公司 ” in Chinese).

 

B.                 Variable Interest Entities

 

1.               Shanghai Hanxiang (CooTek) Information Technology Co., Ltd. (“ 上海汉翔信息技术有限公司 ” in Chinese), with its shareholding status as follows:

 

No.

 

Equity holders

 

Equity interests in the
Variable Interest Entity

 

1.

 

Karl Kan Zhang ( 张瞰 )

 

18.94

%

2.

 

Michael Jialiang Wang( 王佳梁 )

 

16.62

%

3.

 

Susan Qiaoling Li( 李巧玲 )

 

16.62

%

4.

 

Haiyan Zhu( 朱海燕 )

 

13.64

%

5.

 

Jim Jian Wang( 王健 )

 

9.94

%

6.

 

Qiming Century(HK)Limited

 

16.67

%

7.

 

Qualcomm International, Inc.

 

3.79

%

8.

 

Orange Capital Management

 

3.79

%

Total equity interest

 

100.00

%

 

2.               Shanghai Chu Bao (CooTek) Information Technology Co., Ltd. (“ 上海触宝信息技术有限公司 ” in Chinese), with its shareholding status as follows:

 



 

No.

 

Equity holders

 

Equity interests in the
Variable Interest Entity

 

1.

 

Karl Kan Zhang ( 张瞰 )

 

25.00

%

2.

 

Michael Jialiang Wang( 王佳梁 )

 

21.94

%

3.

 

Susan Qiaoling Li( 李巧玲 )

 

21.94

%

4.

 

Haiyan Zhu( 朱海燕 )

 

18.00

%

5.

 

Jim Jian Wang( 王健 )

 

13.12

%

Total equity interest

 

100.00

%

 

3.               Molihong (Shenzhen) Network Technology Co., Ltd. (“ 魔力红(深圳)网络科技有限公司 ” in Chinese), with its shareholding status as follows:

 

No.

 

Equity holders

 

Equity interests in the
Variable Interest Entity

 

1.

 

Michael Jialiang Wang( 王佳梁 )

 

50.00

%

2.

 

Jim Jian Wang( 王健 )

 

50.00

%

Total equity interest

 

100.00

%

 

4.               Ningbo Yingsun Information Technology Co., Ltd. (“ 鹰隼信息科技(宁波)有限公司 ” in Chinese), with its shareholding status as follows:

 

No.

 

Equity holders

 

Equity interests in the
Variable Interest Entity

 

1.

 

Michael Jialiang Wang( 王佳梁 )

 

50.00

%

2.

 

Jim Jian Wang( 王健 )

 

50.00

%

Total equity interest

 

100.00

%

 



 

SCHEDULE 2

 

Branch of the PRC Group Companies

 

A.             The Branch of PRC Subsidiaries

 

Shanghai Chule Information Technology Co., Ltd. Beijing Branch (“ 上海触乐信息科技有限公司北京分公司 ” in Chinese)