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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 20-F

(Mark One)

    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019.

OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

OR

    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                    

For the transition period from                     to                    

Commission file number: 001-36140

58.com Inc.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

Building 105, 10 Jiuxianqiao North Road Jia

Chaoyang District, Beijing 100015

People’s Republic of China

(Address of principal executive offices)

Wei Ye, Chief Financial Officer

Telephone: +86 10 5956-5858

Building 105, 10 Jiuxianqiao North Road Jia

Chaoyang District, Beijing 100015

People’s Republic of China

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

Table of Contents

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

American depositary shares, each representing two Class A ordinary shares

WUBA

The New York Stock Exchange

Class A ordinary shares, par value US$0.00001 per share*

The New York Stock Exchange*

*    Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 299,277,413 ordinary shares, par value US$0.00001 per share, being the sum of 254,045,293 Class A ordinary shares (not including 1,676,910 Class A ordinary shares issued to the depositary bank of the Issuer and reserved for future exercise or vesting of equity incentive awards) and 45,232,120 Class B ordinary shares as of December 31, 2019.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ⌧ Yes   No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes   ⌧ No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ⌧ Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧ Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer

Non-accelerated filer

Emerging growth company 

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 13(a) of the Exchange Act.

† 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.

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.⌧

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP 

International Financial Reporting Standards as issued by the International Accounting Standards Board

Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17   Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ⌧ No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes   No

Table of Contents

TABLE OF CONTENTS

INTRODUCTION

1

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

1

 

PART I

3

Item 1.

Identity of Directors, Senior Management and Advisers

3

Item 2.

Offer Statistics and Expected Timetable

3

Item 3.

Key Information

3

Item 4.

Information on the Company

48

Item 4A.

Unresolved Staff Comments

85

Item 5.

Operating and Financial Review and Prospects

85

Item 6.

Directors, Senior Management and Employees

110

Item 7.

Major Shareholders and Related Party Transactions

119

Item 8.

Financial Information

123

Item 9.

The Offer and Listing

124

Item 10.

Additional Information

125

Item 11.

Quantitative and Qualitative Disclosures About Market Risk

135

Item 12.

Description of Securities Other Than Equity Securities

136

 

PART II

138

Item 13.

Defaults, Dividend Arrearages and Delinquencies

138

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

138

Item 15.

Controls and Procedures

138

Item 16A.

Audit Committee Financial Expert

139

Item 16B.

Code of Ethics

139

Item 16C.

Principal Accountant Fees and Services

139

Item 16D.

Exemptions from the Listing Standards for Audit Committees

139

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

139

Item 16F.

Change in Registrant’s Certifying Accountant

139

Item 16G.

Corporate Governance

140

Item 16H

Mine Safety Disclosure

140

 

PART III

141

Item 17.

Financial Statements

141

Item 18.

Financial Statements

141

Item 19.

Exhibits

141

i

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INTRODUCTION

In this annual report, unless otherwise indicated or the context otherwise requires, references to:

“ADSs” refers to our American Depositary Shares, each of which represents two Class A ordinary shares of 58.com Inc.;

“58.com,” “we,” “us,” “our company,” and “our” refer to 58.com Inc., its subsidiaries and its consolidated variable interest entities;
“China” or “PRC” refers to the People’s Republic of China, excluding, for purposes of this annual report only, Taiwan, Hong Kong and Macau;
“Renminbi” or “RMB” refers to the legal currency of China;
“U.S. GAAP” refers to generally accepted accounting principles in the United States; and
“US$,” “dollars” or “U.S. dollars” refers to the legal currency of the United States.

Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate of RMB6.9762 to US$1.00, the middle rate published by the State Administration of Foreign Exchange, or SAFE, on December 31, 2019. We make no representation that any Renminbi or U.S. dollar amounts 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.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that relate to our current expectations and views of future events. The forward-looking statements are contained principally in the items entitled “Information on the Company,” “Risk Factors,” “Operating and Financial Review and Prospects,” “Financial Information” and “Quantitative and Qualitative Disclosures About Market Risk.” Our forward-looking statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigations Reform Act of 1995. 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, although not all forward-looking statements contain these words. Forward-looking statements include, but are not limited to, statements relating to:

our goals and strategies;
our expansion plans;
our future business development, financial condition and results of operations;
the expected growth of the online marketing services, mobile services and e-commerce industries;
our expectations regarding demand for, and market acceptance of, our services;
our expectations regarding keeping and strengthening our relationships with customers;
our plans to invest in research and development to enhance our solution and service offerings; and
general economic and business conditions in the regions where we provide our solutions and services.

Table of Contents

We would like to caution you not to place undue reliance on forward-looking statements and you should read these statements in conjunction with the risk factors disclosed in “Item 3. Key Information — D. Risk Factors.” Those risks are not exhaustive. We operate in an emerging and evolving environment. New risk factors emerge from time to time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law. You should read this annual report and the documents that we reference in this annual report completely and with the understanding that our actual future results may be materially different from what we expect.

Table of Contents

PART I

Item 1.              Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.              Offer Statistics and Expected Timetable

Not applicable.

Item 3.              Key Information

A.           Selected Financial Data

Selected Consolidated Financial Data

The following table presents the selected consolidated financial information of our company. Our selected data of consolidated statements of comprehensive income and selected consolidated cash flow data presented below for the years ended December 31, 2017, 2018 and 2019 and our selected consolidated balance sheet data as of December 31, 2018 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this annual report. Our selected data of consolidated statements of comprehensive income/(loss), and selected consolidated cash flow data presented below for the years ended December 31, 2015 and 2016 and our selected consolidated balance sheet data as of December 31, 2015, 2016 and 2017 have been derived from our audited consolidated financial statements not included in this annual report. Our audited consolidated financial statements are prepared in accordance with U.S. GAAP.

You should read the selected consolidated financial information in conjunction with our consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our historical results are not necessarily indicative of our results expected for future periods.

For the Year Ended December 31,

    

2015(1)

    

2016

    

2017

    

2018

    

2019(3)

RMB

RMB

RMB

RMB

RMB

    

US$

(in thousands)

Selected Data of Consolidated Statements of Comprehensive Income/(Loss):

Revenues:

Membership

 

1,859,987

 

2,951,135

 

3,789,524

 

4,399,058

 

4,470,916

640,881

Online marketing services

 

2,414,906

 

4,363,777

 

5,978,491

 

8,282,593

 

10,158,442

1,456,157

E-commerce service

 

144,930

 

166,753

 

73,941

 

72,596

 

266,848

38,251

Other revenues

 

58,275

 

110,462

 

226,824

 

383,568

 

680,317

97,520

Total revenues

 

4,478,098

 

7,592,127

 

10,068,780

 

13,137,815

 

15,576,523

2,232,809

Cost of revenues (2)

 

(322,016)

 

(707,237)

 

(925,497)

 

(1,437,795)

 

(1,798,407)

(257,792)

Gross profit

 

4,156,082

 

6,884,890

 

9,143,283

 

11,700,020

 

13,778,116

1,975,017

Operating expenses (2):

Sales and marketing expenses

 

(4,316,217)

 

(4,941,380)

 

(5,212,360)

 

(6,861,845)

 

(8,049,662)

(1,153,875)

Research and development expenses

 

(760,796)

 

(1,107,897)

 

(1,368,441)

 

(1,702,748)

 

(2,058,663)

(295,098)

General and administrative expenses

 

(659,284)

 

(601,906)

 

(766,017)

 

(748,766)

 

(817,302)

(117,156)

Total operating expenses

 

(5,736,297)

 

(6,651,183)

 

(7,346,818)

 

(9,313,359)

 

(10,925,627)

(1,566,129)

Income/(loss) from operations

 

(1,580,215)

 

233,707

 

1,796,465

 

2,386,661

 

2,852,489

408,888

Net income/(loss)

(1,648,583)

(772,963)

1,389,242

2,129,058

8,445,226

1,210,577

Net loss/(income) attributable to noncontrolling interests

 

80,705

 

4,916

 

(4,667)

 

139

 

8,033

1,151

Net income/(loss) attributable to 58.com Inc.

 

(1,567,878)

 

(768,047)

 

1,384,575

 

2,129,197

 

8,453,259

1,211,728

Deemed dividend to mezzanine classified noncontrolling interests

 

(5,762)

 

(15,717)

 

(99,507)

 

(132,202)

 

(175,045)

(25,092)

Net income/(loss) attributable to 58.com Inc. ordinary shareholders

 

(1,573,640)

 

(783,764)

 

1,285,068

 

1,996,995

 

8,278,214

1,186,636

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For the Year Ended December 31,

    

2015

    

2016

    

2017

    

2018

    

2019(3)

RMB

RMB

RMB

RMB

RMB

    

US$

(in thousands, except for share, per share and per ADS data)

Net income/(loss)

(1,648,583)

(772,963)

1,389,242

2,129,058

8,445,226

1,210,577

Foreign currency translation adjustment, net of nil tax

 

(69,708)

 

(76,027)

 

82,926

 

15,486

 

137,371

19,691

Unrealized gain/(loss) on available-for-sale securities

 

16,919

 

(13,104)

 

 

 

Reclassification into investment loss, net of nil tax

 

 

2,989

 

 

 

Total comprehensive income/(loss)

 

(1,701,372)

 

(859,105)

 

1,472,168

 

2,144,544

 

8,582,597

1,230,268

Net income/(loss) per ordinary share attributable to ordinary shareholders – basic

 

(6.70)

 

(2.73)

 

4.41

 

6.77

 

27.79

3.98

Net income/(loss) per ordinary share attributable to ordinary shareholders – diluted

 

(6.70)

 

(2.73)

 

4.35

 

6.66

 

27.46

3.94

Net income/(loss) per ADS attributable to ordinary shareholders – basic

 

(13.40)

 

(5.46)

 

8.82

 

13.54

 

55.59

7.97

Net income/(loss) per ADS attributable to ordinary shareholders – diluted

 

(13.40)

 

(5.46)

 

8.70

 

13.33

 

54.92

7.87

Weighted average number of ordinary shares used in computing basic earnings/(losses) per share

 

234,811,986

 

286,975,068

 

291,475,725

 

294,902,518

 

297,836,268

297,836,268

Weighted average number of ordinary shares used in computing diluted earnings/(losses) per share

 

234,811,986

 

286,975,068

 

295,304,995

 

299,711,258

 

301,449,100

301,449,100

Notes:

(1) For the year ended December 31, 2015, the financial statements include the results of significant business combinations and acquisitions, deconsolidation of 58 Home and Guazi, and other related significant transactions, please refer to “Item 4. Information on the Company — A. History and Development of the Company.”
(2) Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:

For the Year Ended December 31,

    

2015

    

2016

    

2017

    

2018

    

2019

RMB

RMB

RMB

RMB

RMB

    

US$

(in thousands)

Cost of revenues

760

490

3,278

6,354

7,743

1,110

Sales and marketing expenses

 

44,049

 

59,017

 

69,926

 

90,919

 

109,011

15,626

Research and development expenses

 

59,314

 

98,515

 

126,116

 

182,410

 

208,273

29,855

General and administrative expenses

 

72,482

 

108,553

 

151,249

 

183,191

 

219,675

31,489

Total

 

176,605

 

266,575

 

350,569

 

462,874

 

544,702

78,080

(3)

For the year ended December 31, 2019, “Net income” and “Net income attributable to 58.com Inc. ordinary shareholders” included a realized gain of RMB4,760.5 million from the sale of a portion of equity stake in Che Hao Duo and an unrealized gain of RMB1,381.1 million arising from remeasuring the fair value of the remaining equity stake in Che Hao Duo, and income tax expenses of RMB524.2 million related to aforementioned transactions. If the gain from the sale of a portion of equity stake and revaluation of the remaining equity stake in Che Hao Duo and the related income tax expenses were excluded, “Net income” and “Net income attributable to 58.com Inc. ordinary shareholders” for the year ended December 31, 2019 would have been RMB2,827.8 million and RMB2,660.8 million, respectively, and the basic and diluted earnings per share attributable to ordinary shareholders were RMB8.93 and RMB8.83 for the year ended December 31, 2019, respectively.

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As of December 31,

    

2015

    

2016

    

2017

    

2018

    

2019

RMB

RMB

RMB

RMB

RMB

    

US$

(in thousands)

Selected Data of Consolidated Balance Sheets:

Cash, cash equivalents, and term deposits

 

3,138,387

 

1,226,818

 

1,524,982

 

2,387,478

 

5,363,206

768,786

Restricted cash

 

31,436

 

1,151,940

 

885,350

 

812,000

 

477,099

68,390

Shor-term investments

 

267,650

 

833,480

 

3,437,707

 

4,587,610

 

8,414,348

1,206,151

Total assets

 

26,380,294

 

25,326,006

 

28,266,512

 

31,830,845

 

43,362,211

6,215,735

Deferred revenues

 

1,344,563

 

1,845,846

 

2,123,755

 

2,348,333

 

2,154,920

308,896

Customer advances

 

981,429

 

1,236,076

 

1,365,437

 

1,465,169

 

1,986,108

284,698

Total liabilities

 

7,989,037

 

7,473,830

 

6,714,970

 

7,569,685

 

8,353,686

1,197,456

Total mezzanine equity

 

97,647

 

86,457

 

1,736,405

 

1,944,397

 

3,668,876

525,913

Total shareholders’ equity

 

18,293,610

 

17,765,719

 

19,815,137

 

22,316,763

 

31,339,649

4,492,366

Number of ordinary shares outstanding

 

283,068,677

 

289,670,997

 

293,965,131

 

296,444,579

 

299,277,413

299,277,413

Selected Data of Consolidated Statements of Cash Flows:

Net cash provided by operating activities

 

198,538

 

1,887,849

 

2,779,880

 

3,799,581

 

4,354,420

624,184

Cash used in purchase of property and equipment and intangible assets

 

(1,261,025)

 

(213,116)

 

(121,278)

 

(183,679)

 

(116,812)

(16,745)

Cash paid for business acquisitions of Anjuke and Ganji, net of acquisition of cash

 

(4,044,962)

 

(1,659,973)

 

(91,867)

 

 

Net cash used in investing activities

 

(2,781,242)

 

(2,799,529)

 

(3,210,290)

 

(3,086,965)

 

(1,769,651)

(253,671)

Net cash provided by financing activities

 

4,930,710

 

58,631

 

571,076

 

46,920

 

19,300

2,766

Change in Reporting Currency

Starting from December 31, 2016, we changed our reporting currency from U.S. dollars to Renminbi. The change in reporting currency is to facilitate investors to evaluate our financial results as most of our business operations are conducted in the PRC. Assets and liabilities of entities with functional currencies other than Renminbi are translated into Renminbi using the exchange rate on the balance sheet date. Revenues and expenses of entities with functional currencies other than Renminbi are translated into Renminbi using the average rate prevailing during the reporting period. Prior periods’ financial information has been recasted as if we always used Renminbi as our reporting currency.

B.           Capitalization and Indebtedness

Not applicable.

C.           Reasons for the Offer and Use of Proceeds

Not applicable.

D.           Risk Factors

Risks Related to Our Business

We operate in a fast-evolving industry, which makes it difficult to evaluate our business and prospects.

We commenced operations in 2005 and many of the elements of our business are evolving and some are relatively unproven. The markets for our technology and products and services are relatively new and rapidly developing and are subject to significant challenges. Our business plan relies heavily upon growing our user base and exploring new market opportunities, and we may not succeed in any of these respects.

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As the online marketing services and mobile services industries in China are relatively young and untested, there are few proven methods of projecting user demand or available industry standards on which we can rely. We cannot assure you that our attempts to expand our user base and products and services will be successful, profitable or widely accepted and therefore the future revenue and income potential of our business are difficult to evaluate. You should consider our prospects in light of the risks and uncertainties fast-growing companies with limited operating histories may encounter.

The markets for online marketing services and mobile services in China are constantly evolving and may not grow as quickly as expected or at all.

Our business and prospects are affected by the development of emerging internet business models in China, including those for online marketing services and mobile services. Our membership services and other online marketing services have distinct business models which may differ from models for these businesses in other markets, such as the United States, and that are in varying stages of development and monetization. Our future success will depend on our ability to respond to rapidly changing technologies, adapt our products and services to evolving industry standards and improve the performance and reliability of our products and services. Our failure to adapt to such changes could harm our business. In addition, changes in user behavior resulting from technological developments may also adversely affect us. We cannot assure you that the online marketing services and mobile services industries in China will continue to grow as rapidly as they have in the past or at all. With the development of technology, new internet services may emerge which are not a part of our service offerings and which may render online marketing services or mobile services less attractive to users. The growth and development of these industries are affected by numerous factors, such as the macroeconomic environment, regulatory changes, technological innovations, development of internet and internet-based services, users’ general online experience, cultural influences and changes in tastes and preferences. If the online marketing services and mobile services industries in China do not grow as quickly as expected or at all, or if we fail to benefit from such growth by successfully implementing our business strategies, our business and prospects may be adversely affected.

Our business, financial condition and results of operations, as well as our ability to obtain financing, may be adversely affected by the downturn in the global or Chinese economy.

The online marketing services and mobile services industries may be affected by economic downturns. Thus, our business and prospects may be affected by the macroeconomic environment in China. A prolonged slowdown in the Chinese economy may lead to a reduced amount of activities on our platforms, which could materially and adversely affect our business, financial condition and results of operations. In addition, our products and services may be viewed as discretionary by our users, who may choose to discontinue or reduce spending on such products and services during an economic downturn. In a slower economy, businesses might scale back their recruitment budget or even their total size of employees, which will negatively impact the performance of our jobs vertical. In such an event, our ability to retain existing paying members and customers, and recruiting new paying members and customers and encouraging them to spend more on our services will be adversely affected, which would in turn negatively impact our business and results of operations.

Moreover, a slowdown or disruption in the global or China’s economy may have a material and adverse impact on financings available to us. The weakness in the economy could erode investors’ confidence, which constitutes the basis of the credit market. The recent financial turmoil affecting the financial markets and banking system may significantly restrict our ability to obtain financing in the capital markets or from financial institutions on commercially reasonable terms, or at all.

COVID-19 had a severe and negative impact on the Chinese and the global economy in the first quarter of 2020. Whether this will lead to a prolonged downturn in the economy is still unknown. Even before the outbreak of COVID-19, the global macroeconomic environment was facing numerous challenges. The growth rate of the Chinese economy had already been slowing since 2010. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China, even before 2020. Unrest, terrorist threats and the potential for war in the Middle East and elsewhere may increase market volatility across the globe. There have also been concerns about the relationship between China and other countries, including the surrounding Asian countries, which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the United States and China with respect to trade policies, treaties, government regulations and tariffs. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition.

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Our real estate vertical is susceptible to fluctuations in China’s real estate industry, and if we are unable to continue to obtain listings from our key real estate market participants, the results of operations and financial performance of our real estate vertical could be materially and adversely affected.

We derive a significant portion of our revenues from the real estate content category, or vertical. Our 58 and Ganji platforms have mainly secondary property sales and rental listings, while our Anjuke platform has both primary and secondary property sales listings.

Our real estate vertical is susceptible to fluctuations in China’s real estate industry. Demand for private residential real estate in China has grown rapidly in recent years but such growth is often coupled with volatility and fluctuations in real estate transaction volume and prices. Fluctuations of supply and demand in China’s real estate industry are caused by economic, social, political and other factors. Over the years, governments at both national and local levels have announced and implemented various policies and measures aimed to regulate the real estate market, during certain period to stimulate further development and more purchase of residential real estate units and during other period to restrict these activities from growing too rapidly. These measures can affect real estate buyers’ eligibility to purchase additional units, their down payment requirements and financing, as well as availability of land to developers and their ability to obtain financing. These measures have affected and continue to affect the conditions of China’s real estate market and cause fluctuations especially in real estate pricing and transaction volume, which will impact our real estates’ customers’ commission revenues and their marketing spending. To the extent fluctuations in China’s real estate industry adversely affect spending on real estate marketing, the results of operations and financial performance of our real estate vertical may be materially and adversely affected.

The success of our real estate vertical depends on our ability to persuade real estate agents, brokers, developers and property owners to list their properties on our 58, Anjuke and Ganji platforms. We believe having large numbers of high-quality listings from such real estate market participants attracts users to our platforms, thereby enhancing our attractiveness to advertisers and other real estate market participants. However, our real estate listing agreements are typically non-exclusive, which we believe is generally consistent with industry practice. Our listing customers may stop using our listing services and may choose to use the services of one or more of our competitors or alternative means of marketing, such as real estate magazines or newspapers. If owners of large numbers of property listings, such as major developers or large brokers or property owners in key real estate markets choose not to list their properties on our platforms, our platforms could become less attractive to users. If we experience reduced user traffic on our platforms, advertisers and other real estate market participants may discontinue the use of or be unwilling to pay for our services. In such an event, the competitive position of our real estate vertical could be significantly weakened and our business, financial condition and results of operations could be materially and adversely affected.

We face intense competition, and if we do not compete successfully against existing and new competitors, we may lose market share and suffer losses.

We face intense competition. Our competitors in the online marketing space include other smaller multi-category online classifieds companies as well as industry or content-specific vertical platforms whose information serve the same underlying industries as certain content categories of our online platforms. For example, Anjuke, our online real estate listing platform, competes with other listing platforms in the real estate industry as well as traditional real estate agencies that develop their own online platforms. We may also face competition from other internet or other companies, who may enter the online classifieds market in China. We compete primarily on the basis of user traffic, effectiveness of services in reaching targeted users, ability to demonstrate marketing results and customer service capabilities.

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We believe that our competitiveness depends upon many factors both within and beyond our control, including our ability to increase our brand recognition and continue to develop user loyalty, our ability to keep up with the technological developments and users’ changing demands and our ability to raise sufficient capital to sustain and expand our business. For example, we may have to increase our sales and marketing expenses from time to time to promote our brand, especially when the competition is intense. Some of our current and potential competitors may have greater financial, marketing, user traffic and other resources than we have. In addition, local content providers may be acquired by, receive investments from or enter into strategic relationships with larger, well-established and well-financed companies or investors. Certain of our competitors may be able to devote greater resources to marketing and promotional campaigns and devote substantially more resources to website and system development than us. Online user acquisition cost and cost of hiring and retaining good talent might continue to increase due to the supply and demand of user and talent pool in China. Increased competition may reduce our market share and require us to increase our marketing and promotion efforts, which could negatively affect our operating margins or force us to incur losses. There can be no assurance that we will be able to compete successfully against current and future competitors or maintain our leading position or level of user traffic in the online marketing services market in China, and competitive pressures may have a material adverse effect on our business, prospects, financial condition and results of operations.

If we fail to continually anticipate user preferences and provide attractive services on our online platforms, we may not be able to grow and retain our user base.

Our success depends on our ability to grow and retain our user base. In order to attract and retain users and compete against our competitors and other industry or content-specific vertical companies, we must continue to innovate and introduce services that our users find useful and attract them to use our online platforms more frequently and continue to develop our paying users. For example, we must continue to enhance the content on our online platforms that appeal to our users. The popularity of online marketing services and other internet services is difficult to predict, and we cannot be certain that the services we offer will continue to be popular with our users or sufficiently successful to offset the costs incurred to acquire these users and offer these services. Given that we operate in a rapidly evolving industry in China, we need to continually anticipate user preferences and industry changes and respond to such changes in a timely and effective manner. If we fail to anticipate and meet the needs of our users, the size of our user base or the user engagement may decrease. A decrease in our user base or user engagement would render our online platforms less attractive to business users and may reduce our membership and online marketing revenues, which may have a material and adverse effect on our marketing business, financial condition and results of operations.

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If we fail to retain existing or attract new business users to use our online platforms and pay for our membership and online marketing services, our business, financial condition and prospects may be materially and adversely affected.

The success of our business depends on our ability to attract and retain business users that provide information on our online platforms to consumers and pay for our membership and online marketing services. If we are unable to grow and maintain a healthy ecosystem of business users, our users may find our online platforms to be less useful than expected and may not continue to use our online platforms. This in turn may affect our ability to attract new business users and convince existing business users to renew their paid memberships or increase their level of spending on our services. Our membership contracts primarily have terms ranging from one month to one year. A significant portion of our paying business users are small and medium-sized local businesses who fail to renew their membership contracts upon expiration for a number of reasons, including reasons beyond our control such as discontinuation of their business. There is no assurance that we could successfully drive the increase in paying business users using our platforms going forward. The competitive landscape for such local business users changes quickly and they may have only temporary or occasional recruiting or marketing needs. In addition, our efforts to provide greater incentives for our existing paying business users to use our online marketing services, including marketing activities to highlight the value of differentiated paying business users-only services, may not be successful. Our customers may terminate their memberships or other spending on our online marketing services because we no longer serve their needs or because their demands can be better fulfilled by our competitors or other service providers. Our ability to maintain or grow our membership base may also be affected by changes in China’s macro economy. For example, largely due to unfavorable real estate policies, memberships in the real estate vertical suffered a negative impact, resulting in a slower growth in our paying business users in 2018 and 2019, as compared with the previous years. Furthermore, we have used our own sales teams to replace third-party sales agencies in selected industry verticals and may continue to do so. As a result of this transition, we may lose paying business users who have established relationships with the third-party agencies or who are not satisfied with the performance of our own teams. We have also encouraged customers to purchase, pay for membership and online marketing services and resolve their issues they come across when using our services through self-serve online interfaces instead of interacting with our sales and customer service teams in person or over the phone. Decisions by our customers not to renew their memberships or not to use our online marketing services as a result of these initiatives could reduce our revenues, as well as cause us to incur additional cost in attracting new paying business users and other customers. A significant increase in local subscription-based business users’ attrition or decrease in local business users’ spending on our services would have an adverse effect on our business, financial condition and results of operations.

If we fail to keep up with the technological developments and users’ changing requirements or to successfully capture and retain a significant portion of the growing number of users that access online marketing services, we may be unable to meet our growth expectations and our results of operation may be adversely affected.

The internet industries in China are subject to rapid and continuous changes in technology, user preferences, the nature of services offered and business models. Our success will depend on our ability to keep up with the changes in technology and user behavior resulting from technological developments. If we do not adapt our services to such changes in an effective and timely manner, we may suffer from decreased user traffic, which may result in a reduction of revenues from our membership services or a decrease in spending on our other services.

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Our online marketing services are now accessible to users from many internet-enabled devices, and we offer versions of our services for mobile operating systems, including Android and iOS. An important element of our strategy is to continue to develop our online platforms and services for mobile devices to capture a greater share of the growing number of users that access online marketing services and other internet services through smartphones and other mobile devices. The lower resolution, functionality and memory associated with some mobile devices make the use of services through such devices more difficult and the services we develop for these devices may fail to prove compelling to users. Manufacturers or distributors may establish unique technical standards for their devices, and our services may not work or be viewable on these devices as a result. As new devices and new services are continually being released, it is difficult to predict the problems we may encounter in developing our services for use on these devices and we may need to devote significant resources to the creation, support and maintenance of such services. Devices providing access to our products and services are not manufactured and sold by us, and we cannot assure you that the companies who manufacture or sell these devices would always ensure that their devices perform reliably and are maximally compatible with our systems. Any faulty connection between these devices and our products and services may result in consumer dissatisfaction with us, which could damage our brand and have a material and adverse effect on our financial results. Furthermore, new online marketing services may emerge which are specifically created to function on mobile platforms, as compared to our online marketing services that were originally designed to be accessed through personal computers, or PCs, and such new services may operate more effectively through mobile devices than our own. If we are unable to attract and retain a substantial number of mobile device users to our services, or if we are slower than our competitors in developing attractive services that are adapted for such devices, we may fail to capture a significant share of an increasingly important portion of the market for our services or lose existing users, either of which may have a material adverse effect on our business, financial condition and results of operations.

Furthermore, changes in technologies may require substantial capital expenditures in development of new features, applications and services as well as in modification of existing features, applications, services or infrastructure. We may not successfully execute our business strategies due to a variety of reasons such as technical hurdles, misunderstandings or erroneous predictions of market demand or lack of necessary resources. Failure in keeping up with technological developments may result in our online platforms being less attractive, and as a result we may be unable to meet our revenue growth expectations and our results of operations may be adversely affected.

We may not be able to effectively manage our growth and expansion or implement our business strategies, in which case our business and results of operations may be materially and adversely affected.

We have experienced a period of rapid growth and expansion, which has placed, and continues to place, significant strain on our management and resources. We cannot assure you that this level of significant growth and expansion will be sustainable or achieved at all in the future. We believe that our continued growth and expansion will depend on our ability to develop new sources of revenue, attract new users, paying members and customers, retain and expand paying members and customers, encourage additional spending by our customers, continue developing innovative technologies in response to user demand, increase brand awareness through marketing and promotional activities, react to changes in user access to and use of the internet, expand into new market segments, integrate new devices, platforms and operating systems and take advantage of any growth in the relevant markets. We cannot assure you that we will achieve any of the above.

To manage our growth and expansion, and to attain and maintain profitability, we anticipate that we will need to implement a variety of new and upgraded operational and financial systems, procedures and controls, including the improvement of our accounting and other internal management systems. We will also need to further expand, train, manage and motivate our workforce and manage our relationships with our paying members and customers. All of these endeavors involve risks and will require substantial management efforts and skills and significant additional expenditures. Our further expansion may divert our management, operational or technological resources from our existing business operations. In addition, our expansion may require us to operate in new cities and towns in China, including a number of small cities and towns in China, where we may have difficulty in satisfying local market demands and regulatory requirements. We cannot assure you that we will be able to effectively manage our growth and expansion or implement our future business strategies effectively, and failure to do so may materially and adversely affect our business and results of operations.

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Our business depends substantially on the continuing efforts of our executive officers and key employees, and our business may be severely disrupted if we lose their services.

We currently depend on the continued services and performance of the key members of our management team, in particular Mr. Jinbo Yao, our chairman and chief executive officer. Mr. Yao is our founder and his leadership has played an integral role in our growth. Our future success depends substantially on the continued efforts of our executive officers and key employees. If one or more of our executive officers or key employees were unable or unwilling to continue their service, we might not be able to replace them in a timely manner, or at all, and our business may be severely disrupted, our financial conditions and results of operations may be materially and adversely affected and we may incur additional expenses to recruit, train and retain personnel. If any of our executive officers or key employees joins a competitor or forms a competing company, we may lose users, know-how and key professionals and staff members. Each of our executive officers and key employees has entered into an employment agreement and a confidentiality and non-competition agreement with us. However, if any dispute arises between our executive officers and key employees, on one hand, and us on the other, we cannot assure you that we would be able to enforce these non-compete provisions in China, where these executive officers reside, in light of uncertainties with the PRC legal system. 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.”

If we are unable to attract, train and retain qualified personnel, our business may be materially and adversely affected.

Our future success depends, to a significant extent, on our ability to attract, train and retain qualified personnel, particularly management, product, research, developing and marketing personnel with expertise in the online marketing industry. Our field sales and customer service teams are also critical to maintaining the quality of our services as they interact with business users on a regular basis. We must continue to attract qualified personnel at a fast pace to keep up with our growing user base and the scale of our operations. Since our industry is characterized by high demand and intense competition for talent, there can be no assurance that we will be able to attract or retain qualified staff or other highly skilled employees that we will need to achieve our strategic objectives. As we are still a relatively young company, our ability to train and integrate new employees into our operations may not meet the growing demands of our business. If we are unable to attract, train, and retain qualified personnel, our business may be materially and adversely affected.

We have incurred significant costs on a variety of marketing efforts, including significant advertising expenses, designed to attract users, and some marketing campaigns and methods may turn out to be ineffective.

We have invested significantly in marketing to promote public awareness of our platforms, enhance our brand recognition and drive user growth, including incurring RMB2.1 billion, RMB3.3 billion and RMB3.7 billion in advertising expenses in 2017, 2018 and 2019, respectively. Such advertising expenses represented 40.0%, 48.2% and 46.2% of our total sales and marketing expenses and 20.7%, 25.2% and 23.9% of our revenues in the corresponding periods. Our marketing activities may not be well received by users and may not attract the additional traffic that we anticipated. The evolving marketing approaches and tools require us to enhance our marketing approaches and experiment with new marketing methods to keep pace with industry developments and user preferences. However, tracking the return on investment of online and offline advertising and user acquisition expenses requires complex data tracking technology, involves certain assumption and estimate in the calculation and is typically retrospective with historic data. Failure to refine our existing marketing approaches or to introduce new effective marketing approaches in a cost-effective manner could reduce our market share, cause our revenues to decline and negatively impact our profitability.

Any damage to our reputation and brands or failure to enhance our brand recognition may materially and adversely affect our business, financial condition and results of operations.

Our major brands include 58.com, Anjuke, Ganji, Zhuan Zhuan and 58 Town. We believe that the market recognition and reputation of our brands have significantly contributed to the success of our business. Maintaining and enhancing our brands is critical to our success and ability to compete. Many factors, some of which are beyond our control, may negatively impact our brand and reputation, such as:

any failure to maintain a pleasant and reliable experience for users as their preferences evolve and as we expand into new services;
any decrease in brand awareness among our existing and potential users; and

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any negative publicity about us or user experience in general, including any actual or perceived security or product or service quality problems involving online marketing service providers in China.

Although all of our paying users and a growing number of registered users go through certain verification procedures, fraudulent transactions and sale of counterfeit or pirated or illegal, as well as faulty or defective, items through our online platforms have occurred in the past and may occur in the future. In the past, Chinese media reported some incidents of consumers having unpleasant experiences with services on our platform or offline experiences with service providers selected from our online platform and accused us of failure to safeguard consumer rights on our platforms. In addition, we face risks with respect to fictitious postings such as fake job openings, false listings of real estate, and fraudulent used goods information that take place on our online platforms. For example, certain business users may fabricate job openings to misrepresent the nature and compensation level of jobs that they post on our platforms. False sales and rental listings containing misleading pictures and false availability of real estate may also be posted by certain real participants such as property owners and unqualified real estate agents and brokers to inflate the popularity and search results rankings on our platforms. Further, certain users may post false descriptions of used goods on our platforms. Any reports and media coverage, whether verified or not, of fake postings on our platforms could result in significant negative publicity, and severely diminish user confidence in us and the value of our brands. Even though we have been increasing investment and capability in improving the platform information quality and enhancing the standards of services provided offline, these incidents and any similar incidents or true or untrue claims of such incidents could continue to happen and harm our reputation, impair our ability to attract and retain users and grow our base of paying customers. If we are unable to maintain a good reputation, further enhance our brand recognition, continue to develop our user loyalty and increase positive awareness of our platforms, our results of operations may be materially and adversely affected.

In addition, any claims or negative publicity about our company, our services, our employees, our business practices, regardless of their veracity, could harm our brand image and in turn adversely affect our business and results of operations. We cannot assure you that we will be able to defuse negative publicity to the satisfaction of our investors, users, customers and business partners. From time to time, there have been claims or negative publicities about our company and our business practice, which adversely affected our public image and reputation during the period of such negative publicities. Intense negative publicities may divert our attention and may adversely impact our business, and we cannot assure you that our brands, public image and reputation will not be materially and adversely affected.

The proper functioning of our platforms, network infrastructure and information technology systems is essential to our business, and any failure to maintain the satisfactory performance, security and integrity of our systems will materially and adversely impair our ability to provide services and affect our business, reputation, financial condition and results of operations.

The proper functioning of our platforms is essential to our business. Specifically, the satisfactory performance, reliability and availability of our platforms and mobile apps, our transaction-processing systems and our network infrastructure are critical to our success and our ability to attract and retain users and provide adequate services. Our revenues depend on the user traffic on our platforms and the volume of activities that traffic creates.

In addition, our ability to provide consumers and business users with a high-quality online experience depends on the continuing operation and scalability of our network infrastructure and information technology systems. The risks we face in this area include:

our systems are potentially vulnerable to damage or interruption as a result of earthquakes, floods, fires, extreme temperatures, power loss, telecommunications failures, technical error, computer viruses, hacking and similar events;
we may encounter problems when upgrading our systems or services and undetected programming errors could adversely affect the performance of the software we use to provide our services. The development and implementation of software upgrades and other improvements to our internet services is a complex process, and issues not identified during pre-launch testing of new services may only become evident when such services are made available to our entire user base; and
we rely on servers, data centers and other network facilities provided by third parties, and the limited availability of third-party providers with sufficient capacity to house additional network facilities and broadband capacity in China may lead to higher costs or limit our ability to offer certain services or expand our business. In particular, electricity, temperature control or other failures at the data centers we use may adversely affect the operation of our servers or result in service interruptions or data loss.

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These and other events in the past occasionally led to and may in the future lead to interruptions, decreases in connection speed, degradation of our services or the permanent loss of user data and uploaded content. Any system interruptions caused by telecommunications failures, computer viruses, or hacking or other attempts to harm our systems that result in the unavailability of our platforms and mobile apps or reduced performance would reduce the attractiveness of the services offered on our online platforms. If we experience frequent or persistent service disruptions, whether caused by failures of our own systems or those of third-party service providers, our reputation or relationships with our users may be damaged and our users may switch to our competitors, which may have a material adverse effect on our business, financial condition and results of operations.

We face risks related to natural disasters, health epidemics, terrorist acts or acts of war, social unrest or other public safety concerns or hostile events, which could significantly disrupt our operations.

Our business could be materially and adversely affected by natural disasters. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, terrorist acts or acts of war, social unrest or other public safety concerns or hostile events may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data, malfunctions of software or hardware, disruption to operation, as well as adversely affect our ability to operate our platform and provide our services. Our business could also be adversely affected by the effects of Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS, COVID-19, or other epidemics. Our business operations could be disrupted if any of our employees is suspected of having Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, SARS, COVID-19 or other epidemics or pandemics, since it could require our employees to be quarantined and/or our offices to be disinfected. Activity level, especially those relating to marketing and hiring business, across our platforms may also experience a declining tend during such outbreak period as a result of governmental precaution measures taken including temporary workplace shutdown. In addition, our results of operations could be adversely affected to the extent that any such event harms the economic condition in general.

Since January 2020 the outbreak of COVID-19 has widely spread and was quickly declared as a Public Health Emergency of International Concern and subsequently a pandemic by the World Health Organization. To control the spread of COVID-19, PRC government has implemented a series of strict measures, including travel restrictions, quarantines, and a temporary shutdown of businesses which resulted in a decrease in activity level among our paying business users. In particular, paying business users that require in-person meetings to conduct their business, including those in the secondary housing and rental real estate sector, used auto dealers, local service providers, and recruiters, have been adversely and materially affected by these interruptions and delayed business resumption. As our revenues are generated primarily from these paying business users, most of whom are small and medium-sized local businesses, the outbreak of COVID-19 and subsequent prevention and control measures have adversely affected our business operations and financial conditions in the first quarter of 2020. For instance, our revenues for the first quarter of 2020 were estimated to decline significantly compared to the same period in 2019. We also scaled back certain expenses, particularly some discretionary advertising expenses to mitigate the adverse impact on our profit. During February 2020, a majority of our employees worked from home. As our customers, many of whom are migrant workers, took longer to resume normal businesses due to these quarantine measures, we also delayed hiring for our sales and customer services teams. The outbreak of COVID-19 also adversely affected the business operations of our investees, which will likely result in downward adjustments to our long-term investments, and if the impacts of the COVID-19 pandemic become other than temporary, impairment losses will be recognized for our long-term investments. Since the end of February 2020, the number of daily new cases of COVID-19 in China have been contained at a relatively low level, the quarantine measures have been gradually relaxed or lifted. Offline business activities have been recovering and our employees are going back to offices. Despite the recovering trend we have observed till the date of this report, there is still high uncertainty as to how the ongoing pandemic will develop and its impact on our business going forward. If the pandemic continues to impact economic activity subsequent to the date of this report, the uncertainty may continue to have adverse impact on our business, financial condition and results of operations for the remainder of the fiscal year ending December 31, 2020, which cannot be reasonably estimated at the current stage. We will regularly assess and adopt measures to offset any challenges created by the ongoing pandemic.

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Our operations depend on the performance of the internet infrastructure, the fixed telecommunications networks and certain cloud service providers in China.

Almost all access to the internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the Ministry of Industry and Information Technology, or the MIIT. Moreover, we primarily rely on a limited number of telecommunication service providers and cloud service providers to provide us with data communications capacity through local telecommunications lines and internet data centers to host our servers. In addition, our field sales and centralized customer service team rely heavily on call center systems which are built on third-party telecommunication networks offered by a limited number of service providers in China. Such telecommunication service providers may also take actions that may affect their service quality and availability from time to time as required by fast changing industry rules and regulations. We have limited access to alternative networks or services in the event of disruptions, failures or other problems with the PRC internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers or cloud service providers. With the expansion of our business, we may be required to upgrade our technology and infrastructure or those of third-party telecommunication or cloud service providers to keep up with the increasing traffic on our platforms. We cannot assure you that the internet infrastructure and the fixed telecommunications networks in China will be able to support the demands associated with the continued growth in internet usage.

In addition, we have no control over the costs of the services provided by telecommunication or cloud service providers. If the prices we pay for those services rise significantly, our results of operations may be materially and adversely affected. Furthermore, if internet access fees or other charges to internet users increase, our user traffic may decline and our business may be harmed.

We rely on WeChat and other third-party payment service providers to conduct payment processing and escrow services on our platforms. If those services are limited, restricted, curtailed or degraded in any way or become unavailable to us or our users for any reason, our business may be materially and adversely affected.

Our users make payments through a variety of methods, including payment on our platforms or through our third-party online payment service partners, such as WeChat. For example, the payment solution for Zhuan Zhuan is a WeChat payment-based escrow payment process co-developed by 58 and Tencent. This is a convenient and secure payment method with an escrow payment process. These services are critical to our platforms. We rely on the convenience and ease of use that WeChat provides to our users. If the quality, utility, convenience or attractiveness of WeChat’s services declines for any reason, the attractiveness of our platforms could be materially and adversely affected.

Business involving online payment services is subject to a number of risks that could materially and adversely affect third-party online payment service providers’ ability to provide payment processing and escrow services to us, including:

dissatisfaction with these online payment services or decreased use of their services by users and merchants;
increasing competition, including from other established Chinese internet companies, payment service providers and companies engaged in other financial technology services;
changes to rules or practices applicable to payment systems that link to third-party online payment service providers;
breach of users’ personal information and concerns over the use and security of information collected from buyers;
service outages, system failures or failures to effectively scale the system to handle large and growing transaction volumes;
increasing costs to third-party online payment service providers, including fees charged by banks to process transactions through online payment channels, which would also increase our costs of revenues; and
failure to manage funds accurately or loss of funds, whether due to employee fraud, security breaches, technical errors or otherwise.

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In addition, certain commercial banks in China impose limits on the amounts that may be transferred by automated payment from customers' bank accounts to their linked accounts with third-party payment services. Although we believe the impact of these restrictions has not been and will not be significant in terms of the overall volume of payments processed for our China retail platforms, and automated payment services linked to bank accounts represent only one of many payment mechanisms that consumers may use to settle transactions, we cannot predict whether these and any additional restrictions that could be put in place would have a material adverse effect on our platforms.

In addition, we cannot assure you that we will be successful to enter into and maintain amicable relationships with online payment service providers. Identifying, negotiating and maintaining relationships with these providers require significant time and resources. They could choose to terminate their relationships with us or propose terms that we cannot accept. In addition, these service providers may not perform as expected under our agreements with them, and we may have disagreements or disputes with such payment service providers, any of which could adversely affect our brand and reputation as well as our business operations.

We may be subject to liability for placing advertisements with content that is deemed inappropriate or misleading.

In July 2016, the State Administration for Industry and Commerce of the People’s Republic of China (currently known as State Administration for Market Regulation, or the SAMR), promulgated the Interim Administrative Measures for Internet Advertisements, or the Interim Measures, which became effective on September 1, 2016. The Interim Measures provide for, among other things, a more detailed definition of online advertising and the obligations and liabilities of online adverting operators and distributors. Certain parts of our business which were not specified as forms of advertising under previous regulations, such as priority listing in the yellow page business may now be deemed as online advertising business under the Interim Measures and subject to the Interim Measures and other PRC advertising laws and regulations.

The PRC advertising laws and regulations, including the Interim Measures, prohibit advertising operators and distributors from producing, distributing or publishing any advertisement with content that violates PRC laws and regulations, impairs the national dignity of the PRC, involves designs of the PRC national flag, national emblem or national anthem or the music of the national anthem, is considered reactionary, obscene, superstitious or absurd, is fraudulent, or disparages similar products. We, as a platform for online classifieds and listings, have higher obligations with respect to the advertisements placed on our platforms than to other information posted on our platforms. For example, under the Interim Measures, internet advertisement shall be labeled visibly and distinguishably as “advertisement” for identification by the consumers. We are obligated to monitor the advertising content and examine the supporting documents for advertisements provided by advertisers to ensure that the content is accurate and in compliance with applicable law. In addition, where a special government review is required for specific categories of advertisements before posting, we are obligated to confirm that such review has been performed and approval, if required, has been obtained. We are also required to employ personnel familiar with the advertising laws to review advertisements or set up a special Internet advertisement review department. We have adopted policies and procedures and have provided training to our content review team to ensure our compliance with these new measures. However, PRC advertising laws and regulations do not provide clear guidance on the content standards. If we are found in violation of these regulations, we will be subject to penalties such as fines and confiscation of advertising income. We may also be ordered to cease dissemination of the advertisements. In circumstances involving serious violations, the SAMR or its local branches has the authority to suspend the violators’ advertising business or revoke the violators’ business licenses. Furthermore, we may be subject to claims by consumers misled by advertisements placed on our platforms.

We may be held liable to third parties for information or content displayed on, retrieved from or linked to our platforms, which could harm our reputation and business.

Our online marketing services enable users to post local business or service information, generate content, market products and services, conduct business and engage in various other online activities. Claims may be brought against us for defamation, libel, negligence, copyright, patent or trademark infringement, tort (including personal injury), fraud, other unlawful activity or other theories and claims based on the nature and content of information to which we link or that may be posted on our platforms, generated by our users, or delivered or shared hypertext links to third-party platforms, or video or image services, if appropriate licenses and/or third-party consents have not been obtained. Third parties have sought, and they may in the future seek to assert claims against us alleging unfair competition or violations of privacy rights or failure to maintain the confidentiality of user data. Our defense of any such actions could be costly and involve significant time and attention of our management and other resources.

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We are also regularly approached and asked to remove content uploaded by users on the grounds of alleged copyright or personal rights infringement. In such cases, we investigate the claims and remove any uploads that appear to infringe the rights of a third-party after our reasonable investigation and determination. Our corporate policy requires a user to enter into a user agreement in the registration process before posting any content on our platforms. Pursuant to the user agreement, a user makes certain representations and warranties relating to the user generated content on our platforms. See “Item 4. Information on the Company — B. Business Overview — Content Management and Monitoring.” However, we have been, and in the future may be, subject to intellectual property infringement claims or other allegations by third parties for services provided or content displayed on our platforms. Although we believe that we will have recourse to indemnification from alleged infringing users on the basis of the user agreement, such right to recourse is subject to the enforcement mechanism of PRC legal system, which may not be effective. Our data security team also screens our platforms to eliminate content that we believe may infringe copyrights. Although our internal policy, terms of our user agreements and the screening system are designed to help limit the occurrences and impact of infringing activities, they may not be effective in eliminating such occurrences or dissemination of infringing materials on our platforms.

Pursuant to PRC national and Beijing local regulations and judicial interpretations, online service providers that provide information storage space for users to upload works or link services may be held liable for damages if such providers know or have reason to know that the works uploaded or linked infringe others’ copyrights. The Supreme People’s Court of China promulgated a judicial interpretation on infringement of the right of dissemination through internet in December 2012. This judicial interpretation, like certain court rulings and certain other judicial interpretations, provides that the courts will place the burden on internet service providers to remove not only links or contents that have been specifically mentioned in the notices of infringement from right holders, but also links or contents they should have known to contain infringing content. This interpretation could subject us and other online service providers to significant administrative burdens and litigation risks

Privacy concerns relating to our products and services and the use of user information could damage our reputation, deter current and potential users and customers from using our products and services, and negatively impact our business.

Concerns about the collection, use, disclosure or security of personal information or other privacy-related matters, even if unfounded, could damage our reputation, cause us to lose users and customers and adversely affect our operating results. While we strive to comply with applicable data protection laws and regulations, as well as our own posted privacy policies and other obligations we may have with respect to privacy and data protection, the failure or perceived failure to comply may result, and in some cases has resulted, in inquiries and other proceedings or actions against us by government agencies or others, as well as negative publicity and damage to our reputation and brand, each of which could cause us to lose users and customers, which could have an adverse effect on our business.

Any systems failure or compromise of our security that results in the unauthorized access to or release of our users’ or customers’ data could significantly limit the adoption of our products and services, as well as harm our reputation and brand and, therefore, our business. We strictly limit third-parties’ access to user privacy and user data, and we expend significant resources on technology and product development to protect against leakage of user information and other security breaches. Nonetheless, given its great commercial value, our user data may still be misused by third parties, which could expose us to legal and regulatory risks and seriously harm our business.

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The PRC regulatory and enforcement regime with regard to data security and data protection is evolving. On November 7, 2016, the Standing Committee of the National People’s Congress issued the Cyber Security Law, which came into effect on June 1, 2017. The Cyber Security Law sets high requirements for the operational security of facilities deemed to be part of the PRC’s “critical information infrastructure” and the security protection obligations of the operators of the “critical information infrastructure.” In Hong Kong, however, the Hong Kong Personal Data Ordinance provides that an internet company may not collect information about its users, analyze the information for a profile of the user’s interests and sell or transmit the profiles to third parties for direct marketing purposes without the user’s consent. In the European Union, or EU, the General Data Protection Regulation, or GDPR, which came into effect on May 25, 2018, presents increased challenges and risks in relation to policies and procedures relating to data collection, storage, transfer, disclosure, protection and privacy, and will impose significant penalties for non-compliance, including for example, penalties calculated as a percentage of global revenue under the GDPR. Other jurisdictions may have similar regulations. New laws or regulations concerning data protection, or the interpretation and application of existing consumer and data protection laws or regulations, which is often uncertain and in flux, may be inconsistent with our practices. If so, in addition to the possibility of fines, this could result in an order requiring that we change our practices, which could have an adverse effect on our business and operating results. Complying with new laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.

Security breaches and attacks against our systems and network, and any potentially resulting breach, could damage our reputation and negatively impact our business.

Maintaining complete security for the storage and transmission of confidential information on our systems is essential to maintaining user confidence. To that end, we have adopted security policies and measures. However, advances in technology, the expertise of hackers, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology that we use to protect confidential information. We may not be able to prevent third parties, especially hackers or other individuals or entities engaging in similar activities, from illegally obtaining such confidential or private information we hold with respect to our users. Individuals or entities obtaining our users’ confidential or private information illegally may further engage in various other illegal activities using such information, which may cause losses to our users and undermine their trust in us. There can be no assurance that the measures we have taken are sufficient and effective to ensure the confidentiality and integrity of our data and confidential information stored or transmitted through our systems. Any negative publicity on our systems’ safety or privacy protection mechanisms and policies, and any claims asserted against us or fines imposed upon us as a result of actual or perceived failures, could have a material adverse effect on our public image, reputation, business, financial condition and results of operations.

We could be liable for any breach of security relating to the third-party online payment platforms we use, and concerns about the security of internet transactions could damage our reputation, deter current and potential users from using our online platforms and have other adverse consequences to our business.

Users may conduct transactions on our online platforms through third-party online payment platforms. In these online payment transactions, secured transmission of confidential information, such as customers’ credit card numbers and expiration dates, personal information and billing addresses, over public networks is essential to maintain consumer confidence. In addition, we expect that an increasing amount of our sales and transactions conducted on our online platforms will be conducted over the internet as a result of the growing use of online payment platforms. As the prevalence of using online payment methods increases, associated online crimes will likely increase as well. Our current security measures and those of the third-party online payment platform service providers may not be adequate. We must be prepared to increase and enhance our security measures and efforts so that our users have confidence in the reliability of the online payment platforms that we use, which will impose additional costs and expenses and may still not guarantee complete safety. In addition, we do not have control over the security measures of our third-party online payment platform service providers. Security breaches of the online payment platforms that we use could expose us to litigation and possible liability for failing to secure confidential user information and could, among other things, damage our reputation.

A significant barrier to financial transactions or other electronic payment processing platforms over the internet in general has been public concern over the security of online payments. If these concerns are not adequately addressed, they may inhibit the growth of paid online services generally. If an internet or mobile network security breach were to occur and get publicized, the perceived security of the online payment platforms may be damaged, and users concerned about the security of their transactions may become reluctant to purchase our services even if the publicized breach did not involve payment platforms or methods used by us.

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If any of the above were to occur and damage our reputation or the perceived security of the online payment platforms that we use, we may lose users and user traffic, and users may be discouraged from purchasing our services, which may have an adverse effect on our business. Any significant reduction in user traffic could lead to lower revenues from membership and online marketing services.

We may not be able to successfully halt the operations of websites that aggregate our data as well as data from other companies, including social networks, or “copycat” websites that have misappropriated our data in the past or may misappropriate our data in the future.

From time to time, third parties have misappropriated our data through website scraping, robots or other means and aggregated this data on their websites. In addition, “copycat” websites have misappropriated data on our platforms and attempted to imitate our brand or the functionality of our platforms. We have been increasing our investment and research in our technology to detect such behavior. When we have become aware of such websites, we have taken measures to halt such conduct. However, we may not be able to detect all such websites in a timely manner and the measures we take may be insufficient to stop their conduct. In those cases, our available remedies may not be adequate to protect us against such websites. Regardless of whether we can successfully enforce our rights against these websites, any measures that we may take could require us to expend significant financial or other resources.

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

We regard our trademarks, service marks, domain names, trade secrets, proprietary technologies and similar intellectual property as critical to our success, and we rely on trademark law, trade secret protection and confidentiality and license agreements with our employees, partners and others to protect our proprietary rights. As of March 31, 2020, we and our consolidated variable interest entities had registered 43 domain names that are material to our business, including www.58.com, www.58.com.cn, www.ganji.com, www.ganji.com.cn, www.anjuke.com and www.anjuke.cn, and 2,173 trademarks in China, excluding those relating to 58 Home. However, trademarks may also be invalidated, circumvented or challenged. For example, under PRC law, certain graphics may not be registered as a trademark and if a registered trademark is found to violate such prohibition, the relevant authority can invalidate the trademark; third parties may challenge such registered trademarks and apply to the authority for invalidation. In addition, if a registered trademark is identical or similar to a well-known trademark or prejudices the existing right obtained by others, it may be invalidated by the relevant authority upon request by the right holder. Trade secrets are difficult to protect, and our trade secrets may be leaked or otherwise become known or be independently discovered by competitors. Confidentiality agreements may be breached, and we may not have adequate remedies for any breach.

It is often difficult to enforce intellectual property rights in China. Even where adequate laws exist in China, it may not be possible to obtain prompt and equitable enforcement of such laws, or to obtain enforcement of a court judgment or an arbitration award delivered in another jurisdiction, and accordingly, we may not be able to effectively protect our intellectual property rights in China. Policing any unauthorized use of our intellectual property is difficult and costly and the steps we have taken may be inadequate to prevent the misappropriation of our technologies.

Spammers and malicious applications may make our services less user-friendly and discourage users from using our platforms or services.

Spammers may use our platforms and services to send targeted and untargeted spam messages to users, which may embarrass or annoy users and make usage of our platforms and services more time-consuming and less user-friendly. As a result, our users may use our services less or stop using them altogether. As part of fraudulent spamming activities, spammers typically create multiple user accounts, such as accounts being set-up for the purposes of sending spam messages. Although we have technologies and employees that attempt to identify and delete accounts created for spamming purposes, we are not able to eliminate all spam messages from being sent on our platforms.

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We may be subject to intellectual property infringement claims or other allegations by third parties for services we provide or for information or content displayed on, retrieved from or linked to our platforms, or distributed to our users, which may materially and adversely affect our business, financial condition and prospects.

Internet, technology and media companies are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of other parties’ rights. The validity, enforceability and scope of protection of intellectual property rights in internet-related industries, particularly in China, are uncertain and still evolving. We face, from time to time, and expect to face in the future, allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including our competitors, or allegations that we are involved in unfair competition against our competitors. As we face increasing competition and sometimes have to take defensive measures in response to competitive pressure and as litigation become more common in China in resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement and unfair competition claims. Intellectual property and unfair competition claims and litigation may be expensive and time-consuming to investigate and defend and may divert resources and management attention from the operation of our business. Such claims, even if they do not result in liability, may harm our reputation. Any resulting liability or expenses, or changes required to be made to our platforms to reduce the risk of future liability, may have a material adverse effect on our business, financial condition and prospects.

We utilize software that selectively identifies classified information listings on other platforms in certain content categories for which our certification procedure is not required and replicates such listings on our platforms. These replicated listings are not given individualized registered user accounts and are not counted as listings for purposes of calculating the listings per day posted by our users as disclosed in this annual report. If an original poster wants to delete a replicated listing on our platforms, the poster can either use our online self-help functions or contact our customer service online to delete the listing. We do not explicitly indicate the replicated listings on our platforms, although we notify our users of the replicated nature of the listings upon inquiry. We believe this is a widespread practice in our industry in China. However, the practice may be deemed to be in violation of the PRC Anti-Unfair Competition Law. If other market participants bring legal claims against us for conducting unfair competition, we may be held liable by the court and be required to pay damages to the plaintiffs equal to the losses suffered by the market participants as a result of the unfair competition practices or, if it is difficult to calculate the losses, equal to the aggregate profits earned through the unfair competition practices and the reasonable expenses incurred by the plaintiffs to investigate the unfair competition practices. We have never generated revenue from replicated listings. In addition, if the replicated listings are protected under copyright law, the practice of replicating listings may be deemed to be copyright infringement. In such case, we may be required to cease the act of infringement, eliminate any influence caused, apologize to and pay damages to the copyright owners and be subject to penalties including confiscation of illegal gains and imposition of fines by the relevant governmental authorities. In addition, we have from time to time been the subject of critical media coverage due to this practice, which could harm our reputation and business.

Strategic acquisition of businesses and assets, and the subsequent integration of newly acquired businesses into our own, create significant challenges that may have a material adverse effect on our business, reputation, results of operations and financial condition.

Since our IPO in October 2013, we have made a number of acquisitions and investments, two of which are most significant in value. In March 2015, we acquired Anjuke, a major online real estate listing platform in China, through the purchase of a 100% equity interests in Anjuke Inc., a company incorporated under the laws of the Cayman Islands, for 4.8 million newly issued Class A ordinary shares of our company and US$160.2 million in cash. We also issued 0.2 million fully vested restricted share units of our company to former Anjuke employees as part of the share consideration.

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In September 2017, Ganji, another major online classifieds platform in China, became our wholly owned subsidiary through a series of transactions. In April 2015, we acquired less than 50% equity stake in Ganji, for 34.0 million newly issued Class A ordinary shares of our company and US$412.2 million in cash. Concurrently with this acquisition, we issued 15.4 million Class A ordinary shares to Tencent for US$400.0 million. Later in 2015, we committed an aggregate of 46.5 million newly issued ordinary shares and US$406.7 million in cash to several private equity funds as a limited partner. These funds, together with Tencent, acquired all the remaining equity interests in Ganji in August 2015. Since August 6, 2015, we started to consolidate the financial results of Ganji in accordance with U.S. GAAP on the basis of our equity stake in Ganji as well as our controlling financial interests under the voting interest model over these funds. We also transferred an aggregate of 4.4 million fully vested restricted share units of our company and approximately US$51.0 million in cash to former Ganji employees as part of the total consideration of step acquisition of Ganji. In September 2017, these funds distributed all their equity interests in Ganji to their respective limited partners, and we acquired those equity interests as well as the remaining equity interests in Ganji held by Tencent.

The addition of Anjuke has strengthened our market position in the online secondary property sales markets and has allowed us to enter the primary home sales market. The acquisition of Ganji and our subsequent business cooperation and integration have allowed us to increase our market share in the job, real estate, yellow page local services, used car and used goods categories and better control marketing costs and expenses. The integration of Ganji and Anjuke has largely been completed and we gradually realized more synergies. However, Anjuke and Ganji continue to be separate consumer-facing platforms and have their own respective user bases and paying business user networks that might not overlap much with those of 58, even though the paying user related services have been integrated or being integrated in most content categories. We might experience unexpected loss of users and customers from the integration after our acquisition or investment. These acquisitions and investments expose us to potential risks, including risks associated with unforeseen or hidden liabilities, diversion of management attention and resources from our existing business and inability to generate sufficient revenues to offset the costs and expenses of the acquisition or investment.

Other than Anjuke and Ganji, we have made various other acquisitions and investments since our IPO in 2013. For example, in June 2018, we acquired a minority stake of approximately 8.3% in 5I5J Holding Group Co., Ltd., or 5I5J, a major secondary and rental brokerage company in China, for a consideration of approximately RMB1.1 billion in cash. In 2019, we jointly established Shanghai Gengying Information Technology Co., Ltd., or Ai Fang, with a publicly traded company and a private company in China to engage in the promotion and sale of primary property for real estate developers. If we fail to integrate these acquired businesses or the companies in which we invested fail to grow as we expect or continue to generate losses, we may experience losses in our acquisitions and investments.

If we are presented with appropriate opportunities in the future, we may acquire or invest in additional businesses or assets that are complementary to our business. However, strategic acquisitions and the subsequent integration of new businesses and assets into our own would require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our business operations. In addition, acquisitions could result in potential dilutive issuances of equity securities, use of substantial amounts of cash, and exposure to potential ongoing financial obligations and unforeseen or hidden liabilities of the acquired businesses. The cost and duration of, and difficulties in, integrating newly acquired businesses and managing a larger overall business could also materially exceed our expectations. Moreover, we may not be able to achieve our intended strategic synergies and may record substantial impairment charges to goodwill, if we fail to successfully integrate the newly acquired businesses or manage a larger business. Our equity investees may generate significant losses, a portion of which will be shared by us in accordance with U.S. GAAP. In addition, we may incur impairment losses if the financial or operating results of those investees fail to meet the expectations. Any such negative developments could have a material adverse effect on our business, reputation, results of operations and financial condition.

Future strategic alliances, acquisitions or business disposals may have a material and adverse effect on our business, reputation and results of operations.

We may enter into strategic alliances with various third parties to further our business purposes from time to time. Strategic alliances with third parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the counter-party, and an increase in expenses incurred in establishing new strategic alliances, any of which may materially and adversely affect our business. In addition, to the extent the strategic partner suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with such third parties, and we may have little ability to control or monitor their actions.

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Investments and acquisitions and the subsequent integration of new assets and businesses into our own require significant attention from our management and may divert resources from our existing business, which in turn could have an adverse effect on our business operations. Invested or acquired assets or businesses may not generate the financial results we expect and may adversely affect our results of operations. Furthermore, investments and acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired businesses. Moreover, the costs of identifying and consummating acquisitions may be significant.

Furthermore, the legal requirements on acquisitions by us and our PRC subsidiaries are different from acquisitions by our consolidated variable interest entities. Most importantly, if we or our PRC subsidiaries acquire any domestic companies in China, such acquisition will be subject to PRC laws and regulations on foreign investment. We and our PRC subsidiaries are restricted or prohibited from directly acquiring interests in companies in certain industries under PRC laws and regulations. See “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Value-Added Telecommunication Services.” Our consolidated variable interest entities are not subject to PRC laws and regulations on foreign investment and may acquire PRC companies operating in industries where foreign investments are restricted or prohibited. However, there are uncertainties with respect to the interpretation and application of PRC laws and regulations regarding indirect foreign investments in such industries. See “— Risks Related to Our Corporate Structure and Restrictions on Our Industry — Substantial uncertainties and restrictions exist with respect to the interpretation and application of PRC laws and regulations relating to online commerce and the distribution of internet content in China. If the PRC government finds that the structure we have adopted for our business operations does not comply with PRC laws and regulations, we could be subject to severe penalties, including the shutting down of our platforms.”

On December 31, 2015, we divested our controlling ownership stake in Che Hao Duo (formerly known as Guazi), a subsidiary that operated our C2C used car trading platform, to Mr. Mark Haoyong Yang, ex-founder and ex-CEO of Ganji and co-chairman of our board of directors at the time. We had a 45.6% stake in Guazi immediately after the spin-off and have deconsolidated the financial results of Guazi from ours in accordance with U.S. GAAP since then. As a result of this transaction, we reduced the pressure on our cash flows and profitability and were able to better focus on our core classifieds business. In addition, we expected that a more independent Che Hao Duo would grow its business faster with support from new investors. They have conducted several rounds of private equity financing since December 2015. In 2019, we sold certain percentage of our equity stake in Che Hao Duo to a third-party investor for a total purchase price of US$713.6 million. As of December 31, 2019, we held approximately 8.0% equity interests in Che Hao Duo.

In 2019, we jointly established Ai Fang, with a publicly traded company and a private company in China to engage in the promotion and sale of primary property for real estate developers. We invested RMB153 million in cash and held 30% of the equity interests in Ai Fang as of December 31, 2019. To support the fast growth of Ai Fang’s business, in March 2020, we further invested RMB139.1 million in Ai Fang’s equity and RMB370.9 million in Ai Fang’s convertible notes. Upon completion of this further investment, our equity interest in Ai Fang was increased to 45%. As of December 31, 2019, we accounted for our investment in Ai Fang using equity method.

We may dispose of other businesses that we control, particularly ones that are not closely related to our core focus areas or might require more resources or financial capital than we can allocate to them. These decisions are largely based on our management’s assessment of the business models and likelihood of success of these businesses. Our judgment could be inaccurate and divesting ownership of these businesses might negatively affect our operations or long-term value.

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Uncertainty resulting from the non-binding proposal letter and other related matters may adversely affect our business.

On April 2, 2020, we received a preliminary non-binding proposal letter, or the Proposal Letter, from Ocean Link Partners Limited to acquire all of the outstanding ordinary shares of our Company, including Class A ordinary shares represented by American depositary shares, for US$27.5 in cash per Class A or Class B ordinary share. On April 20, 2020, our board of directors formed a special committee consisting of two independent and disinterested directors, Mr. Robert Frank (Bob) Dodds Jr. and Ms. Li (Lily) Dong, to evaluate and consider the Proposal Letter or any alternative strategic option that the Company may pursue. As of the date of this annual report, no decisions have been made with respect to the Proposal Letter or any alternative strategic option that the Company may pursue. There can be no assurance that any definitive offer will be received, that any definitive agreement will be executed relating to the transaction contemplated by the Proposal Letter or that any other transaction will be approved or consummated. Moreover, the proposal or any alternative strategic option, whether or not consummated, presents a risk of diverting management focus, employee attention and resources from other strategic opportunities and from operational matters. Also, certain events and developments relating to the proposal may increase the volatility of the trading price of the ADSs. Furthermore, we could be subject to potential lawsuits in connection with the proposed transaction.

We may not be able to maintain profitability.

We incurred losses in 2015 and 2016, but made profits in 2017, 2018 and 2019. Our loss in 2015 was attributable to increased competition and the fact that we had new initiatives such as 58 Daojia Inc., or 58 Home, a mobile-based closed-loop transactional platform for home services, and Guazi.com Inc., or Guazi, a subsidiary that operated our consumer-to-consumer (C2C) used car trading platform, that were still in early stages of development. We have ceased consolidating 58 Home’s financial results in our consolidated financial statements since its completion of Series A equity financing on November 27, 2015, and we divested Guazi on December 31, 2015. However, as we account for 58 Home as our equity investee, we share our portion of its income or loss. We may also decide to provide additional capital to support our incubated businesses. In 2016, our net loss primarily resulted from our share of 58 Home’s loss.

Our future profitability may also be significantly impacted by the success of our recent and new service and product offerings, such as our new mobile apps. If competition in these new services intensifies in China, we may choose to invest heavily to gain or protect market share, which may adversely affect our profitability. We expect that we will continue to incur marketing and sales, research and development and other expenses to launch new services and grow our user base, which may affect our profitability and operating cash flow in the future. For example, we launched a new mobile app, Zhuan Zhuan (转转), which targets the C2C used goods market in 2015. We also launched 58 Town (58 同镇), a rural version of 58 targeting the rural population in 2017. We have invested, and may continue to invest, in the marketing of Zhuan Zhuan, 58 Town and our other new service and product offerings. Our results of operations will be adversely affected if our new product initiatives including Zhuan Zhuan, 58 Town and other services fail to generate sufficient revenue to recoup our investment and expenses.

In addition, our ability to achieve or maintain profitability is affected by various factors that are beyond our control. For example, our revenues and profitability depend on the continuous development of the online marketing industry in China and business users’ allocation of more of their budgets to online marketing services. We cannot assure you that online marketing services will become more widely accepted in China or that business users will increase their spending on online marketing services.

If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially and adversely affected, and we may incur net loss in the future. If we are unable to maintain positive operating cash flows, we may need to seek debt or equity financing or may cease to operate as a going concern. Further equity financings may dilute our existing shareholders.

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We may need additional capital, and the sale of additional ADSs or other equity securities could result in additional dilution to our shareholders.

As of December 31, 2019, we had cash and cash equivalents, term deposits and short-term investments totaling RMB13.8 billion. Our ability to continue as a going concern is dependent on our ability to successfully execute our business plan, which includes increasing revenues while controlling operating expenses, as well as generating cash flows from operating activities and continuing to gain support from outside sources of financing. We can adjust the pace of our operation expansion and control our operating expenses. Although we believe that we have sufficient funds to meet our working capital requirements and debt obligations in the ordinary course of business for the next 12 months from the date of this annual report, we may require additional cash resources due to changed business conditions or other future developments, including to make any investments or acquisitions we may decide to pursue or to pay down loans from financial institutions. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. For example, in June 2014 and April 2015, we issued 36.8 million ordinary shares at the equivalent of US$20.00 per ordinary share and 15.4 million ordinary shares at the equivalent of US$26.00 per ordinary share, respectively, to a holding vehicle of Tencent. The sale of additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. It is uncertain whether financing will be available in amounts or on terms acceptable to us, if at all.

If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately or timely report our results of operations or prevent fraud, and investor confidence and the market price of our ADSs may be materially and adversely affected.

We are subject to reporting obligations under the U.S. securities laws. The SEC, as required under Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, an independent registered public accounting firm must attest to and report on the effectiveness of the company’s internal control over financial reporting. Our management has concluded that our internal control over financial reporting was effective as of December 31, 2019. See “Item 15. Controls and Procedures.”

However, if we fail to maintain effective internal control over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. This could in turn result in the loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of our ADSs. Furthermore, we have incurred and may need to incur additional costs and use additional management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.

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We have granted restricted share units and other share-based awards in the past and will continue to do so in the future. We recognize share-based compensation expenses in our consolidated statement of comprehensive income/(loss) in accordance with U.S. GAAP. Any additional grant of restricted share units and other share-based awards in the future may have a material adverse effect on our results of operation.

We adopted an employee stock option plan in 2010, or the 2010 Plan, and a share incentive plan in 2013, or the 2013 Plan, for the purpose of granting share-based compensation awards to employees, directors and consultants to incentivize their performance and align their interests with ours. Under the 2010 Plan, we are permitted to issue options to purchase up to 20,173,225 ordinary shares. Under the 2013 Plan, we are authorized to grant options, restricted shares, restricted share units or other awards to purchase up to 35,622,530 ordinary shares, consisting of 28,622,530 Class A ordinary shares and 7,000,000 Class B ordinary shares, including the automatic increase of 4,489,161 ordinary shares at the beginning of 2020 pursuant to the evergreen provision of the 2013 Plan. As of March 31, 2020, restricted share units to receive and options to purchase an aggregate of 9,959,690 ordinary shares and 1,440,820 ordinary shares were issued and outstanding under the 2013 Plan and 2010 Plan, respectively. 58 Home, our equity investee accounted for under equity method, adopted a share incentive plan in 2015 and granted options and restricted shares under that plan to certain employees of 58 Home and our company. In addition, Zhuan Spirit Holdings Limited, or Zhuan Zhuan Holding, our consolidated subsidiary, adopted its 2017 Share Incentive Plan and 2019 Share Incentive Plan, and granted restricted share units, options and restricted shares under that plan to certain employees of Zhuan Zhuan Holding. See “Item 6. Directors, Senior Management and Employees — B. Compensation.” We have granted substantial additional share-based awards in connection with our acquisition of Ganji and may grant more as part of future acquisition and integrations of other companies. As a result of these grants and potential future grants, we incurred in the past and expect to continue to incur in future periods significant share-based compensation expenses. The amount of share-based compensation expenses is based on the fair value of the share-based awards. We account for compensation costs for all share-based awards using a fair-value based method and recognize expenses in our consolidated statement of comprehensive income/(loss) in accordance with U.S. GAAP. The expenses associated with share-based compensation will increase our net loss or decrease our net income, perhaps materially, and the additional securities issued under share-based compensation plans will dilute the ownership interests of our shareholders, including holders of our ADSs. However, if we limit the scope of our share-based compensation plan, we may not be able to attract or retain key personnel who are expected to be compensated by incentive shares or options.

We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance.

We are subject to rules and regulations by various governing bodies, including, for example, the Securities and Exchange Commission, which is charged with the protection of investors and the oversight of companies whose securities are publicly traded, and the various regulatory authorities in China and the Cayman Islands, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.

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We may be subject to claims, lawsuits, litigation and other regulatory proceedings that may adversely affect our reputation, business and results of operations based on the nature of our business.

We are subject to claims, lawsuits, arbitration proceedings, government investigations and other legal and regulatory proceedings in the ordinary course of business relating, including those involving securities law class actions, contract disputes involving business users and consumer users on our platforms, consumer protection claims, intellectual property disputes, data and privacy protection claims, labor and employment, compliance with regulatory requirements and other matters. We also face potential claims relating to the information published on our platforms, including claims for defamation, libel, negligence, copyright, patent or trademark infringement, fraud, or other unlawful activities based on the nature and content of information to which we link or that may be posted on platforms, generated by users, or shared hypertext links to third-party websites, if appropriate licenses or third-party consents have not been obtained. Further, we are subject to claims, lawsuits, arbitration proceedings, government investigations and other legal and regulatory proceedings seeking to hold us liable for the activities of users on our platforms. Potentially, the frequency of claims against us could increase in proportion to the growth of users on our platforms. In addition, we may become subject to additional types of claims, lawsuits, government investigations and legal or regulatory proceedings as our business expands and as we deploy new business offerings.

The results of any such claims, lawsuits, arbitration proceedings, government investigations or other legal or regulatory proceedings cannot be predicted with certainty. Any claims against us, whether meritorious or not, could be time-consuming, result in costly litigation, be harmful to our reputation and brand, require significant management attention and divert significant resources. A resolution of one or more such proceedings could result in substantial damages, settlement costs, fines and penalties that could adversely affect our reputation and brand, business, financial condition and results of operations. We may also elect or be compelled to remove certain contents from our platforms, In addition, a determination in, or settlement of, any legal proceeding, whether we are party to such legal proceeding or not, that involves our industry, could also harm our business, financial condition and results of operations.

We have limited business insurance coverage.

Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies do in more developed economies. Except for the property insurance, platform liability insurance, third-party liability insurance, professional liability insurance, insurance for the protection of users, and certain other insurance policies purchased by certain PRC entities in our group, we do not have any disruption insurance to cover our operations. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured occurrence of business disruption may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition.

Failure to renew our current leases or locate desirable alternatives for our facilities could materially and adversely affect our business.

Our company corporate headquarters are located in office buildings we acquired in 2014 in Chaoyang District, Beijing. We have purchased a smaller office space in Tianjin in 2015 as well. However, outside of Beijing and Tianjin, all of our offices in the other 57 cities and data centers were located on leased premises as of December 31, 2019. At the end of each lease term, we may not be able to negotiate an extension of the leases and may therefore be forced to move to different locations, or the rents we pay may increase significantly. This could disrupt our operations and adversely affect our profitability. We compete with other businesses for premises with certain characteristics or in desirable locations and some landlords may have entered into long-term leases with our competitors for such premises. As a result, we may not be able to obtain new leases at desirable locations or renew our existing leases on acceptable terms or at all, which could materially and adversely affect our business.

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Risks Related to Our Corporate Structure and Restrictions on Our Industry

Substantial uncertainties and restrictions exist with respect to the interpretation and application of PRC laws and regulations relating to online commerce and the distribution of internet content in China. If the PRC government finds that the structure we have adopted for our business operations does not comply with PRC laws and regulations, we could be subject to severe penalties, including the shutting down of our platforms.

Foreign ownership of internet-based businesses is subject to significant restrictions under current PRC laws and regulations. The PRC government regulates internet access, the distribution of online information and the conduct of online commerce through strict business licensing requirements and other government regulations. These laws and regulations also include limitations on foreign ownership in PRC companies that provide internet content distribution services. The State Council amended the Provisions on Administration of Foreign Invested Telecommunications Enterprises in February 2016 under which foreign investors are not allowed to own more than 50% of the equity interests in any entity providing value-added telecommunication services, except for e-commerce business, domestic multi-party communication business, information storage and re-transmission business and call center business, in which foreign investors are allowed to have more than 50% ownership in accordance with an announcement by the MIIT in June 2015, and the Special Administrative Measures (Negative List) for Foreign Investment Access issued in 2019. The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, or the MIIT Circular, issued by the MIIT in July 2006, reiterated the regulations on foreign investment in telecommunications businesses, which require foreign investors to set up foreign-invested enterprises and obtain business operating licenses for internet content provisions to conduct any value-added telecommunications business in China. Under the MIIT Circular, a domestic company that holds a value-added telecommunications business 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 that conduct value-added telecommunications business illegally in China. Furthermore, the relevant trademarks and domain names that are used in the value-added telecommunications business must be owned by the local value-added telecommunications business license holder or its shareholders. Due to a lack of interpretation from MIIT, it is unclear what impact the MIIT Circular will have on us or the other PRC internet companies that have adopted the same or similar corporate and contractual structures as ours. Beijing 58 and certain other consolidated variable interest entities of us hold value-added telecommunications business license, and own all domain names used in our value-added telecommunications businesses. Beijing 58 and certain other consolidated variable interest entities of us are also the owners of all registered trademarks used in our value-added telecommunications businesses and are the applicants of all our applications for registration of trademarks used for our value-added telecommunications businesses.

We are a Cayman Islands company and our PRC subsidiary, Wanglin, is considered a foreign invested enterprise. To comply with PRC laws and regulations, we conduct our operations in China through a series of contractual arrangements entered into among Wanglin, Beijing 58 and Beijing 58’s shareholders. As a result of these contractual arrangements, we exert control over our Beijing 58 and its subsidiaries and consolidate their financial results in our financial statements under U.S. GAAP. In addition, Tianjin Zhuanzhuan World Technology Co., Ltd., or Tianjin Zhuanzhuan, entered into contractual arrangements with Beijing Zhuanzhuan Spirit Technology Co., Ltd., or Beijing Zhuanzhuan, and Beijing Zhuanzhuan’s shareholders. As a result of these contractual arrangements, Zhuan Spirit Holdings Limited, or Zhuan Zhuan Holding, exert control over Beijing Zhuanzhuan. For a detailed description of these contractual arrangements, see “Item 4. Information on the Company — C. Organizational Structure — Our Contractual Arrangements.”

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In the opinion of our PRC counsel, Han Kun Law Offices, our current ownership structure, the ownership structure of our PRC subsidiaries and our consolidated variable interest entities, the contractual arrangements relating to our consolidated variable interest entities, and, except as otherwise disclosed in this annual report, our business operations, are not in violation of any existing PRC laws, rules and regulations. There are, however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. In particular, on March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. Under the Foreign Investment Law, “foreign investment” refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other entities in China. Although the definition does not explicitly classify contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via contractual arrangement would not be interpreted as a type of indirect foreign investment activities under the definition in the future. In addition, the definition contains a catch-all provision which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the Stale Council to provide for contractual arrangements as a form of foreign investment. On December 26, 2019, the Supreme People’s Court issued the Interpretations on Certain Issues Regarding the Applicable of Foreign Investment Law, or the FIL Interpretations, which came into effect on January 1, 2020. In accordance with the FIL Interpretations, where a party concerned claims an investment agreement to be invalid based on that it is for investment in prohibited industries under the negative list or it is for investment in restricted industries under the negative list and violates the restrictions set out therein, the courts should support such claim. There remains uncertainty as to whether our contractual arrangement will be deemed as investment agreements under the FIL Interpretations. See “—Uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.” Accordingly, we cannot assure you that PRC government authorities will not ultimately take a view contrary to the opinion of our PRC legal counsel in the future.

Accordingly, if our ownership structure, contractual arrangements and businesses of our company, our PRC subsidiaries or our consolidated variable interest entities are found to be in violation of any existing or future PRC laws or regulations, or we fail to obtain or maintain any of the required permits or approvals, the relevant governmental authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income or the income of our PRC subsidiaries or consolidated variable interest entities, revoking the business licenses or operating licenses of our PRC subsidiaries or consolidated variable interest entities, shutting down our servers or blocking our platforms, discontinuing or placing restrictions or onerous conditions on our operations, requiring us to undergo a costly and disruptive restructuring, and taking other regulatory or enforcement actions that could be harmful to our business. Any of these actions could cause significant disruption to our business operations and severely damage our reputation, which would in turn materially and adversely affect our business, financial condition and results of operations. If any of these occurrences results in our inability to direct the activities of any of our consolidated variable interest entities that most significantly impact its economic performance, and/or our failure to receive the economic benefits from any of our consolidated variable interest entities, we may not be able to consolidate the entity in our consolidated financial statements in accordance with U.S. GAAP.

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We rely on contractual arrangements with our consolidated variable interest entities and their shareholders for the operation of our business, which may not be as effective as direct ownership. If we are unable to maintain control, we would not be able to continue to consolidate the financial results of these entities with our financial results. If our consolidated variable interest entities and their shareholders fail to perform their obligations under these contractual arrangements, we may have to resort to litigation or arbitration to enforce our rights, which may be time-consuming, unpredictable, expensive and damaging to our operations and reputation.

Because of PRC restrictions and qualification requirements on foreign ownership of value-added telecommunications services in China, we depend on contractual arrangements with our consolidated variable interest entities, in which we have no ownership interest, to conduct our business. These contractual arrangements are intended to provide us with control over these entities and allow us to obtain economic benefits from them. Although we have been advised by our PRC counsel, Han Kun Law Offices, that these contractual arrangements are valid, binding and enforceable under current PRC laws, these contractual arrangements may not be as effective in providing control as direct ownership. For example, our consolidated variable interest entities and their shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations, including maintaining our platforms and using the domain names and trademarks for which they have exclusive right to use, in an acceptable manner or taking other actions that are detrimental to our interests. If we were the controlling shareholder of our consolidated variable interest entities with direct ownership, we would be able to exercise our rights as shareholders to effect changes to their board of directors, which in turn could implement changes at the management and operational levels. Furthermore, each of our consolidated variable interest entities’ company chops are held by each company’s legal or accounting department. Our ability to ensure the consolidated variable interest entities’ performance under the contractual agreements may be limited if we were unable to secure control of the company chops in the event of a dispute with the entity’s management or shareholders as many official documents require affixation of company chops to become fully effective. As a result, if our consolidated variable interest entities or their shareholders fail to perform their obligations under these contractual arrangements we may have to incur substantial costs to enforce such arrangements, and rely on legal remedies under PRC law, including contract remedies, which may not be sufficient or effective. If we are unable to maintain control, we would not be able to continue to consolidate the financial results of these entities with our financial results.

These contractual arrangements are governed by PRC law and provide for dispute resolution through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. Under PRC law, if parties to a contract have agreed to resolve disputes arising from the contract by arbitration, a PRC court will not accept a lawsuit initiated at the court by any contract party, unless the agreement for arbitration is invalid. An arbitration award issued by the arbitration commission chosen in accordance with the agreement is final, binding and enforceable against the parties. If any party fails to comply with the arbitration award, the other party has the right to apply with a competent court for enforcement. However, the legal environment in China is not as developed as other jurisdictions such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements, which may make it difficult to exert control over our consolidated variable interest entities, and our ability to conduct our business may be negatively affected. In addition, a PRC court or arbitration tribunal may refuse to enforce the contractual arrangements on the grounds that they are designed to circumvent PRC foreign investment restrictions and therefore are against PRC public policy.

If we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, our business and operations could be severely disrupted, which could materially and adversely affect our results of operations and damage our reputation. 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.”

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

Mr. Jinbo Yao is the founder, chairman and chief executive officer of our company, having beneficial ownership of 10.2% of the total outstanding shares of our company as of March 31, 2020. See “Item 7. Major Shareholders and Related Party Transactions — A. Major Shareholders.” He is also the sole director, general manager and a shareholder of Beijing 58, our consolidated affiliated entity, holding a 46.8% equity interests in the entity. In addition, Mr. Yao is the sole director and a 16.7% shareholder of Beijing Wanglintong Information Technology Co., Ltd., or Beijing Wanglintong, an entity that holds a 13.4% equity interests in Beijing 58. Conflicts of interest between his duties to our company, his duties to Beijing 58 and his interests as a shareholder of Beijing 58 may arise. We cannot assure you that he will act entirely in our interests when conflicts of interest arise or that conflicts of interest will be resolved in the favor of our company. Furthermore, in the context of Mr. Yao’s acting as the director and an executive officer of Beijing 58, PRC law would not require him to consider our company’s best interests. We rely on Mr. Yao to abide by the laws of China, which provide that directors and executive officers owe a duty of loyalty and duty of care to the company and require them to avoid conflicts of interest and not to take advantage of their positions for personal gains, and the laws of Cayman Islands, which provide that directors owe a duty of care and duty of loyalty to the company. The respective legal framework of China and the Cayman Islands does not provide guidance in the event of a conflict with another corporate governance regime. If we cannot resolve any conflict of interest or dispute between us and the shareholders of our consolidated variable interest entities should one arise, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings. In addition, Mr. Yao could violate his non-competition or employment agreements with us or his legal duties by diverting business opportunities from us, resulting in our loss of corporate opportunities. If we are unable to resolve any such conflicts, or if we suffer significant delays or other obstacles as a result of such conflicts, our business and operations could be severely disrupted, which could materially and adversely affect our results of operations and damage our reputation. 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.”

We may lose the ability to use and enjoy assets held by our consolidated variable interest entities that are material to the operation of our business if any of such entities goes bankrupt or becomes subject to a dissolution or liquidation proceeding.

As part of our contractual arrangements with Beijing 58 and other consolidated variable interest entities, these entities hold certain assets that are material to the operation of our business, including the value-added telecommunications business license, and the domain names and trademarks for which Beijing 58 or any of the other consolidated variable interest entities has exclusive right to use. If any of our consolidated variable interest entities goes bankrupt and all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. Under the contractual arrangements, our consolidated variable interest entities may not, in any manner, sell, transfer, mortgage or dispose of their assets or legal or beneficial interests in the business without our prior consent. If any of our consolidated variable interest entities undergoes a voluntary or involuntary liquidation proceeding, the unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

Our contractual arrangements with our consolidated variable interest entities may result in adverse tax consequences to us.

Under PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year when the transactions are conducted. The PRC enterprise income tax law requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm’s length principles. We may be subject to adverse tax consequences if the PRC tax authorities were to determine that the contracts between our PRC subsidiaries and our consolidated variable interest entities were not on an arm’s length basis and therefore constitute favorable transfer pricing arrangements. If this occurs, the PRC tax authorities could request that our consolidated variable interest entities adjust their taxable income, if any, upward for PRC tax purposes. Such a pricing adjustment could adversely affect us by increasing our consolidated variable interest entities’ tax expenses without reducing our tax expenses, and by subjecting our consolidated variable interest entities to late payment fees and other penalties for underpayment of taxes.

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We may be adversely affected by the complexity, uncertainties and changes in China’s regulation of internet business and companies.

The internet industry in China is highly regulated by the PRC government and numerous regulatory authorities of the central PRC government are empowered to issue and implement regulations governing various aspects of the internet industry including foreign ownership of and licensing and permit requirements pertaining to companies in the internet industry. See “Item 4. Information on the Company — B. Business Overview — Regulation.” These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainty. As a result, in certain circumstances, it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations. Our consolidated variable interest entities are required to obtain and maintain applicable licenses or approvals from different regulatory authorities in order to provide their current services, including but not limited to the Value-Added Telecommunications Business License, the Surveying and Mapping Qualification Certificate for internet mapping, the Employment Agency License and the Internet Culture Business Permit.

Pursuant to the relevant regulations promulgated by the State Administration of Press Publication, Radio, Film and Television, or the SAPPRFT (currently known as National Radio and Television Administration, or the NRTA), any company engaged in internet broadcasting activities must obtain an Online Audio/Video Program Transmission License issued by the NRTA and operate in accordance with the scope as stipulated in such license. Since February 2008, only wholly state-owned or state-controlled enterprises are qualified to apply for new Online Audio/Video Program Transmission License. Beijing 58 Auto Technology Co., Ltd. or Beijing 58 Auto (formerly known as Beijing Leftbrain Network Technology Co., Ltd.), one of our consolidated affiliates, provides on its website certain audio/video programs on third-party platforms, which have the Online Audio/Video Program Transmission Licenses. Beijing 58 Auto had fines imposed for an amount of RMB6,000, RMB6,000 and RMB3,000 in 2015, 2016 and 2017, respectively, for providing internet broadcasting activities without an Online Audio/Video Program Transmission License. No relevant fine or penalty was imposed on Beijing 58 Auto in 2018 and 2019. Beijing 58 Auto may be subject to additional penalties and be required to change its way to provide audio/video programs if the local authorities still consider the existing way that Beijing 58 Auto provides the audio/video programs to be an internet broadcasting activity.

Furthermore, our consolidated variable interest entities may be required to obtain additional licenses. If any of them fails to obtain or maintain any of the required licenses or approvals, its continued business operations in the internet industry may subject it to various penalties, such as confiscation of illegal net sales, fines and the discontinuation or restriction of its operations. Any such disruption in the business operations of our consolidated variable interest entities will materially and adversely affect our business, financial condition and results of operations.

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Regulation and censorship of information distribution over the internet in China may adversely affect our business, and we may be liable for information displayed on, retrieved from or linked to our platforms.

The PRC government has adopted regulations governing internet access and the distribution of information over the internet. Under these regulations, internet content providers and internet publishers are prohibited from posting or displaying over the internet content that, among other things, violates PRC laws and regulations, impairs the national dignity of China or the public interest, contains terrorism or extremism content, or is reactionary, obscene, superstitious, fraudulent or defamatory. Failure to comply with these requirements may result in the revocation of licenses to provide internet content and other licenses, the closure of the concerned platforms and reputational harm. A website operator may also be held liable for such censored information displayed on or linked to its website. In particular, the Cyberspace Administration of China has issued rules from time to time to enhance the internet service provider’s obligations to monitor the information displayed on the information platform and prevent dissemination of illegal contents. At the end of 2019, the Cyberspace Administration of China issued the Provisions on the Management of Network Information Content Ecology, or the CAC Order No.5, which became effective on March 1, 2020, to further strengthen the regulation and management of network information content.  Pursuant to the CAC Order No.5, each network information content service platform is required, among others, (i) not to disseminate any information prohibited by laws and regulations, such as information jeopardizing national security; (ii) to strengthen the examination of advertisements published on such network information content service platform; (iii) to promulgate management rules and platform convention and improve user agreement, such that such network information content service platform could clarify users’ rights and obligations and perform management responsibilities required by laws, regulations, rules and convention; (iv) to establish convenient means for complaints and reports; and (v) to prepare annual work report regarding its management of network information content ecology. In addition, a network information content service platform must not, among others, (i) utilize new technologies such as deep-learning and virtual reality to engage in activities prohibited by laws and regulations; (ii) engage in online traffic fraud, malicious traffic rerouting and other activities related to fraudulent account, illegal transaction account or maneuver of users’ account; and (iii) infringe a third party’s legitimate rights or seek illegal interests by way of interfering with information display. For a detailed discussion, see “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Value-Added Telecommunication Services” and “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Information Security and Censorship.” We have a team within our data security department which implements internal procedures to review the content in our system for compliance with applicable laws and regulations, aided by a program designed to periodically sweep our platforms and the data being conveyed in our system for sensitive keywords or questionable materials. In spite of this screening system, we may have difficulty identifying and removing all illegal content or transactions involving illegal sales of goods and services, which could expose us to the penalties described above.

We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance.

We are subject to rules and regulations by various governing bodies, including, for example, the Securities and Exchange Commission, which is charged with the protection of investors and the oversight of companies whose securities are publicly traded, and the various regulatory authorities in China and the Cayman Islands, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.

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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. Unlike common law systems, it is a system in which legal cases have limited value as precedents. In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly increased the protections afforded to various forms of foreign or private-sector investment in China. Our PRC subsidiaries, Wanglin, 58 Technology and Shanghai Ruiting, are foreign-invested enterprises and are subject to laws and regulations applicable to foreign-invested enterprises as well as various PRC laws and regulations generally applicable to companies in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy 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) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.

Substantially all of our assets and almost all of our users are located in China. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.

China’s economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over the PRC economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.

While China’s economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and may slow down in the future. Some of the government measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. Any stimulus measures designed to boost the Chinese economy may contribute to higher inflation, which could adversely affect our results of operations and financial condition. For example, certain operating costs and expenses, such as employee compensation and office operating expenses, may increase as a result of higher inflation.

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Uncertainties exist with respect to the interpretation and implementation of the new PRC Foreign Investment Law and its Implementation Regulations and how it may impact the viability of our current corporate structure, corporate governance and business operations.

On January 1, 2020, the Foreign Investment Law and the Regulations for Implementation of the Foreign Investment Law of the People’s Republic of China, or the Implementation Regulations, came into effect and replaced the trio of prior laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law and the Implementation Regulations embody an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. However, since they are relatively new, uncertainties still exist in relation to their interpretation and implementation. For instance, under the Foreign Investment Law, “foreign investment” refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other entities in China. Although the definition does not explicitly classify contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via contractual arrangement would not be interpreted as a type of indirect foreign investment activities under the definition in the future. In addition, the definition contains a catch-all provision which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the Stale Council to provide for contractual arrangements as a form of foreign investment. On December 26, 2019, the Supreme People’s Court issued the FIL Interpretations, which came into effect on January 1, 2020. In accordance with the FIL Interpretations, where a party concerned claims an investment agreement to be invalid based on that it is for investment in prohibited industries under the negative list or it is for investment in restricted industries under the negative list and violates the restrictions set out therein, the courts should support such claim. In any of these cases, it will be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations and will be held invalid by the courts. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council mandate further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations.

Under the Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC 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, an enterprise established outside the PRC with “de facto management bodies” within China 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. Under the implementation rules to the Enterprise Income Tax Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition, a circular known as SAT Circular 82, issued in April 2009 and as amended in December 2017 by the State Administration of Taxation specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident in China: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting rights. Further to SAT Circular 82, the State Administration of Taxation issued a bulletin, known as SAT Bulletin 45, which took effect in September 2011 and as recently amended in June 2018, to provide more guidance on the implementation of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore incorporated resident enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination of resident status and administration on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals.

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We do not believe that 58.com Inc., China Classified Network Corporation, China Classified Information Corporation Limited, or any of our other offshore subsidiaries meet all of the conditions above and thus we do not believe that 58.com Inc., China Classified Network Corporation, China Classified Information Corporation Limited or any of our other offshore subsidiaries is a PRC resident enterprise, although some of the members of our management team as well as the management team of our offshore holding companies are located in China. However, if the PRC tax authorities determine that 58.com Inc., China Classified Network Corporation, China Classified Information Corporation Limited or any of our other offshore subsidiaries is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we and/or our offshore subsidiaries will be subject to the uniform 25% enterprise income tax on our world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations.

Furthermore, although dividends paid by one PRC tax resident enterprise to an offshore incorporated PRC resident enterprise controlled by PRC enterprises or PRC enterprise groups should qualify as “tax-exempt income” under the Enterprise Income Tax Law and Bulletin 45, we cannot assure you that dividends paid by any of our PRC subsidiaries to their shareholder in Hong Kong such as China Classified Information Corporation Limited will not be subject to a PRC withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax on dividends, and the PRC tax authorities have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes but not controlled by PRC enterprises or PRC enterprise groups.

Finally, dividends payable by us to our investors and gains on the sale of our shares may become subject to PRC withholding tax, each at a rate of 10% for foreign enterprise holders and at a rate of 20% for foreign individual holders of the ADSs or ordinary shares.

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We may not be able to obtain certain benefits under relevant tax treaty on dividends paid by our PRC subsidiaries to us through China Classified Information Corporation Limited or other Hong Kong subsidiaries.

We are a holding company incorporated under the laws of the Cayman Islands and as such rely on dividends and other distributions on equity from our PRC subsidiaries to satisfy part of our liquidity requirements. Pursuant to the Enterprise Income Tax Law, a withholding tax rate of 10% currently applies to dividends paid by a PRC “resident enterprise” to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for preferential tax treatment. Pursuant to a Notice 112 issued by the State Administration of Taxation in January 2008 and the Arrangement between the Mainland China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, or the Double Taxation Arrangement (Hong Kong), such withholding tax rate may be lowered to 5% if the PRC enterprise is at least 25% held by a Hong Kong enterprise at all times within the 12-month period immediately prior to distribution of the dividends and is determined by the relevant PRC tax authority to have satisfied other conditions and requirements under the Double Tax Avoidance Arrangement (Hong Kong) and other applicable PRC laws. Pursuant to SAT Notice 9 issued by the State Administration of Taxation in February 2018, which took effect on April 1, 2018 and superseded SAT Circular 601 issued by the State Administration of Taxation in October 2009 and an announcement released by the State Administration of Taxation in June 2012, non-resident enterprises that cannot provide valid supporting documents as “beneficial owners” may not be approved to enjoy tax treaty benefits. “Beneficial owners” are residents who have ownership and the right to dispose of the income or the rights and properties giving rise to the income. These rules also set forth certain adverse factors against the recognition of a “beneficial owner,” such as not carrying out substantive business activities. Whether a non-resident company may obtain tax benefits under the relevant tax treaty will be subject to approval of the relevant PRC tax authority and will be determined by the PRC tax authority on a case-by-case basis. SAT Notice 9 further provides that a comprehensive analysis should be made when determining the beneficial owner status based on various factors supported by documents including the articles of association, financial statements, records of cash movements, board meeting minutes, board resolutions, staffing and materials, relevant expenditures, functions and risk assumption as well as relevant contracts and other information. In August 2015, the State Administration of Taxation promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or SAT Circular 60, which became effective on November 1, 2015. SAT Circular 60 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 rate. Instead, non-resident enterprises and their withholding agents may, by self-assessment and upon their confirmation that the prescribed criteria are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when conducting tax filings, which will be subject to post-filing examinations by the relevant tax authorities. In October 2019, SAT issued the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or SAT Circular 35, which took effect on January 1, 2020 and superseded SAT Circular 60. SAT Circular 35 abolished the record-filing procedure for justifying the tax treaty eligibility of taxpayers, and stipulates that non-resident taxpayers can enjoy tax treaty benefits via the “self-assessment of eligibility, claiming treaty benefits, retaining documents for inspection” mechanism. Non-resident taxpayers can claim tax treaty benefits after self-assessment provided that relevant supporting documents shall be collected and retained by the taxpayers for post-filing inspection by the tax authorities. None of our Hong Kong subsidiaries has applied for the approval for a withholding tax rate of 5% from the local tax authority prior to SAT Circular 35, nor has any of our PRC subsidiaries applied the 5% tax rate directly to any dividend payment after the SAT Circular 35, as our PRC subsidiaries have not paid dividends to us. We plan to have our Hong Kong subsidiaries assume some managerial and administrative functions, as well as conduct other business functions in the future. Once we implement such a plan, our Hong Kong subsidiaries may be qualified as beneficial owners as defined under SAT Notice 9 and will enjoy treaty benefits such as preferential dividend withholding tax rates.  However, our Hong Kong subsidiaries as currently situated may be considered non-beneficial owners and we cannot assure you that the relevant PRC tax authority will agree with our view when any of our PRC subsidiaries directly applies reduced withholding tax rate under the relevant tax treaty in the future. As a result, we may not be able to enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement (Hong Kong) and therefore be subject to withholding tax at a rate of 10% with respect to dividends to be paid by our PRC subsidiaries to their shareholders in Hong Kong such as China Classified Information Corporation Limited.

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Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.

On February 3, 2015, the State Administration of Tax issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Notice 7, which partially replaced and supplemented previous rules under the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, issued by the State Administration of Taxation, on December 10, 2009. SAT Notice 7 extends its tax jurisdiction to not only indirect transfers set forth under SAT Circular 698 but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. SAT Notice 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may re-characterize such indirect transfer as a direct transfer of the equity interests in the PRC tax resident enterprise and other properties in China. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of up to 10% for the transfer of equity interests in a PRC resident enterprise. However, SAT Notice 7 has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017, and concurrently abolished SAT Circular 698. The SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax. Pursuant to SAT Notice 7 and SAT Bulletin 37, both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.

We face uncertainties on the reporting and consequences of private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises outside a public securities market, which means that an investor obtains or sells our shares outside a public securities market, or sale or purchase of shares in other non-PRC resident companies or other taxable assets by us. Our company and other non-resident enterprises in our group may be subject to filing obligations or taxation if our company or other non-resident enterprises in our group are transferors in such transactions, and may be subject to withholding obligations if our company or other non-resident enterprises in our group are transferees in such transactions, under SAT Notice 7 and/or SAT Bulletin 37. For the transfer of shares in our company by investors that are non-PRC resident enterprises outside a public securities market, our PRC subsidiaries may be requested to assist in the filing under SAT Notice 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Notice 7 and SAT Bulletin 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company and other non-resident enterprises in our group should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

The PRC tax authorities have the discretion under SAT Notice 7 and SAT Bulletin 37 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. If the PRC tax authorities make adjustments to the taxable income of the transactions under SAT Notice 7 and SAT Bulletin 37, our income tax costs associated with such potential sales or acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations. We have conducted acquisitions or sales in the past and may conduct additional acquisitions or sales in the future. We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations on us or require us to provide assistance for the investigation by PRC tax authorities with respect thereto. Heightened scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.

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PRC regulations establish complex procedures for mergers and acquisitions, including acquisitions of PRC companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

Six PRC regulatory agencies promulgated regulations effective on September 8, 2006, with subsequent amendment in June 2009, which is commonly referred to as the M&A Rules. See “Item 4. Information on the Company — B. Business Overview — Regulation.” The M&A Rules establish procedures and requirements that could make some acquisitions of PRC companies by foreign investors more time-consuming and complex, including that the approval of the Ministry of Commerce must be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire domestic companies affiliated with PRC enterprises or residents. After the PRC Foreign Investment Law and its Implementation Regulations became effective on January 1, 2020, the provisions of the M&A Rules remain effective to the extent they are not inconsistent with the PRC Foreign Investment Law and its Implementation Regulations. In addition, national security review rules issued by the PRC governmental authorities in 2011 require acquisitions by foreign investors of domestic companies engaged in military-related or certain other industries that are crucial to national security to be subject to prior security review. Moreover, the Anti-Monopoly Law requires that the Administration for Market Regulation shall be notified in advance of any concentration of undertaking, occurring inside or outside China, if certain thresholds are triggered. We may expand our business in part by acquiring complementary businesses. Complying with the requirements of the M&A Rules, security review rules and other PRC regulations to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from PRC governmental authorities, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share. In addition, due to lack of clarity under some PRC laws and regulations, it is unclear in some circumstances whether an approval is required for a merger or acquisition transaction and we cannot assure you that the PRC governmental authorities will agree with our view on whether the approval is required for transactions conducted or to be conducted by us.

PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability and penalties under PRC law.

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, in July 2014, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE Circular 37 requires PRC residents, including PRC individuals and 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 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 residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. In February 2015, SAFE promulgated the Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Pursuant to SAFE Notice 13, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE as required under current laws, entities and individuals are required to apply for such foreign exchange registrations, including those required under the SAFE Circular 37, from qualified banks. The qualified banks, under the supervision of SAFE, will examine the applications and conduct the registration. If a PRC resident fails to make the required SAFE registration with the local SAFE branches, the PRC subsidiaries of such offshore company may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to its PRC subsidiaries. Moreover, failure to comply with SAFE registration and amendment requirements described above could result in liability under PRC law for evasion of applicable foreign exchange restrictions.

Furthermore, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We cannot predict how these regulations will affect our business operations or future strategy. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company, either we or the owners of such company, as the case may be, may not be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

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

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, replacing the previous rules issued by SAFE in March 2007. 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 the overseas publicly listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. The 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. See “Item 4. Information on the Company — B. Business Overview — Regulation —Regulations on Employee Stock Option Plans.” We and our PRC employees who have been granted share options and restricted shares are subject to these regulations. Failure of our PRC share option holders or restricted shareholders 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 subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to us, or otherwise materially adversely affect our business.

PRC regulation of direct investment and loans by offshore holding companies to PRC entities and governmental control of currency conversion may delay or limit us from using the proceeds of our securities offerings to make additional capital contributions or loans to our PRC subsidiaries.

Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiaries, including from the proceeds of our securities offerings, are subject to PRC regulations. Under PRC laws and regulations, we are permitted to utilize the proceeds from our securities offerings to fund our PRC subsidiaries only through loans or capital contributions, subject to applicable government registration and approval requirements. None of our loans to a PRC subsidiary can exceed the maximum amount that such PRC subsidiary is allowed to borrow from foreign creditors under relevant PRC laws, and the loans must be registered with the local branch of SAFE. If we finance our PRC subsidiaries by means of capital contributions, such PRC subsidiaries are required to apply for registrations with SAMR or its local branches, submit a change report to the Ministry of Commerce or its local counterpart through the online enterprise registration system, and complete the exchange registration with qualified banks. We cannot assure you that we will be able to complete the necessary registration or information reporting on a timely basis, or at all. If we fail to complete the necessary registration or information reporting, our ability to make loans or equity contributions to our PRC subsidiaries may be negatively affected, which could adversely affect our PRC subsidiaries’ liquidity and their ability to fund their working capital and expansion projects and meet their obligations and commitments.

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In March 2015, SAFE promulgated SAFE Circular 19, which took effective and replaced SAFE Circular 142 from June 1, 2015. On June 9, 2016, SAFE promulgated SAFE Circular 16. Although SAFE Circular 19 and SAFE Circular 16 removed certain restrictions previously provided under SAFE Circular 142 for conversion by a foreign-invested enterprise of foreign currency registered capital into RMB and use of such RMB capital and allows foreign invested enterprises to settle their foreign exchange capital on a discretionary basis according to the actual needs of their business operation, they continue to prohibit foreign-invested enterprises from, among other things, using RMB fund converted from its foreign exchange capital for expenditure beyond its business scope, or providing loans to non-associated enterprises. In addition, SAFE Circular 19 and SAFE Circular 16 are still unclear whether a foreign-invested enterprise whose business scope does not include equity investment or similar activities may use Renminbi converted from the foreign currency-denominated capital for equity investments in the PRC. On October 23, 2019, the SAFE issued SAFE Circular 28, which expressly allows foreign-invested enterprises that do not have equity investments in their approved business scope to use their capital obtained from foreign exchange settlement to make domestic equity investments as long as the investments are real and in compliance with the foreign investment-related laws and regulations. For example, the business scopes of Wanglin and 58 Technology include, among others, research and development of online classified information technology and software systems, information technology consulting, technical services and marketing and promotional services, enterprise management, business consultation and office renting service. Each of Wanglin, 58 Technology and our other PRC subsidiaries that are foreign-invested enterprises may only use Renminbi converted from foreign exchange capital contribution for activities within its approved business scope or equity investment in compliance with the foreign investment-related laws and regulations. Violations of these circulars and rules could result in severe monetary or other penalties. If we convert the net proceeds we receive from our securities offerings into Renminbi pursuant to the applicable laws and regulations, our use of Renminbi funds for general corporate purposes will be within the business scope of our PRC subsidiaries.

PRC regulation of loans by offshore holding companies to PRC entities and governmental control of currency conversion may limit our ability to fund the operations of our consolidated variable interest entities.

Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, any loans from our Cayman Islands holding company or other offshore entities to PRC domestic company are required to be registered with local SAFE and cannot exceed the maximum amount that such company is allowed to borrow from foreign creditors under the applicable PRC laws and complete record-filling procedures with local SAFE on an item-by-item basis. In addition, loans to a PRC company with a term of one year or a longer term are also subject to filings with the National Development and Reform Commission and/or its local branches. Therefore, we are not likely to have our Cayman Islands holding company or other offshore entities to use the proceeds from our securities offerings to extend loans to our consolidated variable interest entities or their subsidiaries, each of which is a PRC domestic company. Meanwhile, we are not likely to finance the activities of our consolidated variable interest entities by means of capital contributions due to regulatory restrictions relating to foreign investment in PRC domestic enterprises engaged in value-added telecommunications services. In addition, due to the restrictions on a foreign-invested enterprise’s use of Renminbi converted from foreign-currency registered capital under PRC regulations, including SAFE Circular 19, SAFE Circular 16 and SAFE Circular 28, as described under the foregoing risk factor, our PRC subsidiaries may be unable to use the Renminbi converted from their registered capital to provide loans or financial support to our consolidated variable interest entities. We currently do not plan to use the proceeds from our securities offerings to fund the operations of our consolidated variable interest entities and their subsidiaries. Additionally, our PRC subsidiaries are not prohibited under PRC laws and regulations from using their capital generated from their operating activities to provide entrusted loans or other forms of financial support to consolidated variable interest entities. We will assess the working capital requirements of our consolidated variable interest entities on an ongoing basis and, if needed, may have our PRC subsidiaries to use their capital from operating activities to provide financial support to our consolidated variable interest entities.

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Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.

We are a holding company incorporated in the Cayman Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. As of the date of this annual report, our PRC subsidiaries have not paid dividends to us. Further, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us, which may restrict our ability to satisfy our liquidity requirements. As of March 31, 2020, the registered capital of our PRC subsidiaries Wanglin and 58 Technology was US$280 million and approximately US$107 million, respectively. See “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Foreign Currency Exchange.”

Discontinuation of any of the preferential tax treatments and government subsidies or imposition of any additional taxes and surcharges could adversely affect our financial condition and results of operations.

The Enterprise Income Tax Law and its implementing rules impose a uniform statutory enterprise income tax rate of 25% on all enterprises in China. The Enterprise Income Tax Law and its implementing rules also permit qualified “high and new technology enterprises” to enjoy a preferential enterprise income tax rate of 15% upon filing with relevant tax authorities. This qualification generally has a valid term of three years and the renewal of the qualification is subject to review by the relevant authorities in China.

Beijing 58, Wanglin, Shanghai Ruiting, 58 Technology, 58 Co., Ltd. and Shanghai Ruijia Information Technology Co., ltd (“Shanghai Ruijia”) have all obtained the “high and new technology enterprise” certificate and maintained the “high and new technology enterprise” status and are eligible for a preferential tax rate of 15%, as long as they maintain the “high and new technology enterprise” status and have taxable income under the Enterprise Income Tax Law. Wanglin obtained its software enterprise qualification in 2014 and was entitled to a two-year exemption from 2014 to 2015 and enjoyed a 12.5% preferential tax rate from 2016 to 2018 as it passed the annual assessment for software enterprise qualification for each of the five years. 58 Technology was qualified as a software enterprise in 2014 and was granted a two-year exemption from 2015 to 2016 and enjoyed a 12.5% preferential tax rate from 2017 to 2019. If any of Beijing 58, Wanglin, Shanghai Ruiting, 58 Technology, 58 Co., Ltd. or Shanghai Ruijia fails to maintain its qualification as a “high and new technology enterprises” or a “software enterprise,” as the case may be, or if any of them fails to renew its qualification when its current term expires, its applicable enterprise income tax rate may increase to 25%, which could have an adverse effect on our financial condition and results of operations.

In addition, our PRC subsidiaries and consolidated variable interest entities have received various financial subsidies from PRC local government authorities. The financial subsidies are discretionary incentives and policies adopted by PRC local government authorities. Local governments may decide to change or discontinue such financial subsidies at any time. The discontinuation of such financial subsidies or imposition of any additional taxes could adversely affect our financial condition and results of operations.

Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.

As the functional currency for our PRC subsidiaries and consolidated variable interest entities is Renminbi, fluctuations in the exchange rate may cause us to incur foreign exchange losses on any foreign currency holdings they may have. If we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for repayment of our bank loans denominated in U.S. dollars, appreciation of the U.S. dollar against the Renminbi would increase our amount of repayment in Renminbi.

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The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. We cannot assure you that Renminbi 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 Renminbi and the U.S. dollar in the future.

Any significant appreciation or depreciation of the Renminbi may materially and adversely affect our earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. Conversely, a significant depreciation of the Renminbi against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our ADSs.

Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.

Our failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.

Companies operating in China are required to participate in social insurance and housing fund plans. We have not fully contributed to such plans as required by applicable PRC regulations. As of December 31, 2019, with regards to the outstanding contributions, including historical underpayments to such plans, we made a provision of RMB53.2 million, which is reflected in our audited financial statements included in this annual report. While we believe this provision is adequate, our failure to make sufficient payments to such plans does not fully comply with applicable PRC laws and regulations and we may be required to make up the contributions for such plans as well as to pay late fees and fines.

Registered public accounting firms in China, including our independent registered public accounting firm, are not inspected by the U.S. Public Company Accounting Oversight Board, which deprives us and our investors of the benefits of such inspection.

Auditors of companies whose shares are registered with the U.S. Securities and Exchange Commission, or the SEC, and traded publicly in the United States, including our independent registered public accounting firm, must be registered with PCAOB, and are subject to laws in the United States pursuant to which PCAOB conducts regular inspections to assess their compliance applicable professional standards. Our independent registered public accounting firm is located in, and organized under the laws of PRC, which is a jurisdiction where PCAOB, has been unable to conduct inspections without the approval of the Chinese authorities. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China Securities Regulatory Commission, or the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.

On December 7, 2018, the SEC and PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. On April 21, 2020, the SEC and the PCAOB issued another joint statement reiterating the greater risk that disclosures will be insufficient in many emerging markets, including China, compared to those made by U.S. domestic companies. In discussing the specific issues related to the greater risk, the statement again highlights the PCAOB's inability to inspect audit work paper and practices of accounting firms in China, with respect to their audit work of U.S. reporting companies. However, it remains unclear what further actions, if any, the SEC and PCAOB will take to address the problem.

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This lack of PCAOB inspections in China prevents PCAOB from fully evaluating audits and quality control procedures of any auditors operating in China, including our independent registered public accounting firm. As a result, we and investors in our common stock are deprived of the benefits of such PCAOB inspections. The inability of PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections, which could cause investors and potential investors in our common stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular China’s, in June 2019, a bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress, which if passed, would require the SEC to maintain a list of issuers for which PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The proposed Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act prescribes increased disclosure requirements for these issuers and, beginning in 2025, the delisting from U.S. national securities exchanges such as the New York Stock Exchange/Nasdaq Stock Market of issuers included on the SEC’s list for three consecutive years. Enactment of this legislation or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected issuers, including us, and the market price of our ADSs could be adversely affected. It is unclear if this proposed legislation would be enacted. Furthermore, there have been recent media reports on deliberations within the U.S. government regarding potentially limiting or restricting China-based companies from accessing U.S. capital markets. If any such deliberations were to materialize, the legislation or policy passed by the U.S. government may have material and adverse impact on the stock performance, liquidity, and the ability to raise capital of China-based issuers listed in the United States.

If additional remedial measures are imposed on the Big Four PRC-based accounting firms, including our independent registered public accounting firm, in administrative proceedings brought by the SEC alleging the firms’ failure to meet specific criteria set by the SEC, we could unable to timely file future financial statements in compliance with the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

In December 2012, the SEC instituted administrative proceedings against the Big Four PRC-based accounting firms, including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ audit work papers with respect to certain PRC-based companies that are publicly traded in the United States.

On January 22, 2014, the administrative law judge, or the ALJ, presiding over the matter rendered an initial decision that each of the firms had violated the SEC’s rules of practice by failing to produce audit papers and other documents to the SEC. The initial decision censured each of the firms and barred them from practicing before the SEC for a period of six months.

On February 6, 2015, the four China-based accounting firms each agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC and audit U.S.-listed companies. The settlement required the firms to follow detailed procedures and to seek to provide the SEC with access to Chinese firms’ audit documents via the CSRC. Under the terms of the settlement, the underlying proceeding against the four China-based accounting firm was deemed dismissed with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019. While we cannot predict if the SEC will further challenge the four China-based accounting firms’ compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results of such a challenge would result in the SEC imposing penalties such as suspensions, if the accounting firms are subject to additional remedial measures, our ability to file our financial statements in compliance with SEC requirements could be impacted. A determination that we have not timely filed financial statements in compliance with SEC requirements could ultimately lead to the delisting of our ordinary shares from Nasdaq or the termination of the registration of our ordinary shares under the Securities Exchange Act of 1934, or both, which would substantially reduce or effectively terminate the trading of our ordinary shares in the United States.

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Risks Related to Our ADSs

The trading prices of our ADSs have fluctuated and may be volatile.

The trading prices of our ADSs have fluctuated since we first listed our ADSs. Since our ADSs became listed on the NYSE on October 31, 2013, the trading price of our ADSs has ranged from US$17.00 to US$89.90 per ADS, and the last reported trading price on April 27, 2020 was US$51.88 per ADS. The prices for our ADSs may continue to fluctuate because of broad market and industry factors, like the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. In recent years, the widespread negative publicity of alleged fraudulent accounting practices and poor corporate governance of certain U.S. public companies with operations in China were believed to have negatively affected investors’ perception and sentiment towards companies with connection with China, which significantly and negatively affected the trading prices of some companies’ securities listed in the United States. Any similar negative publicity or sentiment may affect the performances of our ADSs. The securities of some PRC companies that have listed their securities on U.S. stock markets have experienced significant volatility. The trading performances of these PRC companies’ securities after their offerings may affect the attitudes of investors toward PRC companies listed in the United States in general and consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.

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

actual or anticipated fluctuations in our quarterly results of operations;
reports published by short sellers with negative accusations against us;
the financial projections that we may choose to provide to the public, any changes in those projections or our failure for any reason to meet those projections;
variations in our net sales, earnings and cash flow;
conditions in markets we operate in;
announcements of new investments, acquisitions, strategic partnerships, or joint ventures;
announcements of new services and expansions by us or our competitors;
changes in financial estimates by securities analysts;
additions or departures of key personnel;
release or expiry of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;
sales or perceived potential sales of additional ordinary shares or ADSs;
detrimental negative publicity about us, our competitors or our industry;
potential litigation or regulatory investigations or other proceedings involving us;
fluctuations in market prices for our products;
fluctuations of exchange rates between RMB and the U.S. dollar;

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proceedings instituted recently by the SEC against five PRC-based accounting firms, including our independent registered public accounting firm;
outbreaks of health epidemics, natural disasters, and other extraordinary events; and
general economic or political conditions in China or elsewhere in the world

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

If securities or industry analysts do not publish research or reports 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, or publish unfavorable research about us, 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.

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.

Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share, with Class A and Class B ordinary shares voting together as one class on all matters subject to a shareholders’ vote. As of March 31, 2020, holders of our Class B ordinary shares collectively owned approximately 15.1% of our outstanding ordinary shares, representing 64.0% of our total voting power. As of March 31, 2020, our founder, chairman and chief executive officer, Mr. Jinbo Yao, and Tencent beneficially owned an aggregate of 32.6% of our outstanding shares.

As a result of the dual class share structure and the concentration of ownership, holders of our Class B ordinary shares have substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. They 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 deprive our shareholders of an 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. For more information regarding our principal shareholders and their affiliated entities, see “Item 7. Major Shareholders and Related Party Transactions.”

The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.

Sales of substantial amounts of our ADSs in the public market, 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. 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.

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We may be classified as a passive foreign investment company for United States federal income tax purposes, which could result in adverse United States federal income tax consequences to United States investors in the ADSs or Class A ordinary shares.

Depending upon the value of our assets, which may be determined based, in part, on the market value of our Class A ordinary shares and ADSs, and the nature of our assets and income over time, we could be classified as a “passive foreign investment company,” or PFIC, for United States federal income tax purposes. Under United States federal income tax law, we will be classified as a PFIC for any taxable year if either (i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value of our assets (based on the average quarterly value of our assets during the taxable year) is attributable to assets that produce or are held for the production of passive income. Based on our income and assets and the value of our ADSs and Class A ordinary shares, we do not believe that we were a PFIC for the taxable year ended December 31, 2019 and, although no assurances can be made in this regard, we do not expect to be a PFIC for the current taxable year or any subsequent taxable year. While we do not anticipate being a PFIC, changes in the nature of our income or assets or the value of our assets may cause us to become a PFIC for the current or any subsequent taxable year.

Although the law in this regard is not entirely clear, we treat Beijing 58 and other consolidated variable interest entities 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 them, 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 are not the owner of Beijing 58 and other consolidated variable interest entities for United States federal income tax purposes, we would likely be treated as a PFIC for our taxable year ending December 31, 2020 and for subsequent taxable years. Because of the uncertainties in the application of the relevant rules and because PFIC status is a factual determination made annually after the close of each taxable year on the basis of the composition of our income and the value of our active versus passive assets, there can be no assurance that we will not be a PFIC. Under circumstances where revenues from activities that produce passive income significantly increase relative to our revenues from activities that produce non-passive income or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.

If we were to be or become a PFIC, a U.S. Holder (as defined in “Item 10. Additional Information — E. Taxation — United States Federal Income Tax Considerations”) may incur significantly increased United States federal income tax on gain recognized on the sale or other disposition of the ADSs or Class A ordinary shares and on the receipt of distributions on the ADSs or Class A ordinary shares to the extent such gain or distribution is treated as an “excess distribution” under the United States income tax rules. Further, if we were a PFIC for any year during which a U.S. Holder held our ADSs or Class A ordinary shares, we generally would continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which such U.S. Holder held our ADSs or Class A ordinary shares. Each U.S. Holder is urged to consult its tax advisor concerning the United States federal income tax consequences of purchasing, holding and disposing of ADSs or Class A ordinary shares if we are or become treated as a PFIC.

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.

As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying Class A ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying Class A ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares. Under our current memorandum and articles of association, the minimum notice period required for convening a general meeting is ten clear days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs to allow you to vote with respect to any specific matter. 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 your shares. 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 vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.

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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 qualify as 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:

the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission, or the SEC, of quarterly reports on Form 10-Q or current reports on Form 8-K;
the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;
the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and
the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

We are 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 as press releases, distributed pursuant to the rules and regulations of the NYSE. 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 are less extensive and less timely as compared to that required to be filed with the SEC by United States domestic issuers. As a Cayman Islands company listed on the NYSE, we are subject to the NYSE corporate governance listing standards. Among other things, Section 303A.08 of the NYSE Listed Company Manual requires shareholder approval of material revisions to equity-compensation plans and Section 312.03(c) of the NYSE Listed Company Manual requires shareholder approval of new share issuances above the 20% threshold specified therein. However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. We have elected to follow the Cayman Islands practices with respect to the amendment of our 2013 share incentive plan to increase the total number of ordinary shares that may be issued pursuant to awards granted under the plan. In addition, we have also elected to follow the Cayman Islands practices with respect to the issuance of new ordinary shares above the 20% threshold as specified in Section 312.03(c).

You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

The depositary of our ADSs 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 underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

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You may not be able to participate in rights offerings and may experience dilution of your holdings.

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.

We incur increased costs as a result of being a public company.

As a public company, we 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 NYSE, imposes various requirements on the corporate governance practices of public companies. For example, as a public company, we need to retain a certain number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we also 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 expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. 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.

In addition, we have ceased to be an “emerging growth company” as of December 31, 2014, and therefore are no longer able to take advantage of certain exemptions from various 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 of the Sarbanes-Oxley Act of 2002. We have incurred significant expenses and devoted substantial management effort, and expect to continue to do so to ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC.

In the past, shareholders of a public company often brought securities class action suits against the company following periods of instability in the market price of that company’s 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, which could harm our results of operations and require us to incur significant expenses to defend the suit. 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.

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Item 4.            Information on the Company

A.           History and Development of the Company

We began our operations in China in 2005 through Beijing 58, a PRC limited liability company, which has become our consolidated affiliated entity through a series of contractual arrangements. Our current holding company, 58.com Inc., was incorporated in May 2011 as a limited liability company in the Cayman Islands.

On November 5, 2013, we raised US$200.0 million in net proceeds from the initial public offering of our ADSs and another US$15.0 million from a concurrent private placement of Class A ordinary shares to DCM Hybrid RMB Fund, L.P., a fund affiliated with DCM V, L.P., one of our existing shareholders. Our ADSs trade on the New York Stock Exchange, or the NYSE, under the symbol “WUBA.”

On April 2, 2014, we and certain selling shareholders completed a follow-on public offering of ADSs. Our net proceeds, after deducting underwriting commissions, amounted to approximately US$73.0 million. We did not receive any proceeds from the sale of the ADSs by the selling shareholders.

In June 2014, Tencent invested US$736.1 million in our company and acquired 36.8 million Class A and Class B ordinary shares, representing a 19.9% equity interests in our company on a fully diluted basis at that time. We applied part of the proceeds from this transaction to repurchase 27.6 million ordinary shares of our company from certain pre-IPO shareholders.

Anjuke. Anjuke, operating a major online real estate listing platform in China, is our wholly owned subsidiary. In March 2015, we acquired Anjuke through the purchase of a 100% equity interests in Anjuke Inc., a company incorporated under the laws of the Cayman Islands, for 4.8 million newly issued Class A ordinary shares of our company and US$160.2 million in cash. We also issued 0.2 million fully vested restricted share units of our company to former Anjuke employees as part of the share consideration.

Ganji. Ganji, operating another major online classifieds platform in China, is currently our wholly owned subsidiary. In April 2015, we acquired less than 50% equity stake in Ganji, for 34.0 million newly issued Class A ordinary shares of our company and US$412.2 million in cash. Concurrently with this acquisition, we issued 15.4 million Class A ordinary shares to Tencent for US$400.0 million. Later in 2015, we committed an aggregate of 46.5 million newly issued ordinary shares and US$406.7 million in cash to several private equity funds as a limited partner. These funds, together with Tencent, acquired all the remaining equity interests in Ganji in August 2015. Since August 6, 2015, we started to consolidate the financial results of Ganji with ours in accordance with U.S. GAAP on the basis of our equity stake in Ganji as well as our controlling financial interest under the voting interest model over the funds. We also transferred an aggregate of 4.4 million fully vested restricted share units of our company and approximately US$51.0 million in cash to former Ganji employees as part of the total consideration of step acquisition of Ganji. In September 2017, these funds distributed all their equity interests in Ganji to their respective limited partners, and we acquired those equity interests as well as the remaining equity interests in Ganji held by Tencent. The consolidation of Ganji reduced the level of unnecessary competition for us in the online classifieds space market in China. Post the consolidation, Ganji was deeply integrated to materialize the synergies and increase profitability of our Company.

58 Home (58到家). On November 27, 2015, 58 Home raised US$300.0 million in its Series A preferred shares equity financing, with participation from Alibaba Group Holding Limited, or Alibaba, global investment firm KKR, and Ping An Group, among which US$10.0 million was contributed by 58.com Inc. The transaction was intended to reduce the pressure on our cash flows and profitability, enable us to better focus on our core classifieds business, and further fuel the growth of 58 Home and test the new business model with its more independent operation and support from new investors. Following the closing of the Series A financing of 58 Home, 58.com Inc. held majority equity interests in 58 Home. However, as certain rights provided to the noncontrolling Series A preferred shareholders of 58 Home would be viewed as substantive participating rights under U.S. GAAP, we have ceased consolidating the financial results of 58 Home in our consolidated financial statements in accordance with U.S. GAAP since November 27, 2015. Since the spin-off, 58 Home has been operating independently.

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In 2018, 58 Home pushed down the majority of its businesses into its two subsidiaries, 58 Daojia Limited (“58 Daojia”) and 58 Freight Inc. (“58 Freight”). Subsequently, Alibaba exchanged certain equity interests in 58 Home for that in 58 Freight. Since then 58 Home has largely become a holding company of the two subsidiaries. 58 Daojia is a platform that focuses on home services. 58 Freight is a platform that focuses on cargo and freight logistics and delivery services. In 2019 and 2020, 58 Daojia completed a series of equity financing from outside investors. As of December 31, 2019 and the date of this annual report, 58 Home held 89.7% and 81.9% of equity interests in 58 Daojia on an as-converted basis, respectively. In 2018 and 2019, 58 Freight completed a series of equity financing from outside investors. As of December 31, 2019 and the date of this annual report, 58 Home held 56.4% equity interests in 58 Freight on an as-converted basis.

As of December 31, 2019 and the date of this annual report, we held 68.8% equity interests in 58 Home on an as-converted basis, including 87.9% of the total outstanding ordinary shares and 5.0% of the total outstanding preferred shares.

Che Hao Duo (车好多). On December 31, 2015, we divested our controlling ownership stake in Che Hao Duo (formerly known as Guazi), a subsidiary that operated our C2C used car trading platform, to Mr. Mark Haoyong Yang, ex-founder and ex-CEO of Ganji and co-chairman of our board of directors at the time. We had a 45.6% stake in Guazi immediately after the spin-off and have deconsolidated the financial results of Guazi from ours in accordance with U.S. GAAP since then. As a result of this transaction, we reduced the pressure on our cash flows and profitability and were able to better focus on our core classifieds business. In addition, we expected that a more independent Che Hao Duo would grow its business faster and further test the new business model with support from new investors. Since the spin-off, Che Hao Duo has been operating independently. They have conducted several rounds of private equity financing and gone through a series of business model evolutions since December 2015. In 2019, we sold a certain percentage of our equity stake in Che Hao Duo to a third-party investor for a total purchase price of RMB4,978.2 million (US$713.6 million). We have received all the cash consideration as of the date of this report and recorded RMB6,141.6 million investment income and RMB524.2 million associated current and deferred income tax expenses for this transaction in 2019. As of December 31, 2019, we held approximately 8.0% equity interests in Che Hao Duo.

Zhuan Zhuan. In April 2017, Tencent invested US$200.0 million in cash and additional business resources in Zhuan Zhuan Holding in exchange for a minority equity ownership. Zhuan Zhuan Holding is an entity we created and into which we transferred our business relating to the Zhuan Zhuan app and certain used goods related listing channels from the 58 and Ganji classified platforms. We continue our direct traffic and other business support to Zhuan Zhuan Holding. In September 2019, Zhuan Zhuan Holding entered into definitive agreements with a group of investors, including our Company, Tencent and certain new investors for its series B round of financing for a combination of cash and additional business resources amounted to approximately US$300 million. As of December 31, 2019, US$170 million cash consideration of this financing were received, and we owned 63.5% of equity interests in Zhuan Zhuan on an issued and outstanding basis and continued to consolidate the businesses.

Finance Business. In September 2017, as another effort to reduce the pressure on our cash flows and profitability and better focus on our core classifieds business, we disposed our financial services and other finance related business, or the Finance Business, to Mr. Jinbo Yao, who in return contributed RMB150 million to the Finance Business subsequent to the disposal. We agreed to provide to the Finance Business, among other things, some traffic support and the right to use certain intellectual property rights. In return, we are entitled to a certain fixed percentage of profit participation rights in the Finance Business. The divestiture brought the Finance Business flexibility to apply for financial services licenses, attract talents and test new business models. It also freed our Group from accommodating two sets of different cultures, business models and financial implication of the internet business and financial business, respectively. In September 2019, in order to provide the Finance Business with more flexibility in future fund raising and acquisitions, we entered into definitive agreements to convert such profit participation rights to a certain number of shares of Golden Pacer, the newly established ultimate holding company of the Finance Business. In parallel, Golden Pacer entered into definitive agreements with Uxin Limited, a Nasdaq-listed leading national online used car dealer in China, pursuant to which Golden Pacer will acquire the loan facilitation related business from Uxin Limited. The two transactions abovementioned were completed when Golden Pacer and Uxin entered into supplementary agreements to modify their transactions in light of the changes in the regulatory environment and the impact of COVID-19 outbreak in April 2020. We currently hold 40% of the share capital of Golden Pacer on a fully diluted basis.

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Uxin. On May 29, 2019, we purchased a convertible note in a principal amount of US$100 million issued by Uxin Limited, which bears interest at a rate of 3.75% per annum from the issuance date and mature in five years thereafter. Such note is convertible into class A ordinary shares of Uxin Limited at an initial conversion price of US$1.03 per share, subject to certain adjustments, after a 180-day period following the date of issuance. We are entitled to registration rights with respect to all the class A ordinary shares of Uxin Limited that the note may convert into. As of the date of this annual report, we have not converted such note into class A ordinary shares of Uxin Limited. We are also entitled to nominate one director to the board of directors of Uxin Limited. On March 24, 2020, we entered into definitive agreements with Uxin Limited to purchase certain assets and liabilities related to Uxin's B2B online used car auction business for a total cash consideration of US$105 million. The transactions contemplated under the definitive agreements are subject to customary closing conditions, and are currently expected to close by the first half of 2020.

On April 2, 2020, we received a preliminary non-binding proposal letter, or the Proposal Letter, from Ocean Link Partners Limited to acquire all of the outstanding ordinary shares of our Company, including Class A ordinary shares represented by American depositary shares, for US$27.5 in cash per Class A or Class B ordinary share. On April 20, 2020, our board of directors formed a special committee consisting of two independent and disinterested directors, Mr. Robert Frank (Bob) Dodds Jr. and Ms. Li (Lily) Dong, to evaluate and consider the Proposal Letter or any alternative strategic option that the Company may pursue. As of the date of this annual report, no decisions have been made with respect to the Proposal or any alternative strategic option that the Company may pursue.

Our principal executive offices are located at Building 105, 10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing 100015, the People’s Republic of China. Our telephone number at this address is +86 10 5956-5858. Our registered office in the Cayman Islands is located at the offices of Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017.

B.           Business Overview

We enable consumers and local businesses to connect, share information, address local services needs and conduct local business in China.

We continue to leverage business and product innovation and technology to grow our platform and increase our user engagement in various ways. We better connect our users through in-App tools such as instant messaging. Other than the consumer facing apps, we have developed and been upgrading various businesses apps to improve the response and communication between consumers and businesses. We continue to raise the bar on lister validation and content quality control and invest more in our database. We introduce mediums through which content can be better displayed and disseminated such as pictures, video, three-dimension, VR, etc. We increasingly enable transactions on our platforms where they make senses. To improve consumer satisfaction, our teams engage in deeper research and discussions with our consumer users and business customers so that we bring more and often higher standards and disciplines to industries through our product/business model upgrades. We continue to apply AI and big data technology to more proactively recommend content to our users.

Our business currently consists of 58 core businesses and incubated new businesses.

The 58 core businesses are comprised principally of 58 and Ganji (赶集网), our multi-content category online classifieds platforms, Anjuke (安居客), our real estate listing platform, ChinaHR (中华英才网), our online recruitment platform that focuses on white-collar jobs and Jia Xiao Yi Dian Tong (驾校一点通), an online platform for drivers’ license examination preparation and other related services.

The incubated new businesses currently mainly include Zhuan Zhuan (转转), an online used goods trading and service platform, and 58 Town (58), a rural version of 58.com. These platforms provide more vertically integrated services to users in their respective content categories. Although Zhuan Zhuan and 58 Town are both in relatively early stage of their platform growth and monetization and require our continued investment, we see great market and growth potential in them. Prior to incubating Zhuan Zhuan and 58 Town, 58 Home and Che Hao Duo were initially incubated within 58 or Ganji, and have completed fund raisings from additional outside investors. We have deconsolidated the financial results of 58 Home and Che Hao Duo from ours in accordance with U.S. GAAP since 2015.

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We primarily conduct our business in mainland China. Our online services currently covered 338 cities (), 382 counties (), and approximately 13,000 towns and villages (乡镇) in mainland China. We have our direct sales team in 70 cities in mainland China. While we continue to see growth in first tier cities, we continue to push and make progress in our lower tier cities strategies both in terms of traffic acquisition and revenue growth.

Our users refer to all participants on our platforms, including consumer users and business users.

Consumer users browse and search information on our online platforms without the need to register an account with us. However, after completing a user registration process, a user can post information, access more content and use our communication tools and other services. We increasingly encourage more users to register and log into their accounts before utilizing our services.

Business users are typically those who attempt to attract customer leads or recruit employees. Business users can post information on our platform for free, however, they may choose to pay for our premium services to enhance the marketing effectiveness.

Over 580 million users used our mobile apps in 2019, an increase of 11.4% from 2018. The number of users in a given period is defined as the number of accesses by unique mobile device IDs to our mobile apps in a given period, which is calculated as the aggregate of the number of unique mobile device IDs that accessed each of our mobile apps in that period.

In 2019, approximately 92% of our traffic, which is defined as average monthly page views in listing and landing pages, is from mobile apps and mobile web browsers.

The following table sets forth the number of paying business users for the periods indicated:

   

Mar. 31,

   

June 30,

   

Sept. 30,

   

Dec. 31,

   

Mar. 31,

   

June 30,

   

Sept. 30,

   

Dec. 31,

   

Mar. 31,

   

June 30,

   

Sept. 30,

   

Dec. 31,

2017

2017

2017

2017

2018

2018

2018

2018

2019

2019

2019

2019

 

(in thousands)

Paying Business Users

2,670

3,087

3,152

2,994

3,154

3,540

3,517

3,157

3,389

3,617

3,622

3,290

Note: We define paying business users who are identified as business users with unique identity information such as business licenses or personal identification information and who used our subscription-based membership services or purchased at least one type of online marketing services in a given period. One paying business user can open up several paying user accounts on one or multiple online platforms. The number does not include paying business users on Ganji as the Company stopped selling stand-alone Ganji subscription-based membership services in 2018 or earlier in all of its content categories.

58 Core Business Service Offerings

58 core business services for consumer users

We provide platforms for consumer users to browse, search and post information, get connected and communicate with services providers to ultimately address these consumer users’ needs for local services. We continue to invest in technology such as big data and artificial intelligence (AI) to enhance the relevance of our information and the effectiveness of our services. 58, together with other internally developed and acquired platforms, are well positioned to serve Chinese consumers with respect to provision of local service information. Some consumer users also pay to better promote their own listings, but it is free for consumer users to browse, search and use other features on our platforms.

The following platforms can be accessed through PC, mobile browsers, as well as mobile apps.

58 was launched in 2005 when our company was first founded. It is currently the largest online classifieds platform in China measured by traffic and revenues. It contains various content categories such as real estates, jobs, automotive, used goods, yellow pages and other local services categories.

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Ganji (赶集) was launched in 2005. It was consolidated into our company in August 2015. It contains similar content categories as 58. Post the acquisition, Ganji has been strategically de-emphasized especially in terms of user acquisition, to maximize investment and return on investment for 58 and other major apps. Although on a standalone basis, user traffic of Ganji has declined in recent years, overall synergies between Ganji and 58 have been maximized as a result of such conscious integration strategy.

Anjuke (安居客) was launched in 2007 and acquired by us in March 2015. It is currently one of the leading real estate listing platforms and is focused mainly on real estate sales, both secondary and primary, whereas the real estate categories on 58 mainly focus on rental and secondary real estate sales.

ChinaHR (英才网) was launched in 1997 and acquired by us in May 2015. It is currently one of the leading online recruitment platforms and is focused on white-collar jobs and offers career information and various other recruitment related services.

Jia Xiao Yi Dian Tong (驾校一点通) was launched in 2005 and acquired by us in April 2015. It is currently one of the leading platforms that offer drivers’ license examination preparation and other related services.

58 core business services for business users

Business users use our platform to upload and promote their services, attract customer leads and recruit employees. Business users can validate themselves through a range of individual and business background validation tools on the platform to enhance their profiles online.

We provide business users with a series of services for free. They can post information within certain limit for free. In most key categories, they have a basic storefront page and access to PC and mobile apps to manage their listings and communicate with consumer users for free.

We also launched category-specific mobile apps tailor-made for business users with more mobile-friendly features for them to manage listings on our platforms, get leads and communicate with consumer users. We also increasingly generate more data insights on marketing effectiveness and provide relevant feedback to our business users to increase the efficiency of their online marketing effort and overall business activities. We plan to continue to expand the features and enhance the user experience for these software as-a- service (SaaS) tools. With the help of these enhanced tools, we hope to increase engagement and interaction between consumer users and business users, which in turn provides us with larger amount of data for us to better understand, profile and serve our users. By leveraging our AI and big data capabilities, we hope that our platforms become increasingly intelligent to match consumer users with business users, leading to more diversified lead-generation revenue models, higher traffic monetization efficiency and improved quality of the information and overall user experience.

Our mobile apps developed for business users primarily consists of the following:

Zhao Cai Mao (招才猫) is a dedicated recruitment mobile app particularly for small and micro business users. This app allows employers to upload descriptions of their business, post jobs and search for and chat with potential job seekers. Its location-based services help identify job seekers that are potentially more geographically suitable for the open positions. Its chat function provides a convenient alternative to phone calls to conduct job search related communication. It enables employer to better connect with job seekers on 58 and Ganji platforms. These features make the hiring process more efficient and help employers recruit on the go. Business users can pay for more leads or enhanced online marketing services on this app. In addition to the Zhao Cai Mao app, business users also use 58 as an important tool to access and manage their listing and conduct various recruitment related services, which can be accessed through PC, mobile browsers, as well as mobile apps.

Mobile Real Estate Agent (动经纪人) is a dedicated mobile app for individual secondary and rental real estate agent users. It helps real estate agents to upload and manage listings, contribute content to the platform and connect more effectively with consumer users.

Wei Liao Ke (微聊客) is a dedicated mobile app for individual primary real estate agent users. It helps real estate agents to upload and manage listings, contribute content to the platform and connect more effectively with consumer users.

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Shang Jia Tong (商家通) is a dedicated mobile app for yellow page business users. It helps business users to upload and manage listings and connect more effectively with consumer users.

Che Shang Tong (车商通) is a dedicated mobile app for used car dealer users. It helps used car dealers to upload and manage listings, access useful information such as maintenance or pricing through integrated third-party tools, and connect more effectively with consumer users.

Paid Premium Services to Business Users

A large majority of our paying users are business users as opposed to consumer users, even though consumer users can also pay for enhancement of their listing exposure. The paying users include members who used our subscription-based membership services and other paying users who have not used our subscription-based membership services but have purchased at least one type of our various online marketing services or other services.

Subscription-based membership services

Even though business users can participate in our platforms for free, some business users pay for additional premium services to enhance their marketing effectiveness. Our subscription-based membership is a basic service package consisting mainly of merchant certification, display of an online storefront on our platforms, preferential listing benefits such as daily priority listings and a higher limit for daily listings, and access to our dedicated customer service support team and online account management system. Members who subscribe to our membership can get access to more services and obtain more effective marketing than non-paying business users on our platforms. 58, Ganji and Anjuke offer subscription-based membership packages that include similar types of services, although the specific details of the services, such as the quotas for daily listings, may vary from platform to platform. In some cases, we merge memberships on multiple platforms into a single subscription-based membership package, which enables business users to more easily market on multiple platforms.

We offer memberships of varying lengths across different content categories. Memberships in the yellow pages, jobs and used auto categories are primarily 12-month packages. In China, due to relatively high employee turnover among migrant workers, many businesses have ongoing hiring needs. Memberships in the real estate category are primarily one-month to three-month packages, because membership services are provided on an individual real estate agent basis and the turnover of real estate agents is quite high.

We acquire a majority of subscription-based members through our field sales teams and our sales agent network, even though we have started to make more membership services packages available online and encourage more business users to select and purchase them online. Our centralized and dedicated tele-customer service team supports our members during their membership period to enhance the marketing effectiveness and improve membership renewals. The roles and responsibilities of the field sales and customer services teams may vary by content category, as we constantly optimize our team structure and functions to best develop and serve our business users. The majority of our subscription-based paying members are small and medium-sized local businesses.

Online Marketing Services (OMS)

In addition to subscription-based membership services, which we position as a basic entry-level package services for business users, we aspire to provide various additional online marketing services to meet the customers’ various needs typically beyond what have already been addressed by subscription-based membership services. Online marketing services are generally more flexible to meet needs for customers of different scales, at different times and in different ways. Some online marketing services types are available for most content categories, whereas others are tailor made for certain content categories only.

Members who purchase our subscription-based membership services can also purchase online marketing services, in addition to subscription-based membership, typically at a discount compared to non-subscription-based paying users. However, one does not have to be a member to purchase most types of online marketing services. It is an important strategy for us to continue to upsell more online marketing services to members who have already purchased the subscription-based membership services.

Our online marketing services primarily include real-time bidding, priority listing, various other lead-generation services and display advertising. Some types of online marketing services are similar across different content categories, whereas others are tailored to one or some specific content category based on the nature of the content category and our insights and know-how.

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Business users use our real-time bidding services to bid for the most prominent placement of their listings in specific categories and locations on a cost-per-click (CPC) basis. We have developed a user-friendly bidding system through which business users can create text- and graphic-based descriptions for their listings and bid on the placements of their listings. In some categories, instead of a dynamic market-based bidding pricing system, we set fixed CPC price that is subject to regular reviews and adjustment. We made decisions as to which bidding systems to use based on our experience and know-how about each specific content category. Through bidding services, we typically generate much higher revenues than we otherwise could with the same amount of listing space as it maximizes the traffic monetization efficiency.

Business users also purchase our priority listing services, which typically place their listings below real-time bidding listings but above the area where regular paying business users' listings are displayed. Business users can purchase listing placements of varying durations ranging from several hours to several days to several weeks depending on their needs.

We continue to provide users more innovated ways to connect on our platforms in addition to phone calls, such as online chat through instant messaging tools, a quote for a specific service item, submissions of resumes to an open job posting in which users are interested. As a result, we are increasingly capable of passing leads directly to our business users. In addition, as we accumulate more user data and build better user profiles, we are also able to improve the quality of the leads we provide. Therefore, we are providing more innovative lead-generations based online market services to our business users to replace the traditional listing-position-based services. We offer business users a simpler way to market their services with clear measures of returns on investment, or ROI, of their marketing investment. This also allows us more flexibility to utilize our traffic and to leverage technology to better match the needs of consumer and business users. As we monitor the effectiveness and gather feedback from our customers, our AI and big data algorithm helps improve both monetization and user experience.

We provide display advertisement mainly for major business users, such as primary real estate developers on our Anjuke platform, companies who hire more white-collar staff on our ChinaHR platform and auto manufacturers on our 58Che (58 车) platform. These business users purchase display advertisements to enhance their brand recognition and attract consumer attention. These display advertisements are either text- or graphic-based displays for varying time periods ranging from several days to several months.

Most of the online marketing services customers are required to make payment in advance before purchasing our services, in the form of purchasing virtual online currencies of our platforms. Paying members can log into our account management webpage or mobile apps and purchase various online marketing services through an easy-to-use interface.

Incubated New Businesses (Consolidated Businesses)

Zhuan Zhuan (转转) is an online used goods trading and service platform launched in the fourth quarter of 2015. Zhuan Zhuan's vision of business is to bring pleasant online used goods trading experience for more users through providing simple and trustworthy services. It started with a primary focus on consumer to consumer, or C2C, used goods transactions. With a growing user base and increasing variety of value-added services on the platform, small business users, also became important participants in the marketplace. Zhuan Zhuan has established featured online marketplace rules and developed customized service capabilities, so that small business users can provide individual buyers (also known as C2B buyers) with more diversified goods and better values. Zhuan Zhuan allows buyers to search and trade a wide variety of used goods and features picture-taking and video-shooting to make listing used goods much easier. The payment solution for Zhuan Zhuan is a WeChat payment-based escrow payment process co-developed by 58 and Tencent. This is a convenient and secure payment method with an escrow payment process. Under this process, funds transferred through online payment will not be released to the sellers until the buyers confirm receipt. The use of WeChat account log-in and exclusive WeChat friends’ relations data has given the platform an extra level of security and social interest. Users can opt to transact offline face-to-face as well as using Zhuan Zhuan to arrange logistic service providers to come to sellers’ place to pick up the goods and track shipment status through intuitive user interface.

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For some specific product categories, such as mobile phones, tablets, laptops, consumer electronic devices and books, Zhuan Zhuan provides further value-added services to enhance confidence and trust in transactions. Zhuan Zhuan has a technology team specialized in mobile phone authentication and quality control. It also established standards for mobile phone assessment and grading, which have become industry-wide recognized standards. Leveraging our increasing knowledge of the marketplace, Zhuan Zhuan also recommends price ranges for different product categories. Standardized authentication services and algorism-based prices recommendation provide both buyers and sellers with more definitive and transparent experience, hence strongly promoting market activates.

Zhuan Zhuan also developed varieties of tools to further promote transactions. It developed auction and bidding platforms so that a seller can sometimes sell a Zhuan Zhuan authenticated mobile phone in one hour with a price premium of more than 20% to his/her starting price. It leverages live streaming technology to help business user to promote their non-standard goods such as used phones, tablets and jewels. We also developed online marketing tools for used goods business users, through which such users can post and manage their traffic of a used goods listing in real time so they can connect, share information and operate business in a more focused and efficient manner. These innovative value-added services help to boost transaction volume and strengthen our brand recognition through word of mouth marketing among users and merchandise network. At the same time, Zhuan Zhuan charges fees for authentication services provided to buyers as well as online marketplace services provided to sellers.

Zhuan Zhuan has experienced rapid growth in user traffic since its launch in 2015. Zhuan Zhuan has more than 200 million registered users currently including users through app activation and WeChat registration. Zhuan Zhuan launched its first WeChat mini-program in 2017 which serves as a new access point beside its mobile app. Mini-program is a light feature embedded in WeChat to facilitate discovery, fast access and download of stand-alone mobile apps. It is an enhancement of a WeChat official accounts and is designed to connect service providers with mobile users. The features within our mini-programs are largely similar to our own mobile app but will recommend different content based on different user profile and algorithm. Some mini programs offer special features relevant to unique WeChat eco-system data and user experience. Users can view, chat, post new listing items and make purchases via Zhuan Zhuan mini-programs within WeChat directly. Based on a business cooperation agreement between Zhuan Zhuan and Tencent, the Zhuan Zhuan mini-programs can also be accessed through the “Used goods” shortcut on WeChat Pay index page.

We currently own 63.5% of equity stake in the Zhuan Zhuan Entities on an issued and outstanding basis and continue to consolidate the financial results of Zhuan Zhuan in our consolidated financial statements. See “–A. History and Development of the Company.”

58 Town (58同镇) is a rural version of 58 in smaller towns and rural areas in China that we launched in the summer of 2017.

Even though the urbanization rate has been increasing, there are still several hundred millions of people living in smaller towns and rural areas in China. In recent years, smart phone and social network, such as WeChat has been increasingly popular in rural China but information is still largely offline there. 58 Town aims to provide users in those areas an online platform to access local information that is useful and interesting. We send our teams or leverage distributors to visit these small towns, recruit local “town partners” and provide them with apps to upload and manage information. These town partners are not our full-time employees, but they are typically people who show an interest in and have the basic skills for helping us to develop local users and manage content mostly on part time basis. Our core teams in the Beijing headquarters maintain most ongoing interaction with the town partners through apps and other online systems to provide operational training and instructions to grow the platform locally. We also offer individually relatively minor monetary incentive to town partners to reward good results. We believe that this is a good marketing investment to promote the 58 brand and acquire new users and content. The content categories we cover on 58 Town are largely similar to those on 58. Local community forum, jobs, real estate, auto are the major ones. However, there are also categories that are more local and unique to lives in small towns, such as car sharing for users who travel to neighboring towns and areas due to the lack of taxi and public transportation like in big cities. Most users today browse content in WeChat groups or WeChat public accounts created by town partners, however since the content is also synchronized to 58 and 58 Town (58本地版) apps, there is growing number of users who access information through our apps, where we can better retain and serve our users. 58 Town (58本地版) app was launched in April 2018. During 2019, we focused more on growing the app. Over 15 millions of users accessed 58 Town app in 2019, which was 2,885% up from 2018.

58 Town has experienced rapid growth since its launch in the summer of 2017. As of March 31, 2020, 58 Town covered approximately 13,000 out of a total of approximately 40,000 towns in China. Even though monetization is not a near-term focus in 2019, we believe this is the initial stage of a very valuable user network with plausible revenue models.

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Furthermore, as there are many migrant workers in China that go back and forth between cities, small towns and rural areas, 58 Town is very complementary to our existing platforms in that we not only reach out to more users with 58 Town, but with a bigger portfolio of platforms now, we can also serve our users better as they move between geographies. The integration of data from 58 Town and other existing 58 platforms will further enable us to generate more insights into our users, disseminate information better across various platforms and provide better marketing services for business users leveraging big data and AI capability.

Incubated New Businesses (Deconsolidated Businesses)

58 Home is a platform that enables users to search and purchase various home services, including domestic services, freight delivery services and platform services. Consumer users can select individual service providers online without going through middleman agency companies. For its core service categories, in addition to its online platform, 58 Home engages various offline operations, such as finding and certifying individual service providers and providing them with a mobile app tailor made for them to receive order and connect with consumer users. 58 Home also operates a training program for services providers in an effort to raise the quality of their services and provide certification for their skills. 58 Home has customer service call center teams that collect customer feedback to enhance its customers’ operations. 58 Home also partners with other third-party vertically-dedicated service companies in order to widen its content categories. Currently, there are over 400 cities and counties in China where most of 58 Home’s online services are available.

On November 27, 2015, 58 Home conducted its Series A preferred shares equity financing, which was intended to reduce the pressure on our cash flows and profitability, enable us to better focus on our core classifieds business, and further fuel the growth and test the new business model of 58 Home with its more independent operation and support from new investors. As certain rights provided to the noncontrolling Series A preferred shareholders of 58 Home would be viewed as substantive participating rights under U.S. GAAP, we have ceased consolidating the financial results of 58 Home in our consolidated financial statements in accordance with U.S. GAAP since November 27, 2015. Since the spin-off, 58 Home has been operating independently.

As of December 31, 2019 and the date of this annual report, we held 68.8% of equity interests in 58 Home on an as-converted basis, including 87.9% of the total outstanding ordinary shares and 5.0% of the total outstanding preferred shares. See “–A. History and Development of the Company.”

Che Hao Duo (车好多), previously known as Guazi, is one of the leading innovative automotive retail groups in China. Its business mainly consists of Guazi (瓜子), an online C2C used car trading platform, which was launched in 2015 and Mao Dou (毛豆), an online new car trading platform, which was launched in 2017. These platforms provide consumers with a great selection of used and new car inventory and a hassle-free one-stop-shop experience with various post-sales maintenance services, financing and insurance solutions. They continue to optimize the efficiency of the overall automotive retail industry with strong big data capability, strong brand recognition, major online mobile apps and offline sales and technician teams.

We currently have a minority equity interests in Che Hao Duo, and we do not consolidate its financial results. Che Hao Duo has been accounted for using cost method since we divested it on December 31, 2015, and measurement alternative after we adopted ASU 2016-01 since January 1, 2018. Since the spin-off in December 2015, Che Hao Duo has been operating independently. See “–A. History and Development of the Company.” As of December 31, 2019, we held approximately 8% equity interests in Che Hao Duo on fully diluted basis.

Content Categories

We organize listings on our platforms by content categories in an intuitive and easy-to-use directory to facilitate browsing and viewing. Currently, the major content categories in terms of number of listings and user traffic on our platforms are the following:

Real estate. Real estate is sorted into subgroups of residential rental, secondary and primary property sales, office space, retail space and industrial real estate rental. 58 and Ganji platforms have mainly rental and secondary property sales listings, while our Anjuke platform has mainly secondary and primary property sales listings.

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Listings are mostly uploaded by real estate agents, although consumers can upload their own homes for lease or sale as well. We have been continuously working on enriching the content and improving the quality of our listings. For instance, for residential properties, a listing not only covers the home itself, but also increasingly covers floor plan and description of the neighborhood community. The format of the listing includes text, picture and increasingly video, virtual 3-D depiction or bird’s-eye view of the property and neighborhood. We also provide useful tools such as maps, property pricing index, mortgage calculators, housing policy interpretations and industry news to further assist consumers’ decision-making. Besides, we also provide insurance coverage for both consumers and real estate agents. In 2019, we upgraded the process of displaying the housing resources on our platforms to improve the listing efficiency and developed new product features to allow real estate agents to share the listings among their private WeChat social network to effectively grow their businesses. We provided instant communication service which covers nearly all the listings on our platform and supports various types of contents such as text, pictures, voice, video and live streaming to further enhance user experience. Big data and AI have been applied to match houses and customers more accurately. Furthermore, we introduced the feature of virtual reality (VR) and have been continuously improving the coverage of VR-enabled listings, which enables remote house viewing and online decoration design display.

In primary property, our key products in 2019 were a series of products called “Yunjuke 3.0”, aiming at solving the marketing needs of different customers in various sales stages. Relying primarily on its mobile app, Yunjuke 3.0 help reduce marketing costs, improve service efficiency and conversion rate and enable diversified intelligent service marketing through Anjuke’s big data technology and smart matching system. At the beginning of 2020, the “VR Real-time on the Same Screen” function debuted, which enables real-time online interaction between real estate consultants and home seekers in different physical locations while sharing the same house viewing experience online. Through this function, the efficiency of consumer users’ home searching process as well as that of real estate consultants’ customers acquisition have both increased.

In June 2018, we acquired a minority stake in 5I5J, a major secondary and rental brokerage company in China, whose business is complementary to our real estate content category. In 2019, we jointly established Ai Fang, with a publicly traded company and a private company in China to engage in the promotion and sale of primary property sales for real estate developers, which could generate synergistic effects with our existing real estate business. Ai Fang connects real estate agents and property developers and provides them with the resources for business cooperation, including but not limited to housing resources, customer resources and transaction information, which makes primary property sales more efficient and helps real estate agents expand their businesses, as well as generates synergistic effects with our existing real estate business.

Jobs. Jobs currently covers a wide range of job categories, such as sales, customer service, manufacturing, human resources and administrative, homecare, cleaning, security, logistics. Employers on our platforms come from diverse industries, such as dining, recreation and entertainment, internet, retail and e-commerce, healthcare, education, finance and insurance, real estate, renovation and construction. We also have recruitment agencies, which represents a minority of all listings under the jobs category. Our 58 and Ganji platforms have largely mid-to-lower-level income job listings and resumes. ChinaHR, on the other hand, focuses on white-collar jobs from larger and more reputable companies. Job applicants can prepare a resume online, browse open positions and apply for jobs online. They can also join an online community to share job search experience and access career advices or industry news. Employers can upload job listings, purchase resumes and use our background check and assessment services. Job applicants and employers can communicate in various ways on our platforms through various consumer and business facing mobile apps.

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Automotive. Automotive includes listings of used and new cars, car leasing services, driving school services, automotive repairs and maintenance services, and other car-related services. Our platforms primarily focus on listing of used cars. Listings are uploaded by either used car dealers or individual consumers. In 2019, we improved our dealer credit system. By collecting consumers’ real-time feedback by calls, messages, and visits on the used car dealers, we developed a performance-based credit-rating system, which affects exposure opportunities and pricing scheme of the dealer’s listings. With the adoption of this new system, the quality of the dealers’ service was significantly improved. Our platform also provides insurance coverage for consumers, regarding online listing information and offline transaction, to ensure a trusted trading environment. For selected vehicles, we also provide vehicle valuation and inspection services, quality guaranty and extended warranty solutions as well as financial services, mostly through qualified third-party partners, in an effort to better facilitate the used car transaction. Consumer users and business users can communicate on our platform through various tools, including phone calls, instant messages, and video chats. Besides, we provide advertising services for automakers to help them with brand and sales promotions. Furthermore, by acquiring certain assets of a used car auction business, we expand the business of our platform from used car listing to used car transactions. On top of internet traffic services, this new practice provides our customers used car sourcing services, which enhanced our platform’s capability of binding with our existing clients and growing our customer base.
Used goods. Used goods covers a wide range of used consumer products such as computers and peripherals, mobile phones, digital cameras, furniture, household appliances and goods, books, artwork, sporting goods and musical instruments. On 58 and Ganji platforms, listings are uploaded by either professional used goods resellers or individual consumers. On Zhuan Zhuan, listings are largely uploaded by individual consumers. Consumers can browse and communicate with businesses or other consumers on 58 and Ganji. In addition, consumers can directly transact on Zhuan Zhuan.
Yellow pages local services. This category covers a variety of services such as homecare, enterprise services, renovation, education and training, vehicle rental, franchise licensing services, wedding and filming, and travel. On 58 and Ganji platforms, consumer users can search and browse local services information. Listings are primarily uploaded by business users and communicate with business users or other consumer users. We engage more user reviews and developing more information tags on businesses and their service offerings to further facilitate decision-making. For certain categories, we also launched enhanced services named “Premium Home Services” (到家精), which focuses on partnering with high quality service providers to further standardize their service quality and integrate service protection plans while establishing closed-loop transactions through our platform. Premium Home Services allow consumers to directly purchase services from us at fixed prices and receive services from our certified service providers.

Content Monitoring and Quality

We are committed to offering authentic and high-quality information across our platforms and complying with applicable laws and regulations. We believe information quality is critical to superior user experience. However, we are subject to spam, poor quality information and fraudulent activities as many other large internet companies are.

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We have adopted a multiple-level detective, protective and preventive system to manage our content and safeguard information quality.

Information screening, removal and user feedback collection and follow-up processes. We utilize proprietary technologies such as text or picture-based content screening analysis technologies together with manual screening conducted by teams of several hundred people to ensure content that contains certain inappropriate keywords cannot be successfully posted, viewed or and that they will be taken down once identified on our online platforms. We have a comprehensive set of policies regarding content management and we regularly and rigorously update and implement these policies to safeguard interest of our users. In addition to the actions taken with respect to the content, we also have a set of rules and processes to trace back to the users who post the respective information. The user accounts that violate these rules will be temporarily suspended or permanently terminated based on the severity of the violation. If it is a paying business user introduced by our sales and customer services teams, we also hold our teams accountable for the violations and have and implement internal disciplinary policies accordingly. We encourage users to report information quality issues or fraudulent activities and provide multiple entrances to facilitate the issue reporting process. We are able to respond within 24 hours upon receiving of an issue report and provide specific solutions resolving differentiated complaints. We have also established effective working relationship with relevant government agencies who also receive consumer feedback and complaints about services found on 58 platforms. We have increased our internal resources to process, validate and follow up on these reports and claims. We encourage business users to make a deposit for information quality in exchange of more traffic support. In the event of violation, the deposit will be deducted and paid to the users who report the violation. In other cases, where the business users or the platforms have paid for premiums to ensure information quality, the insurance company will compensate the users. We may compensate or reward the users even if it is not legally required.
Lister account management and control. Many information quality issues arise from insufficient verification and control over the listers’ account set-up and management. We have been raising the bars on authorization of individuals and businesses, and increasing the authorization requirement and verification procedure during the account opening process. For instance, in our rental home category in most major cities in China, to claim to be the owner of the property, the lister needs to either upload the property ownership certificate or put down an information quality guarantee deposit. We work with increasing number of third parties and used more advanced technologies such as facial recognition to validate the account owner. We have completed the identity validation for substantial all of our active listers that are subject to relevant property owner identity validation requirements. Users who have their personal identification linked with the lister account typically is a lot less likely to upload low quality listings.
Ongoing online monitoring powered by big data and technology. We used our proprietary systems and technology to analyze information, track user traffic and detect irregular user behaviors, spams or potential fraud. Our big data capability allows us to analyze a huge amount of data per second in real time, and analyze multiple forms of data including text, photo, video and voice. We are also building large databases on our content categories such as real estate and automotive to further regulate the posting and detect irregular information uploads. We are becoming more experienced at detecting fraudulent individuals and offenders and developing more comprehensive blacklists and whitelists. Features such as VR, livestreaming and instant message can also increase user engagement and improve fraud prevention. For example, leveraging on 58 Blog, hiring and interviews can be conducted by business users through livestreaming, the process of resume submission and communication between job seekers and employer have been speeded up, and the information quality has been improved.

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Onsite due diligence and external partnerships. We have increased and will further increase investment in onsite due diligence, including examining the availability and conditions of the listed real estate properties and used cars, validating the due authorization and hiring needs from employers and recruitment agencies, which helps to safeguard the platform information quality. We also partner with other internet companies and other interested organizations to share experience and information. We work closely with law enforcement authorities to assist in their investigations against fraud. With insights drawn from our data analytics, we help law enforcement authorities to identify suspicious groups and individuals who may commit fraud or infringe on consumer rights.
Product and process innovation. More assessment and verification processes have been implemented for both business users and consumer users. For example, under the jobs content category, we have established an evaluation system to rate recruiters' job postings. We strictly select certain high quality positions through multiple assessments, tag these positions as more trusted job postings as “Fang Xin Tou” (放心投) and recommend to job seekers. We have also established a credit system for some selected subcategories in local services yellow pages where users could comment on services provided to them. Such systems differentiate business paying users and therefore motivate higher quality services. Other process innovation such as intelligent price comparison, database and data mining analysis for online user recommendations could also help to improve user engagement and information quality on our various platforms.
Increased exposure to high-quality information. In addition to detecting and removing misinformation and guarding against fraudulent activities, the other aspect of our effort to improve overall information quality is to identify high quality information and ensure they get more exposures through our traffic allocation mechanism. Increasing adoption of video and VR into listings across most of our business categories makes information posted more genuine and attracts more click-through. We highlight certain listings with a special tag as “premium listing”, which will typically draw more user attention. For instance, tags of “An Xuan” () in real estate category, “An Xin Che” (安心) in used auto category and “Premium Home Services” (到家精) in yellow pages local services, indicate that those listings have met with higher quality standards. We believe these enhanced services will boost consumer recognition and trust. Over time, these higher standards are becoming industry standards and real estate agent communities, used auto dealers and local services providers are changing their decade-long practice to meet these standards so that they can enjoy more traffic benefits from our platform and a more loyal customer base. We believe that these measures, combined with other content monitoring efforts, is improving the overall information quality on our platforms.

Technology

Technology is the key to our success. We have been making continuous investment in technology to enable superior user experience, increase the ease and effectiveness of business users in using our platforms and optimize our operational efficiency. As of December 31, 2019, we had a team of approximately 3,900 highly skilled product development personnel and engineers with expertise in a broad range of technical areas. We will continue to develop technology to support our business innovations and growth.

Our technology capability primarily lies in the areas of real-time search, anti-fraud protection and information quality assurance, big data, AI, cloud, VR and online marketing.

Cloud Platform

We have developed a cloud platform, which is primarily for internal use currently. Cloud-based web application enhances the performance and reliability of our services significantly. Our cloud platform also simplifies and standardizes our internal communications and improves synchronization of our system testing process. It provides a more secured platform for data applications while at the same time offering more flexible and intelligent deployment and allocation of our IT resource to meet our evolving business needs. As a result, we are able to increase our overall research and development efficiency while reducing cost.

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Big Data

We have developed our in-house big data infrastructure to meet the increasing need for large scale and real time data analysis to enhance our operation as well as user experience. Our massive amount of data is stored on a distributed computing and storage network. Our system has the capacity to process million level requests per second. Our big data infrastructure is both scalable and reliable, providing strong support for the operations of all business units.

We also developed an online data warehouse and analytics platform to integrate data from multiple systems, which enables data search, business intelligence, multi-dimension and real time data monitoring and analysis. Our proprietary user behavior analytics platform for business users allows them to perform customized analysis of user profile, demographics and conversion and enables an increasingly personalized user experience on our platforms.

Real-time Search

To accomplish the timely display of information, we have developed a proprietary search engine with high levels of performance, reliability and scalability.

High performance levels. We have implemented an advanced search indexing system through which all new data are stored immediately after they are posted.
Highly reliable. We have developed a load balancing mechanism in the search engine to ensure that our overall searching system will be unaffected by server failure.
Highly scalable. Our search system is implemented on a distributed and clustered infrastructure which enables the storage and processing of large datasets and facilitates deployment of resources on a larger scale.
Highly personal. Leveraging on our proprietary semantic processing, big data and AI technology, our search system analyzes user intent and provides personalized browsing and search results.

Artificial Intelligence (AI)

We used our proprietary technology to develop our AI platform for business units to conduct deep learning and machine learning tasks. We developed AI-based customer services systems which utilize voice recognition, natural language processing and machine learning technology to reduce human intervention in our customer service process. Currently, a majority of user inquiries submitted to our online platforms are handled by AI-based customer service systems. AI is also utilized in our sales teams’ efficiency projects, such as sales leads analysis, online ordering, payment process optimization, as well as in our AI-based outbound customer call center operations, such as quality control and best practices sharing. We also deployed AI-based chatbots in helping our business users to respond to their customer inquiries. It is also very instrumental in real time search and personalized recommendation and advertising to improve both user experience and effectiveness of monetization of our platforms.

Online Marketing Platform

We have millions of business users trying to market to hundreds of millions of consumer users on our platforms. To connect users and customers more efficiently, we have integrated several kinds of advertising systems into one marketing platform with a high level of intelligence, functionality, flexibility and scalability.

Highly intelligent. A series of AI services have been developed for customers to target their audiences effectively. The platform provides customers with tools such as smart pricing, budget pacing and anti-spam to increase returns on their marketing investment.
Highly functional. There are sufficient options to meet different customer demands with uniform UI. Many value-added services have also been implemented to assist customers to design smart advertising campaign, such as creative builder, and landing page builder.

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Highly flexible. The marketing platform contains a set of reusable modules with open API and configuration. Thus, business units can use it to design personalized monetization mechanism. It supports developer collaboration on monetization products experiment.
Highly scalable. The platform supports scalable distribution of user traffic and customer budget based on unified management tools. It provides various options to connect with external sites or apps, such as online advertising union network on tools such as real time bidding (RTB). This helps our customers to expand the reach of their marketing efforts and increase the ROI of their marketing investment.

VR

We have developed our proprietary VR technology especially in use cases related to our housing categories. Largely based on automatic modeling technology, it helps significantly in saving time and cost of our agent customers in creating a VR based listing. We also developed relevant technologies to enable VR roaming, multi-user interactive VR, WeChat mini-program based VR, one-click home renovation VR, VR live-streaming and others, and significantly expanded the use cases of the application of VR technology.

Anti-fraud Protection and Information Quality Assurance

Content analysis technology. For anti-fraud purposes, our system screens each listing before it can be displayed, as well as subsequent changes made to existing content and ongoing interactions on our online platforms. We apply various technologies such as multi-angle cross validation, information retrieval and machine learning technologies. Our system is designed to sweep the data being transmitted on our platforms on a real-time basis for sensitive keywords, questionable content and unusual level of activities. We have largely achieved auto screening and risk detection processes, complemented by human intervention where necessary. We continue to enlarge our database regarding text or graphic based keywords and collaborate with peer companies in increasing our anti-fraud detection capabilities jointly.
User identity and behavior analysis technology. We have developed proprietary solutions with respect to user identify validation, leveraging on facial, finger-print recognition, smart device and sensor recognition technologies. Equipped with data mining technology to track and analyze a wide range of user information, our system can detect and flag potential irregularities and initiate relevant procedures promptly to identify and fix any potential problems in a timely manner.
Manual review and feedback adopting system. We adopt a manual review process to screen information flagged by our system that requires a more detailed follow-up. We have built a mechanism through which our system can “learn” from the results if a listing is checked and validated to be accurate through our manual review process, by incorporating the manual review results in our system database. Thus, we are able to continue to update our system and enhance the system’s screening capability and efficiency.

Sales and Customer Services

Sales

Our direct field sales force provides us with direct access to local business users and helps us better understand and satisfy their local needs. They help to certify our paying members in person, organize focused workshops or seminars with interested business users to promote the concepts and benefits of online marketing and our various premium services, primarily the subscription-based paying membership services.

As of December 31, 2019, our direct field sales teams and sales support teams consisted of approximately 13,561 employees and they cover 70 cities in mainland China. The cities covered by direct field sales teams vary by content category managed by different business units.

Our direct field sales teams directly contribute to the revenue growth of our subscription-based membership services. They also lay the foundation for the growth of our online marketing services by promoting packages that combine subscription-based packages and virtual currencies which customers can later use to purchase various forms of online marketing services.

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The compensation package for our sales teams includes fixed base salaries and commissions based on the revenues or collection they achieve. We provide our sales team with regular training and internally developed systems to assist them to quickly become proficient and productive sales force.

Since the mergers and acquisitions of Ganji, Anjuke and ChinaHR platforms in 2015, we have made significant progress in the integration of the direct field sales and dealer networks that each company had prior to the mergers. Though the pace and progress vary slightly among different content categories managed by separate business units, as of the date of this annual report, in most content categories and geographies, we no longer have dedicated teams that only sell Ganji services.  Customers who purchase 58 subscription-based membership services can select to synchronize listing to Ganji platform. In addition, in real estate, there are still largely separate sales teams for 58 and Anjuke brands because they are relatively complementary platforms with different focus areas in primary, secondary real estate sales or rental homes. In 2019, with the launch of Quan Wang Tong (全网通), the enhanced version of membership for secondary real estate category which allows the paying business users to display their listings simultaneously on 58, Anjuke and Ganji platforms, the sales teams for secondary real estate sales or rental homes in 58 and Anjuke are being integrated into one. ChinaHR teams have been largely merged with the 58 teams in the job categories with few exceptions where dedicated ChinaHR teams continue to develop and serve larger scale white collar customers in a handful of cities.

Prior to being acquired, Ganji had direct sales teams only in top 4 cities and used sales agencies to cover other cities, while Anjuke had direct sales in less than 20 cities and no sales agencies. We have expanded the direct sales teams’ coverage after consolidating their businesses.

As of December 31, 2019, we had direct sales team coverage for real estate, jobs, yellow pages and used car categories in 59, 35, 27, 40 cities, respectively. Outside those major cities, we continue to work with sales agencies to grow our paying members in lower-tier cities.

We have been actively pushing our sales and dealer teams to further penetrate into more lower-tier cities and counties and dedicate more resources to pursue faster revenue growth in those places. The revenue generated outside of the biggest 19 cities as a percentage to total revenues of our core businesses was 39.6%, 44.7% and 53.8% for 2017, 2018 and 2019, respectively, demonstrating our success in pursuing growth in lower-tier cities. We believe there is still room for us to further push for higher growth in lower-tier cities and counties.

Customer Service

We have dedicated and centralized customer service team in Tianjin, China, which are engaged in providing services to general users and subscription-based paying members and generating new members. Our customer service team consisted of 1,443 people as of December 31, 2019.

General user service

We have largely centralized dedicated teams who are committed to address general users’ queries within 24 hours through online messages or emails. In addition, we closely monitor user feedback from various other channels, such as popular social network services platforms and promptly elevate issues internally and respond to valuable user feedback we collect.

Subscription-based paying member service

For our subscription-based paying members, we have a dedicated customer service center in Tianjin, China, which supports our paying members through a members-only toll-free phone number and other online communication channels. Our dedicated customer service team is well trained on our membership service functions and online marketing service offerings. Using our internally developed customer service systems, our customer service teams analyze data on the performance of the marketing services and help paying members to optimize their online marketing strategies and performance.

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New member generation

In some cases, we utilize our centralized customer service team to acquire new paying members through tele-sales or online sales leads. In the industries where local business users are more familiar with online marketing and require less in-person interaction, we find this to be more cost-effective to promote our online marketing services on the phone, as opposed to having in-person demonstrations of our service offerings. We also use our tele-sales teams to cover remote areas where it is not economical to cover through our field sales teams or sales agent network.

Efficiency improvement of sales and customer services teams

As the expenses related to our sales and customer services teams still contribute to a significant portion of our operating expenses, we continually work to increase the efficiency of such teams, mainly in the following three areas:

Technology and AI. We have largely replaced paper contracts and cash payments with electronic contract and payment methods. In addition, we have been improving our IT infrastructure to support our sales and service teams. With more profiling information about a lead or an existing customer, our sales and customer service teams are becoming more targeted and effective in addressing customers’ needs. The improved IT infrastructure also enhances management clarity, granularity and timeliness of intervention.
Self-service. We have been developing interfaces for business users to purchase marketing services and manage their listings and marketing activities online through tailor-made category-specific business facing mobile apps such as Zhao Cai Mao (招才猫), Mobile Real Estate Agent (移动经纪人), Wei Liao Ke (微聊客),Shang Jia Tong (商家通), Che Shang Tong (车商通). “Self-service” has helped and will continue to enable us to remove manual handholding efforts by our sales and customer service teams, which results in further efficiency increase of our teams.
Management rigor. We have continuously rolled out training particularly for the mid-level management teams to improve the overall efficiency.

These measures help to further improve the efficiency of our sales team. As of December 31, 2019, our field sales and customer service headcount decreased by 8.9% compared to December 31, 2018, while our revenues grew by 18.6% from 2018 to 2019. We believe that we can further improve efficiency of our sales and customer service teams. Considering the prospect of further technology advances and trend that Chinese customers will get more sophisticated with internet, our customers is likely to engage with our platform more on self-serve basis instead of relying on field sales and customer services teams in future, we believe there is still a lot of room for us to improve our efficiencies in the years to come.

Advertising, Branding and Marketing

China has a massive number of internet users including those on mobile internet. Our mobile apps were accessed by more than 580 million user IDs in 2019. With the broad range of services on our platforms, we believe there is still room to continue to attract new users to our platform. Other than continuing enhancing user experience, which drives word-of-mouth and repeat usage, it is also critical to continue to promote our brand and attract more users through various forms of online and offline advertising activities.

Our online advertising activities primarily consist of smartphone app pre-installations, paid app downloads from OEM and third-party app markets and various other online platforms including news feed and search engines, paid mobile and PC traffic acquisition from browser-based mobile platforms, mobile and PC internet navigation platforms and various search engines in China.

Our offline advertising activities include traditional mainstream media such as television, outdoor billboards and display screens, public relations activities, as well as sponsored events to increase our visibility and promote our brands.

We have been spending an increasingly larger portion of our advertising expenses in online advertising, especially online traffic acquisition. Within online traffic acquisition expenses, a big portion was incurred to grow our app downloads. This is aligned with the fact that mobile, particularly app traffic is becoming the biggest portion of our total traffic and that apps provide relatively better user experience than mobile web and PC platforms due to fast improving smart phone features and mobile internet technology.

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We have gained a tremendous amount of experience in managing and optimizing the return on investment, or ROI, on advertising expenses, especially those related to online traffic acquisition. We have built systems, databases and a rigorous process to track the quantity, quality, cost and revenue contribution of users acquired through paid online user acquisition channels. We have developed methods to identify the online user acquisition source of our new users. We use PC and mobile cookies, smart phone IDs to analyze the content that users have browsed, the actions that users have taken and ultimately the revenues associated with each user based on the amount of paid content browsed and paid actions taken. Though certain estimates and assumptions are used in the calculation where when an ideal level of data granularity is lacking, we believe we have good visibility of the cost and ROI of most online user acquisition channels. This provides good decision support for us to evaluate and adjust our strategy over user acquisition effort.

Our branding efforts cover major brands, such as 58, Anjuke and Zhuan Zhuan. We adjust the focus of our advertising campaign according to the stage of the brand and business development, ROI assessment, external market and competition environment.

In addition to advertising activities designed to attract consumer users, we also conduct business user related marketing events, such as conferences, seminars and workshops, where we meet with our business users as well as industry experts to exchange insights, promote our corporate image, strategies and services and strengthen our relationship with our business users.

In the summer of 2017, we launched 58 Town, a rural version of 58 in smaller towns and rural areas in China. We offer relatively individually minor monetary incentive to local town partners to reward good results of developing local users and contributing and disseminating local contents. We believe that this is a good marketing investment to promote the 58 brand and acquire new users and content.

Intellectual Property

Our success and ability to compete depend, in part, upon our ability to establish and adequately protect our intellectual property rights. In this regard, we rely primarily on a combination of patent, copyright, software registration, trademark, trade secret and unfair competition laws and contractual rights, such as confidentiality and license agreements with our employees, partners and others. We hold 91 patents and have applied for the registration of 878 other patents, which cover a variety of technologies, including those relating to data processing, search, distribution and publishing. As of March 31, 2020, we had registered 366 computer software copyrights and 140 artwork copyrights in China, and had registered 43 domain names that are material to our business, including www.58.com, www.58.com.cn, www.ganji.com, www.ganji.com.cn, www.anjuke.com and www.anjuke.cn, and 2,173 trademarks, including GRAPHIC , GRAPHIC and GRAPHIC , in China, excluding those relating to 58 Home.

Competition

Our main competitors in the online marketing space include other online classifieds marketplace as well as industry-or content-specific vertical companies that operate online, offline, or hybrid models that are in the same core content categories with us. We may also face competition from other larger internet companies, who may enter into one or multiple specific vertical markets. We compete primarily with our user traffic, brand awareness, ability to engage consumer users with good content and tools to facilitate their decision making for various local services needs, and ability to improve marketing effectiveness and provide other related services.

Regulation

This section sets forth a summary of the significant regulations or requirements that affect our business activities in China or our shareholders’ rights to receive dividends and other distributions from us.

Regulations on Foreign Investment

On January 1, 2020, the Foreign Investment Law and the Regulations for Implementation of the Foreign Investment Law, or the Implementation Regulations, came into effect and became the principal laws and regulations governing foreign investment in the PRC, replacing the trio of prior laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations.

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According to the Foreign Investment Law, “foreign investment” refers to the investment activities conducted directly or indirectly by foreign individuals, enterprises or other entities in the PRC, including the following circumstances: (i) the establishment of foreign-invested enterprises in the PRC by foreign investors solely or jointly with other investors, (ii) a foreign investors’ acquisition of shares, equity interests, property portions or other similar rights and interests of enterprises in the PRC, (iii) investment in new projects in the PRC by foreign investors solely or jointly with other investors, and (iv) investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Pursuant to the Foreign Investment Law, China has adopted a system of national treatment which includes a negative list with respect to foreign investment administration. The negative list will be issued by, amended or released upon approval by the State Council, from time to time. The negative list will consist of a list of industries in which foreign investments are prohibited and a list of industries in which foreign investments are restricted. Foreign investment in prohibited industries is not allowed, while foreign investment in restricted industries must satisfy certain conditions stipulated in the negative list. Foreign investments and domestic investments in industries outside the scope of the prohibited industries and restricted industries stipulated in the negative list will be treated equally. The most recent version of the negative list was issued in 2019.

Foreign Investment Law and the Implementation Regulations allow foreign-invested enterprises established prior to January 1, 2020 and having corporate structure and governance inconsistent with the PRC Company Law or the PRC Partnership Enterprise Law, as applicable, to maintain their corporate structure and governance within a five-year transition period, but require adjustment for compliance with the PRC Company Law or the PRC Partnership Enterprise Law, as applicable, shall be completed prior to the expiration of such transition period.

Foreign investors and foreign investment enterprise are also required to submit information reporting in accordance with the Foreign Investment Law and the Implementation Regulations and will be imposed legal liabilities for failure to comply with such requirements.

Regulations on Value-Added Telecommunication Services

The PRC government extensively regulates the telecommunications industry, including the internet sector. The PRC State Council, the Cyberspace Administration of China, the MIIT, the Ministry of Commerce, the State Administration for Industry and Commerce (currently known as State Administration for Market Regulation), the SAPPRFT (currently known as National Radio and Television Administration, or the NRTA) and other relevant government authorities have promulgated an extensive regulatory scheme governing telecommunications, internet-related services and e-commerce. However, the PRC telecommunications industry and internet-related industry are at an early stage of development. New laws and regulations may be adopted from time to time that will require us to obtain additional licenses and permits in addition to those that we currently have, and will require us to address new issues that arise from time to time. As a result, substantial uncertainties exist regarding the interpretation and implementation of current and any future Chinese laws and regulations applicable to the telecommunications, internet-related services and e-commerce. See “Item 3. Key Information — D. 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.”

Licenses for Value-Added Telecommunication Services

The Telecommunications Regulations issued by the PRC State Council in September 2000 and amended subsequently are the primary regulations governing telecommunication services. The Telecommunications Regulations set out the general framework for the provision of telecommunication services by PRC companies. Under the Telecommunications Regulations, it is a requirement that telecommunications service providers procure operating licenses prior to their commencement of operations. The Telecommunications Regulations draw a distinction between “basic telecommunications services” and “value-added telecommunications services.” Information services such as content service, entertainment and online games services are classified as value-added telecommunications services.

Pursuant to the Administrative Measures for Telecommunications Business Operating Permit promulgated by the MIIT in March 2009 with latest amendments becoming effective in July 2017, there are two types of telecom operating licenses for operators in China, namely, licenses for basic telecommunications services and licenses for value-added telecommunications services. The operation scope of the license will detail the permitted activities of the enterprise to which it is granted. An approved telecommunication services operator must conduct its business in accordance with the specifications recorded on its value-added telecommunications services operating license. Beijing 58, our consolidated affiliated entity, obtained a Value-Added Telecommunications Business License issued by MIIT on April 11, 2017, which will expire on April 11, 2022.

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As a subsector of the telecommunications industry, the internet information services are also regulated by the Administrative Measures on Internet Information Services, promulgated by the PRC State Council in September 2000 and amended subsequently, in accordance with which commercial internet information services operators must obtain an internet content provision license, or ICP License, from the relevant government authorities before engaging in any commercial internet information services operations within China. Beijing 58, our consolidated affiliated entity, obtained an ICP License issued by Beijing Administration of Telecommunication in May 2006, which was renewed in May 2011 and again in May 2016, and will expire in April 2021.

Foreign Investment in Value-Added Telecommunications Services

Pursuant to the Provisions on Administration of Foreign-Invested Telecommunications Enterprises, promulgated by the State Council with the latest amendments becoming effective in February 2016, the ultimate foreign equity ownership in a value-added telecommunications services provider, including an internet content service provider, may not exceed 50%, except for e-commerce business, domestic multi-party communication business, information storage and re-transmission business and call center business,  in which foreign investors are allowed to have more than 50% ownership in accordance with an announcement by the MIIT in June 2015, and the Special Administrative Measures (Negative List) for Foreign Investment Access issued in 2019. Moreover, for a foreign investor to acquire any equity interests in a value-added telecommunication business in China, it must satisfy a number of stringent performance and operational experience requirements, including demonstrating good track records and experience in operating value-added telecommunication business overseas. Foreign investors that meet these requirements must obtain approvals from the MIIT and the Ministry of Commerce or its authorized local counterparts, which retain considerable discretion in granting approvals. Pursuant to publicly available information, the PRC government has issued telecommunications business operating licenses to only a limited number of foreign-invested companies.

The MIIT Circular issued in July 2006, reiterated the regulations on foreign investment in telecommunications businesses, which require foreign investors to set up foreign-invested enterprises and obtain a Value-Added Telecommunication Business License to conduct any value-added telecommunications business in China. Pursuant to the circular, a domestic company that holds a value-added telecommunication business 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 that conduct value-added telecommunications business illegally in China. Furthermore, the relevant trademarks and domain names that are used in the value-added telecommunications business must be owned by the local value-added telecommunication business license holder or its shareholders. The MIIT Circular further requires each ICP license holder to have the necessary facilities for its approved business operations and to maintain such facilities in the regions covered by its license. In addition, all value-added telecommunications service providers are required to maintain network and information security in accordance with the standards set forth under relevant PRC regulations.

In light of the aforesaid restrictions, we rely on Beijing 58, our consolidated affiliated entity, to hold and maintain the licenses necessary to provide online marketing services and other value-added telecommunications services in China. For a detailed discussion of our contractual arrangement, please refer to “— C. Organizational Structure.” To comply with these PRC regulations, we operate our platforms and value-added telecommunications services through Beijing 58. We and certain of our consolidated variable interest entities hold Value-Added Telecommunication Business Licenses, ICP licenses and own all domain names used in our value-added telecommunications businesses. We and our consolidated variable interest entities are also the owner of all registered trademarks which are used in our value-added telecommunications businesses and is the applicant of all registered trademark applications we are currently making.

Regulations on Advertising Services

In accordance with relevant laws and regulations, companies that engage in advertising activities must obtain a business license from the SAMR or its local branches which specifically include operating an advertising business within its business scope. Advertisers, advertising operators and advertising distributors are required by PRC advertising laws and regulations to ensure that the content of the advertisements they prepare or distribute are true and in full compliance with applicable laws and regulations. In addition, where a special government review is required for certain categories of advertisements before publishing, the advertisers, advertising operators and advertising distributors are obligated to confirm that such review has been performed and the relevant approval has been obtained. Where internet information service providers know or should know that illegal advertisements are distributed using their services, they should prevent such advertisements from being distributed.

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The Interim Administrative Measures for Internet Advertisements, or the Interim Measures, promulgated in July 2016, also sets forth certain compliance requirements for online advertising businesses. For example, paid search results must be indicated as an advertisement and distinguished from natural search results. Advertising operators and distributors of internet advertisement must examine, verify and record identity information, such as name, address and contact information, of advertisers, and maintain an updated verification record on a regular basis. Moreover, advertising operators and advertising distributors must examine supporting documentation provided by advertisers and verify the content of the advertisements against supporting documents before publishing. If the content of advertisements is inconsistent with the supporting documentation, or the supporting documentation is incomplete, advertising operators and distributors must refrain from providing design, production, agency or publishing services.

Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In the case of serious violations, the SAMR or its local branches may force the violator to terminate its advertising operation or even revoke its business license. Furthermore, advertisers, advertising operators or advertising distributors may be subject to civil liability if they infringe on the legal rights and interests of third parties. We have adopted policies and procedures and have provided training to our content review team to ensure our compliance with these laws and regulations.

Regulations on Mobile Internet Applications

In August 2016, the Cyberspace Administration of China promulgated the Administrative Provisions on Mobile Internet Application Information Services, or the Mobile Application Administrative Provisions. Pursuant to the Mobile Application Administrative Provisions, mobile internet applications refer to application software that run on smart mobile devices providing information services after being pre-installed, downloaded or embedded through other means. Mobile internet application providers refer to the owners or operators of mobile internet applications.

Pursuant to the Mobile Application Administrative Provisions, a mobile internet application provider must verify a user’s mobile phone number and other identity information following the principle of mandatory real name registration at the back-office end and voluntary real name display at the front-office end. An internet application provider must not enable functions that can collect a user’s geographical location information, access user’s contact list, activate the camera or recorder of the user’s smart mobile device or other functions irrelevant to its services, nor is it allowed to conduct bundle installations of irrelevant application programs, unless it has clearly indicated to the user and obtained the user’s consent to such functions and application programs. If an application provider violates the regulations, the internet application store service provider must take measures to stop the violations, including warning, suspending the release, withdrawing the application from the platform, keeping a record and reporting the incident to the relevant governmental authorities.

In December 2016, the MIIT promulgated the Interim Measures on the Administration of Pre-Installation and Distribution of Applications for Smart Mobile Terminals, or the Pre-Installed Application Interim Measures, which became effective on July 1, 2017, to enhance the administration of mobile applications. The Pre-Installed Application Interim Measures require, among others, that mobile phone manufacturers and internet information service providers ensure that a mobile application, together with its ancillary resource files, configuration files and user data, can be uninstalled by a user on a convenient basis, unless it is a basic function, which supports the normal functioning of hardware and operating system of a smart mobile device.

We are subject to these measures as we provide listing-based information services through different mobile applications such as 58 Home, and we have adopted policies and measures regarding the collection, verification, use, storage, transmission and security of user’s information to comply with the relevant laws and regulations.

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Regulations on Information Security and Censorship

The PRC government regulates and restricts internet content in China to protect state security and ensure the legality of the internet content. The Standing Committee of the National People’s Congress, the PRC national legislative body, enacted a law in December 2000, as subsequently amended, that among other things, makes it unlawful to: (1) gain improper entry into a computer or system of strategic importance; (2) disseminate politically disruptive information; (3) leak state secrets; (4) spread false commercial information; or (5) infringe intellectual property rights. Pursuant to the Administrative Measures on Internet Information Services and other applicable laws, internet content providers and internet publishers are prohibited from posting or displaying over the internet content which violates PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Internet service providers are required to monitor their platforms, including electronic bulletin boards. They may not post or disseminate any content that falls within these prohibited categories and must remove any such content from their platforms. The PRC government may shut down the platforms of ICP license holders that violate any of the above-mentioned content restrictions and revoke their ICP licenses. In addition, the MIIT has published regulations that subject ICP operators to potential liability for content displayed on their platforms and the actions of users and others using their systems, including liability for violations of PRC laws and regulations prohibiting the dissemination of content deemed to be socially destabilizing. The Ministry of Public Security has the authority to order any local internet service provider to block any internet website at its sole discretion. From time to time, the Ministry of Public Security has stopped the dissemination over the internet of information which it believes to be socially destabilizing.

The Ministry of Public Security has promulgated measures in December 1997, as subsequently amended, that prohibit the use of the internet in ways which, among other things, result in a leakage of State secrets or the distribution of socially destabilizing content. Socially destabilizing content includes any content that incites defiance or violations of PRC laws or regulations or subversion of the PRC government or its political system, spreads socially disruptive rumors or involves cult activities, superstition, obscenities, pornography, gambling or violence. Under PRC law, state secrets are defined broadly to include information concerning PRC national defense, state affairs and other matters as determined by the PRC authorities.

In December 2005, the Ministry of Public Security promulgated Provisions on Technological Measures for Internet Security Protection. These measures and the Administrative Measures on Internet Information Services require all ICP operators to keep records of certain information about their users (including user registration information, log-in and log-out time, IP address, content and time of listings by users) for at least 60 days and submit the above information as required by laws and regulations. The ICP operators must regularly update information security and censorship systems for their platforms with local public security authorities, and must also report any public dissemination of prohibited content. If an ICP operator violates these measures, the PRC government may revoke its ICP license and shut down its websites. Pursuant to the Decision on Strengthening Network Information Protection issued by the Standing Committee of the PRC National People’s Congress in December 2012, ICP operators must request identity information from users when ICP operators provide information publication services to the users. If ICP operators come across prohibited information, they must immediately cease the transmission of such information, delete the information, keep relevant records, and report to relevant government authorities. In July 2013, the MIIT promulgated the Regulation on Protection of Personal Information of Telecommunication and Internet Users to provide for more detailed rules in this respect. In November 2016, the Standing Committee of the National People’s Congress promulgated the Cyber Security Law, which became effective on June 1, 2017. In accordance with the Cyber Security Law, network operators must comply with applicable laws and regulations and fulfill their obligations to safeguard network security in conducting business and providing services. Network service providers must take technical and other necessary measures as required by laws, regulations and mandatory requirements to safeguard the operation of networks, respond to network security effectively, prevent illegal and criminal activities, and maintain the integrity, confidentiality and usability of network data. On October 21, 2019, the Supreme People's Court and the Supreme People's Procuratorate of the PRC jointly issued the Interpretations on Certain Issues Regarding the Applicable of Law in the Handling of Criminal Case Involving Illegal Use of Information Networks and Assisting Committing Internet Crimes, which came into effect on November 1, 2019, and further clarifies the meaning of Internet service provider and the severe situations of the relevant crimes.

In addition, the State Secrecy Bureau has issued provisions authorizing the blocking of access to any website it deems to be leaking state secrets or failing to comply with the relevant legislation regarding the protection of state secrets.

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The Standing Committee of the National People’s Congress promulgated Anti-Terrorism Law in December 2015, which took effect on January 1, 2016 and was amended on April 27, 2018. According to the Anti-Terrorism Law, telecommunication service operators or internet service providers must, among others, (i) provide technical support and assistance to the relevant government authorities in preventing and investigating terrorist activities, (ii) implement network security and information monitoring systems and take safety and prevention measures to prevent the dissemination of terrorism information, delete the terrorism information, immediately stop its dissemination, and keep record and report to the relevant government authorities once the terrorism information is discovered, and (iii) examine the identity of customers before providing services. Any violation of the Anti-Terrorism Law may result in severe penalties, including substantial fines.

In addition, in November 2018, the Cyberspace Administration of China issued the Provisions on the Security Assessment of Internet Information Services with Attribute of Public Opinions or Social Mobilization, which requires ICP operators to conduct security assessments on their internet information services if their services include forums, blogs, microblogs, chat rooms, communication groups, public accounts, short videos, online live-streaming, information sharing, mini programs or such other functions that provide channels for the public to express opinions or have the capability of mobilizing the public to engage in specific activities. ICP operators must conduct self-assessment on, among others, the legality of new technology involved in the services and the effectiveness of security risk prevention measures, and file the assessment report to local competent internet information office and public security authority. At the end of 2019, the Cyberspace Administration of China issued the Provisions on the Management of Network Information Content Ecology, or the CAC Order No.5, which became effective on March 1, 2020, to further strengthen the regulation and management of network information content.  Pursuant to the CAC Order No.5, each network information content service platform is required, among others, (i) not to disseminate any information prohibited by laws and regulations, such as information jeopardizing national security; (ii) to strengthen the examination of advertisements published on such network information content service platform; (iii) to promulgate management rules and platform convention and improve user agreement, such that such network information content service platform could clarify users’ rights and obligations and perform management responsibilities required by laws, regulations, rules and convention; (iv) to establish convenient means for complaints and reports; and (v) to prepare annual work report regarding its management of network information content ecology. In addition, a network information content service platform must not, among others, (i) utilize new technologies such as deep-learning and virtual reality to engage in activities prohibited by laws and regulations; (ii) engage in online traffic fraud, malicious traffic rerouting and other activities related to fraudulent account, illegal transaction account or maneuver of users’ account; and (iii) infringe a third party’s legitimate rights or seek illegal interests by way of interfering with information display.

As Beijing 58 is an ICP operator, it is subject to the laws and regulations relating to information security. To comply with these laws and regulations, it has completed the mandatory security filing procedures with the local public security authorities, regularly update their information security and content-filtering systems with newly issued content restrictions, and maintains records of users’ information as required by the relevant laws and regulations. Beijing 58 has also taken measures to delete or remove links to content that to its knowledge contains information violating PRC laws and regulations. The majority of the content posted on our online platforms is first screened by our filtering systems. Content containing prohibited words or images is then manually screened by employees who are dedicated to screening and monitoring content published on our online platforms and removing prohibited content. Furthermore, Beijing 58 has adopted and maintained system controls, protocols and policies that are designed to ensure its compliance with the requirements of the new Cyber Security Law. We believe that with these measures in place, no prohibited content under PRC information security laws and regulations should have been publicly disseminated through our online platforms in the past. However, there is significant amount of content posted on our online platforms by our users on a daily basis. If any prohibited content is publicly disseminated in the future and we become aware of it, we will report it to the relevant government authority. We believe these measures taken by us are generally in compliance with the relevant laws and regulations.

If, despite the precautions, we fail to identify and prevent illegal or inappropriate content from being displayed on or through our online platforms, we may be subject to liability. 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 liability. To the extent that PRC regulatory authorities find any content displayed on or through our online platforms objectionable, they may require us to limit or eliminate the dissemination or availability of such content or impose penalties, including the revocation of our operating licenses or the suspension or shutdown of our online operations. In addition, the costs of compliance with these regulations may increase as the volume of content and users on our online platforms increases.

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Regulations on Internet Privacy

The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits infringement of these rights. In recent years, PRC government authorities have promulgated laws and regulations on internet use to protect personal information from any unauthorized disclosure. The Decision on Strengthening Network Information Protection and the Regulation on Protection of Personal Information of Telecommunication and Internet Users provides that information that identifies a citizen, the time or location for his use of telecommunication and internet services, or involves privacy of any citizen such as his birth date, ID card number, and address is protected by law and must not be unlawfully collected or provided to others. ICP operators collecting or using personal electronic information of citizens must specify the purposes, manners and scopes of information collection and uses, obtain consent of the relevant citizens, and keep the collected personal information confidential. ICP operators are prohibited from disclosing, tampering with, damaging, selling or illegally providing others with, collected personal information. ICP operators are also prohibited from collection and use of personal information after a user has stopped using the services. ICP operators are required to take technical and other measures to prevent the collected personal information from any unauthorized disclosure, damage or loss as well as conducting a self-examination of their protection of personal information at least once a year. The Administrative Measures on Internet Information Services prohibit an ICP operator from insulting or slandering a third-party or infringing upon the lawful rights and interests of a third-party. In accordance with the Cyber Security Law, network operators must not collect personal information irrelevant to their services. In the event of any unauthorized disclosure, damage or loss of collected personal information, network operators must take immediate remedial measures, notify the affected users and report the incidents to the relevant authorities in a timely manner. If any user knows that a network operator illegally collects and uses his or her personal information in violation of laws, regulations or any agreement with the user, or the collected and stored personal information is inaccurate or wrong, the user has the right to request the network operator delete or correct the relevant collected personal information.

The relevant telecommunications authorities are further authorized to order ICP operators to rectify unauthorized disclosure. ICP operators are subject to legal liability, including warnings, fines, confiscation of illegal gains, revocation of licenses or filings, closing of the relevant websites, administrative punishment, criminal liabilities, or civil liabilities, if they violate relevant provisions on internet privacy. Pursuant to the Ninth Amendment to the Criminal Law issued by the Standing Committee of the National People’s Congress in August 2015 and becoming effective in November 2015, any ICP provider that fails to fulfill its obligations relating to internet information security administration under applicable law and refuses to rectify upon an order will be subject to criminal liability for (i) any dissemination of illegal information on a large scale, (ii) any severe effect due to the leakage of client information, (iii) any serious loss of evidence of criminal activities, or (iv) other severe situations, while any individual or entity that sells or provides personal information to others unlawfully, or steals or otherwise unlawfully obtains any personal information will be subject to criminal liability in severe situations. In addition, the Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate of the PRC on Several Issues Concerning the Application of Law in Handling Criminal Cases of Infringing Personal Information, issued in May 2017 and effective in June 2017, clarified certain standards for the conviction and sentencing of the criminals in relation to personal information infringement. The PRC government, however, has the power and authority to order ICP operators to turn over personal information if an internet user posts any prohibited content or engages in illegal activities on the internet.

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With respect to the security of information collected and used by mobile apps, pursuant to the Announcement of Conducting Special Supervision against the Illegal Collection and Use of Personal Information by Apps, which was issued on January 23, 2019, app operators should collect and use personal information in compliance with the Cyber Security Law and should be responsible for the security of personal information obtained from users and take effective measures to strengthen protection of personal information. Furthermore, app operators should not force their users to grant authorization for their collection or use of personal information by means of bundling, suspending installation or in other default forms, nor should they collect personal information in violation of laws, regulations or user agreements. Such regulatory requirements are also emphasized by the Notice on the Special Rectification of Apps Infringing upon User’s Personal Rights and Interests, which was issued by MIIT on October 31, 2019. On November 28, 2019, the Cyberspace Administration of China, the MIIT, the Ministry of Public Security and the SMAR jointly issued the Methods of Identifying Illegal Acts of Apps to Collect and Use Personal Information. This regulation further illustrates certain commonly-seen illegal practices of apps operators in respect of personal information protection, including “failure to publicize rules for collecting and using personal information”, “failure to expressly state the purpose, manner and scope of collecting and using personal information”, “collection and use of personal information without consent of users of such App”, “collecting personal information irrelevant to the services provided by such app in violation of the principle of necessity”, “provision of personal information to others without users’ consent”, “failure to provide the function of deleting or correcting personal information as required by laws” and “failure to publish information such as methods for complaints and reporting”.  Among others, any of the following acts of an app operator will constitute “collection and use of personal information without consent of users”: (i) collecting an user’s personal information or activating the permission for collecting an user’s personal information without obtaining such user’s consent; (ii) collecting personal information or activating the permission for collecting personal information of an user who explicitly refuses such collection, or frequently seeking for an user’s consent which disturbs such user’s normal use of the app; (iii) an user’s personal information actually collected by the app operator or the permission for collecting an user’s personal information actually activated by the app operator is beyond the scope of such user’s authorization; (iv) seeking for an user’s consent in a non-explicit manner such as consent to privacy policy by default; (v) changing status of an user’s settings for the permission for collectable personal information without such user’s consent; (vi) using users’ personal information and algorithms to push information that targets such users, without providing users with an option for non-targeted push; (vii) misleading users into permitting personal information collection or activation of the permission for personal information collection by improper methods such as fraud and deception; (viii) failing to provide users with means and methods for withdrawing their permission for personal information collection; and (ix) collecting and using personal information in violation of the rules for collecting and using personal information promulgated by such app operator.

On August 22, 2019, the Cyberspace Administration of China promulgated the Children Information Cyber Protection Provisions, which took effect on October 1, 2019, requiring that before collecting, using, transferring or disclosing the personal information of a child under the age of 14, the Internet service operator should inform the child’s guardians in a noticeable and clear manner and obtain their consents. Meanwhile, Internet service operators should take measures such as encryption to ensure information security when storing children’s personal information.

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Regulations on Internet Mapping Services

Pursuant to the PRC regulations applicable to internet mapping services issued by the National Administration of Surveying, Mapping and Geo information (formerly known as the State Bureau of Surveying and Mapping), maps transmitted through internet are internet maps. To provide internet mapping services, the provider shall apply for a Surveying and Mapping Qualification Certificate for internet mapping with the competent surveying and mapping bureau. The PRC regulations also provide for certain conditions and requirements for issuing the Surveying and Mapping Qualification Certificate, such as the number of technical personnel and map security verification personnel, security facilities, and approval from relevant provincial or municipal surveying and mapping bureau on security system, qualification management and filing management. Internet maps must be approved by relevant government authority before they can be publicized on internet. Further, the State Bureau of Surveying and Mapping and other seven PRC government authorities jointly issued a notice in 2008, to investigate and punish the illegal and non-compliance activities with respect to the internet mapping services or geography information services. We currently provide location information in our real estate directory by using maps provided by a third-party internet map operator, which may be deemed as one type of internet mapping services. Our consolidated affiliated entity, Beijing 58, obtained a Surveying and Mapping Qualification Certificate for internet map search and location services in May 2012, which was renewed in January 2015 and will expire in December 2020. The application for the Surveying and Mapping Qualification Certificate made by Shanghai Ruijia, a subsidiary of Beijing 58 has been suspended due to the reorganization of the authority and no application can be received during the transition period.

Regulations on Employment Agency Services

In accordance with the Employment Promotion Law promulgated by the Ministry of Human Resources and Social Security and the Regulations on Employment Service and Employment Administration promulgated by the Ministry of Human Resources and Social Security, both with effect from January 1, 2008 and as amended, an employment agency, which provides intermediary and other services for recruitment by employers and job seeking by employees, must obtain an Employment Agency License from the relevant labor authority and be subject to annual inspection by such authority. An employment agency may engage in collecting and publishing job seeking and recruitment information and providing internet employment information services in accordance with relevant laws and regulations. An employment agency is prohibited from providing services for individuals without legal identity certifications or enterprises without legal licenses. Pursuant to the Human Resource Markets Regulations, latest amended on December 31, 2019, an entity providing human resource services in China must obtain a human resource services license from the local administration of human resources and social security at the county level or above. On May 2, 2018, the State Council promulgated the Provisional Regulations on Human Resource Markets, or Provisional Regulations, which came into effect on October 1, 2018. The Provisional Regulations stipulate different requirements based on the specific businesses engaged in by commercial human resource service organizations: those engaging in employment agency activities shall obtain the human resource services license; those engaging in the collection and dissemination of human resource supply and demand information, the employment and entrepreneurship guidance, human resource management consulting, human resource evaluation, human resource training, and those undertaking outsourcing contracts of human resource services only need to complete filing procedures. The Provisional Regulations have made substantial changes to the employment agency licensing system set up by the Human Resource Markets Regulations. Our jobs and resumes directory provides an online platform for job seekers and employers to post resumes and job opportunities. Our consolidated affiliated entity, Beijing 58, initially obtained an Employment Agency License in March 2012 and had it renewed in April 2016 and March 2019. The renewed Employment Agency License will expire in March 2024. Beijing 58 also completed the filing with the local administration of human resources and social security in March 2019 for engaging in collection and dissemination of human resource supply and demand information, human resource, evaluation and human resource training.

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Regulations on E-commerce

On January 26, 2014, the State Administration for Industry and Commerce (currently known as State Administration for Market Regulation) adopted the Administrative Measures for Online Trading, or the Online Trading Measures, which became effective on March 15, 2014 and repealed the Interim Measures for the Administration of Online Products Sales and Relevant Services previously issued in May 2010. Pursuant to the Online Trading Measures, enterprises or other operators that engage in online product sales and other services and have been registered with the SAMR or its local branch must make available to the public the information stated in their business licenses or the link to their business licenses online on their websites; individuals that engage in online product sales and other services must submit actual identification information such as name and address to the operator of the e-commerce platforms. Under the Online Trading Measures, a consumer is entitled to return the products (other than customized products, fresh and perishable goods, audio or visual products, computer software and other digital products downloaded online or unpackaged by consumers, and newspapers and journals that have been delivered) within seven days from the date after receipt of the products without giving any reason. The online sellers must, within seven days upon receipt of the returned products, refund the prices paid by consumers for relevant products. In addition, sellers are prohibited from using contract terms or other means setting out provisions that are unfair or unreasonable to consumers such as those excluding or restricting consumers’ rights, reducing or exempting operators’ responsibilities, and increasing the consumers’ responsibilities, and are prohibited from forcing consumers to enter into transactions by using contract terms and technical means.

The Standing Committee of the National People’s Congress promulgated the E-Commerce Law on August 31, 2018, which took effect on January 1, 2019. The E-Commerce Law clarifies some obligations for the e-commerce operators. For example, among other things, an e-commerce operator shall (i) disclose its business license and other administrative licenses related to its business or a link to the above information at a prominent place on the homepage of the platform; (ii) fully and accurately disclose information related to commodities and services offered on its platform in a timely manner; (iii) inform the users in a clear, comprehensive and explicit manner of the steps to conclude a contract, cautions, how to download the contract, etc., and ensure that users are able to read and download them conveniently; (iv) enable the users to make any corrections before orders are submitted; (v) disclose the methods and procedures for inquiring, correcting and deleting users’ information and deregistering users’ accounts, and not set unreasonable for such inquiry, correction, deletion and de-registration; and (vi) provide relevant e-commerce data to competent authorities as required by such authorities pursuant to laws and administrative regulations. The E-Commerce Law also specifically provides certain obligations on operators of e-commerce platforms. Pursuant to the E-Commerce Law, an e-commerce platform operator is required to (i) take necessary actions or report to relevant competent government authorities when the operator notices any illegal products or services provided by merchants on its e-commerce platform; (ii) verify the identity of the business operators on its platform; (iii) provide identity and tax related information of merchants to local branches of the market supervision and administration bureaus and tax bureaus; or (iv) record and preserve goods and service information and transaction information on the e-commerce platform. In addition, for goods and services that are pertinent to the life and health of consumers, an e-commerce platform operator shall bear relevant responsibilities, which may give rise to civil or criminal liabilities if the consumers suffered damages due to the e-commerce platform operator’s failure to duly verify the qualifications or the licenses of the business operators on its platform or to duly perform its safety protection obligations as required by the E-Commerce Law.

Beijing 58 has obtained a business license from a branch of the Beijing AIC with a term from December 2005 to December 2025. Based our verbal consultation with the Beijing AIC, we believe that, except for business users who conduct transactions on our online platforms, our other users who list information on our platforms and conduct the product sales and other services offline are not subject to the provisions regarding online platforms. As for business users who conduct transactions on our online platforms, we check their business licenses before allowing them to post listings on our platforms to ensure compliance with license requirements under PRC laws and regulations. However, uncertainties exist in terms of the implementation of these national and Beijing local rules due to the lack of practical guidance. We cannot predict with certainty to what extent these rules will affect our business operations or future strategies.

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Regulations on Internet Information Search Service

In June 2016, the Cyberspace Administration of China promulgated the Administrative Provisions on Internet Information Search Services, or the Search Services Administrative Provisions, which took effect on August 1, 2016. Pursuant to the Search Services Administrative Provisions, internet information search service refers to the service whereby users can search for information that is collected from the internet and processed by computer technology. The Search Services Administrative Provisions require that an internet information search service provider must not publish any information or contents prohibited by law in the form of links, abstracts, snapshots, associative words, related search or recommendations or otherwise. If an internet information search service provider identifies any search results that contain any information, website or application that is prohibited by law, it must stop displaying the search results, and record and report it to the relevant governmental authority. In addition, an internet information search service provider is prohibited from seeking illegitimate interest by means of unauthorized disconnection of links, or provision of search results containing false information. If an internet information search service provider engages in paid search services, it must examine and verify the qualifications of its customers of the paid search services, specify the maximum percentage of search results as paid search results on a webpage, clearly distinguish paid search results from natural search results, and notably identify the paid search information item by item. We may be found as an internet information search service provider. We have adopted policies and have maintained procedures designed to ensure the compliance of our operation with these regulations. For example, we monitor the content in our search results and remove any questionable search listings.

Regulations on Software Products

The National Copyright Administration issued the Computer Software Copyright Registration Procedures in February 2002, which apply to software copyright registration, exclusive licensing contract registration and transfer contract registration. Although registration is not mandatory under PRC law, software copyright owners are encouraged to go through the registration process and registered software may receive better protection. As of March 31, 2020, we had registered 366 computer software copyrights in China, excluding those relating to 58 Home.

Regulations on Trademarks

Trademarks are protected by the PRC Trademark Law adopted in 1982 and subsequently amended as well as the Implementation Regulation of the PRC Trademark Law adopted by the State Council in 2002 and subsequently amended. The Trademark Office of National Intellectual Property Administration handles trademark registrations. Trademarks can be registered for a term of ten years and can be extended for another ten years if requested upon expiry of the first or any renewed ten-year term. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. Where a trademark for which a registration application has been made is identical or similar to another trademark which has already been registered or been subject to a preliminary examination and approval for use on the same type of or similar commodities or services, the application for such trademark registration may be rejected. Any person applying for the registration of a trademark may not prejudice the existing right first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such another party’s use. Trademark license agreements must be filed with the Trademark Office or its regional offices. As of March 31, 2020, we had registered 2,173 trademarks in China, excluding those relating to 58 Home.

Regulations on Patent

The PRC Patent Law provides for patentable inventions, utility models and designs, which must meet three conditions: novelty, inventiveness and practical applicability. The National Intellectual Property Administration is responsible for examining and approving patent applications. A patent is valid for a term of 20 years in the case of an invention and a term of ten years in the case of utility models and designs. As of March 31, 2020, we held 91 patents and had applied for the registration of 878 other patents, all of which are in the process of examination by the National Intellectual Property Administration.

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Tort Liability Law

In accordance with the Tort Liability Law, internet users and internet service providers bear tortious liabilities in the event they infringe other persons’ rights and interests through the internet. Where an internet user conducts tortious acts through internet services, the infringed person has the right to request the internet service provider to take necessary actions such as deleting contents, screening and delinking. The internet service provider, failing to take necessary actions after being informed, will be subject to joint and several liabilities with the internet user with regard to the additional damages incurred. If an internet service provider knows an internet user is infringing other persons’ rights and interests through its internet service but fails to take necessary action, it shall be jointly and severally liable with the internet user. We have internal policy designed to reduce the likelihood that user content may be used without proper licenses or third-party consents. When we are approached and requested to remove content uploaded by users on the grounds of infringement, we investigate the claims and remove any uploads that appear to infringe the rights of a third-party after our reasonable investigation and determination. However, such policy may not be effective in preventing the unauthorized listing of copyrighted materials or materials infringing other rights of third parties. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — We may be held liable to third parties for information or content displayed on, retrieved from or linked to our website, or distributed to website users, which could harm our reputation and business.”

Regulations on Foreign Currency Exchange

Pursuant to the Foreign Exchange Administration Regulations , as amended in August 2008, the Renminbi 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 China, unless SAFE’s prior approval is obtained and prior registration with SAFE is made. In May, 2013 SAFE promulgated SAFE Circular 21 which provides for and simplifies the operational steps and regulations on foreign exchange matters related to direct investment by foreign investors, including foreign exchange registration, account opening and use, receipt and payment of funds, and settlement and sales of foreign exchange. In February 2015, SAFE promulgated the Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or the SAFE Notice 13, which became effective on June 1, 2015. Pursuant to SAFE Notice 13, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE as required under current laws, entities and individuals will be required to apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, will directly examine the applications and conduct the registration. We generally follow the regulations and apply to obtain the approval of SAFE and other relevant PRC government authorities. However, we may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to receive such registrations or approvals, our ability to provide loans or capital contributions to our PRC subsidiaries and our consolidated variable interest entities may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

In March 2015, SAFE promulgated SAFE Circular 19, which came into force replacing previous regulations limiting a foreign-invested company’s use of its RMB-settled registered capital. On June 9, 2016, SAFE promulgated SAFE Circular 16. Although SAFE Circular 19 and SAFE Circular 16 have lifted certain restrictions on the use by a foreign-invested enterprise of its Renminbi registered capital converted from foreign currencies and allow foreign invested enterprises to settle their foreign exchange capital on a discretionary basis according to the actual needs of their business operation, the restrictions will continue to apply as to foreign-invested enterprises’ use of the converted Renminbi for purposes beyond the business scope, for provision of inter-company Renminbi loans to non-associated enterprises. In addition, SAFE Circular 19 and SAFE Circular 16 are still unclear whether a foreign-invested enterprise whose business scope does not include equity investment or similar activities may use Renminbi converted from the foreign currency-denominated capital for equity investments in the PRC. On October 23, 2019, SAFE issued SAFE Circular 28, which expressly allows the foreign-invested enterprises without equity investment in their approved business scope to use their capital obtained from foreign exchange settlement to make domestic equity investment as long as the investments are real and in compliance with the foreign investment-related laws and regulations. In addition, SAFE Circular 28 stipulates that qualified enterprises in certain pilot areas may use their capital income from registered capital, foreign debt and overseas listing, for the purpose of domestic payments without providing authenticity certifications to the relevant banks in advance for those domestic payments. Violations of these circulars and rules will result in severe penalties, such as heavy fines. These circulars may significantly limit our ability to use Renminbi converted from net proceeds of our securities offerings to provide financial support to our consolidated variable interest entitles in China through our PRC subsidiaries.

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The principal regulations governing distribution of dividends of foreign-invested enterprises include the PRC Company Law, the Foreign Investment Law and its implementation regulations, as amended from time to time. Under the current regulatory regime in the PRC, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, foreign-invested enterprises in China 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. In addition, these companies may allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends.

Regulations on Offshore Financing

Pursuant to a SAFE Circular 37 issued by SAFE in July 2014, prior registration with the local SAFE branch is required for PRC residents, including PRC individuals and PRC entities, to establish or control an offshore company for the purposes of overseas investment or financing with legitimate assets or equity interests in an onshore enterprise or offshore assets or interests located in China. The PRC residents are also required to amend the registration or filing with the local SAFE branch any material change in the offshore company, such as any change of basic information (including change of such PRC residents, name and operation term), increase or decreases in investment amount, transfers or exchanges of shares, or merger or divisions. On February 28, 2015, SAFE promulgated the Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Pursuant to SAFE Notice 13, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE as required under current laws, entities and individuals will be required to apply for such foreign exchange registrations, including those required under the SAFE Circular 37, from qualified banks. The qualified banks, under the supervision of SAFE, will directly examine the applications and conduct the registration.

Failure to comply with the registration procedures set forth in the SAFE Circular 37, or making misrepresentation on or failure to disclose controllers of foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entities, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations. PRC residents who directly or indirectly hold any shares in our company from time to time are required to register with SAFE in connection with their investments in us. We have requested PRC residents holding direct or indirect interest in our company to our knowledge to make the necessary applications, filings and amendments as required under the SAFE Circular 37 and other related rules. To our knowledge, all of our shareholders who are PRC citizens and hold interest in us, have registered with the local SAFE branch as required under the SAFE Circular 37 and are in the process of amending certain applicable registrations with the local SAFE pursuant to the SAFE Circular 37. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability and penalties under PRC law.”

Regulations on Employee Stock Option Plans

In February 2012, SAFE promulgated the Stock Option Rules, replacing the previous rules issued by SAFE in March 2007. 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 the overseas publicly listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. The 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. The PRC agents must, on behalf of the PRC residents who have the right to exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in China opened by the PRC agents before distribution to such PRC residents.

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We adopted an employee stock option plan in 2010 and a share incentive plan in 2013. Pursuant to these two plans, we may issue options, restricted shares, restricted share units or other types of awards to our qualified employees and directors and consultants on a regular basis. We have advised our employees and directors participating in the employee stock option plan to handle foreign exchange matters in accordance with the Stock Option Rules. However, we cannot assure you that our PRC individual beneficiary owners and the share options holders can successfully register with SAFE in full compliance with the Stock Option Rules. The failure of our PRC individual beneficiary owners and the share options holders to complete their registration pursuant to the Stock Option Rules and other foreign exchange requirements may subject these PRC individuals to fines and legal sanctions, and may also limit our ability to contribute additional capital to our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to us or otherwise materially adversely affect our business. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Failure to comply with PRC regulations regarding the registration requirements for employee share ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.”

In addition, the State Administration for Taxation has issued circulars concerning employee share options, under which our employees working in China who exercise share options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee share options with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options. If our employees fail to pay or if we fail to withhold their income taxes as required by relevant laws and regulations, we may face sanctions imposed by the PRC tax authorities or other PRC government authorities.

PRC Enterprise Income Tax Law and Individual Income Tax Law

Under the Enterprise Income Tax Law, enterprises are classified as resident enterprises and non-resident enterprises. PRC resident enterprises typically pay an enterprise income tax at the rate of 25%. An enterprise established outside of the PRC with its “de facto management bodies” located within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a PRC domestic enterprise for enterprise income tax purposes. The implementation rules of the Enterprise Income Tax Law define “de facto management body” as a managing body that in practice exercises “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.

SAT Circular 82, issued by the State Administration of Taxation in April 2009 and mostly recently amended in December 2017, provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled offshore incorporated enterprise is located in China. Pursuant to SAT Circular 82, a PRC-controlled offshore incorporated enterprise has its “de facto management body” in China 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 China; (b) its financial and human resources decisions are subject to determination or approval by persons or bodies in China; (c) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in China; and (d) more than half of the enterprise’s directors or senior management with voting rights habitually reside in China. SAT Bulletin 45, which took effect from September 2011 and as amended, provides more guidance on the implementation of SAT Circular 82 and provides for procedures and administration details of determination on resident status and administration on post-determination matters. Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth there may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or PRC enterprise groups or by PRC or foreign individuals.

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Due to the lack of applicable legal precedents, it remains unclear how the PRC tax authorities will determine the PRC tax resident treatment of a foreign company controlled by individuals like us. We do not believe 58.com Inc., China Classified Network Corporation, China Classified Information Corporation Limited or any of our other offshore subsidiaries meet all the criteria provided by the implementation rules, thus we do not believe 58.com Inc., China Classified Network Corporation, China Classified Information Corporation Limited or any of our other offshore subsidiaries is a PRC “resident enterprise.” If the PRC tax authorities determine that 58.com Inc., China Classified Network Corporation, China Classified Information Corporation Limited or any of our other offshore subsidiaries is a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Under the Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classifications would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.”

The Enterprise Income Tax Law and its implementation rules permit certain “high and new technology enterprises strongly supported by the state” that hold independent ownership of core intellectual property and simultaneously meet a list of other criteria, financial or non-financial, as stipulated in the implementation rules and other regulations, to enjoy a reduced 15% enterprise income tax rate subject to certain new qualification criteria. The State Administration of Taxation, the Ministry of Science and Technology and the Ministry of Finance jointly issued the Administrative Rules for the Certification of High and New Technology Enterprises delineating the specific criteria and procedures for the “high and new technology enterprises” certification in April 2008. Enterprises recognized as “high and new technology enterprises” will enjoy a reduced 15% enterprise income tax rate after they go through tax reduction application formalities with relevant tax authorities. Beijing 58, Wanglin, Shanghai Ruiting, 58 Technology, and 58 Co., Ltd. and Shanghai Ruijia have all obtained the “high and new technology enterprise” certificate and maintained the “high and new technology enterprise” status and are eligible for a preferential tax rate of 15%, as long as they maintain the “high and new technology enterprise” status and have taxable income under the Enterprise Income Tax Law.

In addition, qualified software enterprises are exempt from the enterprise income tax for two years beginning from their first profitable year and are entitled to a 50% tax rate reduction for the subsequent three years. The software enterprise qualification is subject to an annual assessment. Wanglin obtained its software enterprise qualification in 2014 and was entitled to a two-year exemption from 2014 to 2015 and enjoyed a 12.5% preferential tax rate from 2016 to 2018. 58 Technology qualified as a software enterprise in 2014 and was granted a two-year exemption from 2015 to 2016 and enjoyed a 12.5% preferential tax rate from 2017 to 2019.

Regulations on PRC Business Tax and VAT

Prior to January 1, 2012, pursuant to the Provisional Regulation of China on Business Tax and its implementing rules, any entity or individual rendering services in the territory of PRC was generally subject to a business tax at the rate of 5% on the revenues generated from provision of such services. Our PRC subsidiaries and consolidated variable interest entities were subject to business tax at the rate of 5% for the membership and online marketing services.

Since January 1, 2012, the PRC Ministry of Finance and the State Administration of Taxation have been implementing the VAT Pilot Program, which imposes VAT in lieu of business tax for certain industries in Shanghai, and since September 1, 2012, this Pilot Program has been expanded to other regions. In August 2013, the program was further expanded nationwide. From May 1, 2016, the program has been further expanded to cover all industries.

VAT is applicable at a rate of 6% in lieu of business tax for the membership, online marketing services and e-commerce services rendered by all of our PRC subsidiaries and consolidated variable interest entities. VAT payable on goods sold or taxable services provided by a general VAT taxpayer for a taxable period is the net balance of the output VAT for the period after crediting the input VAT for the period. With the adoption of the Pilot Program, our revenues are subject to VAT payable on goods sold or taxable labor services provided by a general VAT taxpayer for a taxable period. VAT payable is the net balance of the output VAT for the period after deducting the input VAT for the period. Hence, the amount of VAT payable does not result directly from output VAT generated from goods sold or taxable labor services provided. Accordingly, we have adopted the net presentation of VAT.

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Employment Laws

In accordance with the PRC National Labor Law, which became effective in January 1995, and the PRC Labor Contract Law, which became effective in January 2008, as amended subsequently, employers must execute written labor contracts with full-time employees in order to establish an employment relationship. All employers must compensate their employees equal to at least the local minimum wage standards. All employers are required to establish a system for labor safety and sanitation, strictly abide by state rules and standards and provide employees with appropriate workplace safety training. In addition, employers in China are obliged to pay contributions to the social insurance plan and the housing fund plan for employees.

We have entered into employment agreements with all of our full-time employees. We have not fully contributed to the social insurance plan and the housing fund plan as required by applicable PRC regulations. As of December 31, 2019, with regards to the outstanding contributions to such plans, we made provisions of approximately RMB53.2 million. While we believe we have made adequate provision of such outstanding amounts of contributions to such plans in our audited financial statements, our failure to make sufficient payments to such plans does not fully comply with applicable PRC laws and regulations and we may be required to make up the contributions for such plans as well as to pay late fees and fines. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Our failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.”

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C.           Organizational Structure

The following diagram illustrates our corporate structure, including our principal subsidiaries and consolidated variable interest entities as of the date of this annual report:

GRAPHIC

Notes:

* We have omitted from this diagram other consolidated entities of 58.com Inc. that, in the aggregate, would not constitute a significant subsidiary as defined in Rule 1-02(w) of Regulation S-X as of December 31, 2019.

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(1) Jinbo Yao, Lianqing Zhang and Beijing Wanglintong hold 46.8%, 39.8% and 13.4% equity interests in Beijing 58, respectively. Among the shareholders of Beijing 58, Jinbo Yao is a beneficial owner of our Company and our founder, chairman of our board of directors and chief executive officer. Lianqing Zhang is not affiliated with us. Jinbo Yao is the sole director of and holds a 16.7% equity interests in Beijing Wanglintong, which is jointly owned by Jinbo Yao and our other employees and other individuals. Beijing Wanglintong, a PRC domestic company, does not have any business operations or assets other than its equity interest in Beijing 58 and another entity unrelated to Beijing 58. The registered business scope of Beijing Wanglintong includes technology promotional services, software development and computer technology training.
(2) 58 Daojia Inc., or 58 Home, is the holding company of the PRC entities that operate 58 Home business. On November 27, 2015, 58 Home completed a Series A equity funding round, with participation from Alibaba Group Holding Limited, KKR, and Ping An Group. Following the closing of the Series A financing of 58 Home, 58.com Inc. held 87.9% of the total outstanding ordinary shares, 3.3% of the total outstanding preferred shares and 61.7% of the total outstanding shares of 58 Home on an as-converted basis at the time. As certain rights provided to the noncontrolling Series A preferred shareholders of 58 Home would be viewed as substantive participating rights under U.S. GAAP, we have ceased consolidating the financial results of 58 Home in our consolidated financial statements in accordance with U.S. GAAP since November 27, 2015. As of the date of this annual report, we hold 68.8% of the total outstanding shares of 58 Home on an as-converted basis, including 87.9% of the total outstanding ordinary shares and 5% of the total outstanding preferred shares.
(3) The other shareholders of Beijing 58 Auto Technology Co., Ltd. are third-party investors.
(4) Magic Heart Inc. holds 63.5%, and Tencent Mobility Limited, certain members of our management, and certain other investors holds the remaining equity interests of Zhuan Spirit Holdings Limited, respectively, on an issued and outstanding basis. Certain investors of Zhuan Spirit Holdings Limited received warrants, which entitle them to certain rights as shareholders pursuant to the transaction agreements. Magic Heart Inc. is a wholly owned subsidiary of 58.com Inc. Tencent Mobility Limited is a subsidiary of Tencent.
(5) Beijing Yunqi Hulian Investment Co., Ltd., Linzhi Lichuang Information Technology Co., Ltd., and Mr. Wei Huang each holds 74.1%, 24.7% and 1.2% equity interests of Beijing Zhuangzhuan, respectively. Beijing Yunqi Hulian Investment Co., Ltd. is a subsidiary of Beijing 58. Linzhi Lichuang Information Technology Co., Ltd. is an affiliate of Tencent. Mr. Wei Huang is the chief executive officer of Zhuan Zhuan.

Our Contractual Arrangements

Prior to 2012, we conducted substantially all of our business operations through Beijing 58. Since 2012, we have started to conduct our business operations that are not subject to PRC legal restrictions on foreign ownership through our wholly owned subsidiaries, Wanglin and 58 Technology. Currently, we primarily use Wanglin and 58 Technology, rather than Beijing 58, to provide services to our customers, and we have transferred a significant portion of our personnel, including substantially all of our administrative and product development personnel, from Beijing 58 to Wanglin and 58 Technology. As of December 31, 2019, a majority of our assets were held by Wanglin, 58 Technology and Shanghai Ruiting. Wanglin, 58 Technology and Shanghai Ruiting collectively generated a majority of our revenues in 2019 and we currently expect that they will continue to generate a majority of our revenues going forward. We further expect Beijing 58’s business to be limited primarily to services that are legally required to be conducted through a PRC domestic entity.

In April 2017, Beijing Zhuanzhuan became Zhuan Zhuan Holding’s consolidated affiliated entity.

In the opinion of our PRC counsel, Han Kun Law Offices, the contractual arrangements described below are valid, binding and enforceable under current PRC laws. However, these contractual arrangements may not be as effective in providing control as direct ownership. There are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. For a description of the risks related to our corporate structure, please see “Item 3. Key Information — D. Risk Factors — Risks Related to Our Corporate Structure and Restrictions on Our Industry.”

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Contractual Arrangements with Beijing 58

We have entered into contractual arrangements with Beijing 58 and its shareholders described below, which we refer to as the Beijing 58 Agreements. Through the Beijing 58 Agreements, we exercise control over the operations of Beijing 58 and receive substantially all its economic benefits and residual returns. Through the amended and restated exclusive business cooperation agreement between Beijing 58 and Wanglin, Wanglin agrees to provide certain technical and business support and related consulting services to Beijing 58 in exchange for service fees. In addition, pursuant to the amended and restated exclusive option agreement, Beijing 58 is prohibited from declaring and paying any dividends without Wanglin’s prior consent and Wanglin enjoys an irrevocable and exclusive option to purchase Beijing 58 shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a nominal price from Beijing Wanglintong Information Technology Co., Ltd., or Beijing Wanglintong, which is one of the shareholders of Beijing 58, or at a specified price equal to the loan provided by Wanglin to the individual shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. Through the arrangements, we can obtain all of Beijing 58’s income and all of its residual interests, such as undistributed earnings, either through dividend distribution or purchase of Beijing 58’s equity interests from its existing shareholders. As a result of the contractual arrangements, we consolidate Beijing 58’s financial results in our consolidated financial statements in accordance with U.S. GAAP.

Exclusive Business Cooperation Agreement. Under the exclusive business cooperation agreement between Beijing 58 and Wanglin, as amended and restated, Wanglin has the exclusive right to provide, among other things, technical support and business support and related consulting services to Beijing 58 and Beijing 58 agrees to accept all the consultation and services provided by Wanglin. Without Wanglin’s prior written consent, Beijing 58 is prohibited from engaging any third-party to provide any of the services under this agreement. In addition, Wanglin exclusively owns all intellectual property rights arising out of or created during the performance of this agreement. Beijing 58 agrees to pay a quarterly service fee to Wanglin at an amount determined solely by Wanglin after taking into account factors including the complexity and difficulty of the services provided, the time consumed, the seniority of the Wanglin employees providing services to Beijing 58, the value of services provided, the market price of comparable services and the operating conditions of Beijing 58. This agreement will remain effective unless Wanglin terminates the agreement in writing or a competent governmental authority rejects the renewal applications by either Beijing 58 or Wanglin to renew its respective business license upon expiration. Beijing 58 is not permitted to terminate this agreement in any event unless required by applicable laws. In 2019, Wanglin provided technical support services to Beijing 58 and its subsidiaries and collected service fee payments of approximately RMB12.8 million.

Powers of Attorney. Pursuant to the powers of attorney, the shareholders of Beijing 58 each irrevocably appointed Wanglin as the attorney-in-fact to act on their behalf on all matters pertaining to Beijing 58 and to exercise all of their rights as a shareholder of Beijing 58, including but not limited to attend shareholders’ meetings, vote on their behalf on all matters of Beijing 58 requiring shareholders’ approval under PRC laws and regulations and the articles of association of Beijing 58, designate and appoint directors and senior management members. Wanglin may authorize or assign its rights under this appointment to any other person or entity at its sole discretion without prior notice to the shareholders of Beijing 58. Each power of attorney will remain in force until the shareholder ceases to hold any equity interests in Beijing 58.

Equity Interest Pledge Agreements. Under the equity interest pledge agreements between Wanglin, Beijing 58 and the shareholders of Beijing 58, as amended and restated, the shareholders pledged all of their equity interests in Beijing 58 to Wanglin to guarantee Beijing 58’s and Beijing 58’s shareholders’ performance of their obligations under the contractual arrangements including, but not limited to, the payments due to Wanglin for services provided. If Beijing 58 or any of Beijing 58’s shareholders breaches its contractual obligations under the contractual arrangements, Wanglin, as the pledgee, will be entitled to certain rights and entitlements, including receiving proceeds from the auction or sale of whole or part of the pledged equity interests of Beijing 58 in accordance with legal procedures. Wanglin has the right to receive dividends generated by the pledged equity interests during the term of the pledge. If any event of default as provided in the contractual arrangements occurs, Wanglin, as the pledgee, will be entitled to dispose of the pledged equity interests in accordance with PRC laws and regulations. The pledge will become effective on the date when the pledge of equity interests contemplated in these agreements are registered with the relevant local administration for industry and commerce and will remain binding until Beijing 58 and its shareholders discharges all their obligations under the contractual arrangements. We registered these equity interest pledge agreements with the competent market supervision and administration bureaus in July 2013 and April 2020, respectively.

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Exclusive Option Agreements. Under the exclusive option agreements between Wanglin, as amended and restated, each of the shareholders of Beijing 58 and Beijing 58, each of the shareholders irrevocably granted Wanglin or its designated representative(s) an exclusive option to purchase, to the extent permitted under PRC law, all or part of his, her or its equity interests in Beijing 58. In addition, Wanglin has the option to acquire all the equity interests of Beijing 58 for either a nominal price from Beijing Wanglintong or a specified price equal to the loan provided by Wanglin to the individual shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. Wanglin or its designated representative(s) have sole discretion as to when to exercise such options, either in part or in full. Without Wanglin’s prior written consent, Beijing 58’s shareholders shall not transfer, donate, pledge, or otherwise dispose any equity interests in Beijing 58. These agreements will remain effective until all equity interests held in Beijing 58 by the Beijing 58’s shareholders are transferred or assigned to Wanglin or Wanglin’s designated representatives. At the moment, we cannot exercise the exclusive option to purchase the current shareholders’ equity interests in Beijing 58 due to the PRC regulatory restrictions on foreign ownership in the value-added telecommunications services. We intend to exercise such option once China opens up these industries to foreign investment.

Loan Agreements. Pursuant to the loan agreements between Wanglin and each individual shareholder of Beijing 58, Wanglin provided interest-free loans with an aggregate amount of approximately RMB7.8 million to the individual shareholders of Wanglin for the sole purpose of funding the capital increase of Beijing 58. The loans can be repaid by transferring the individual shareholders’ equity interests in Beijing 58 to Wanglin or its designated person pursuant to Exclusive Option Agreements. The term of each loan agreement is ten years from the date of the agreement expiring on December 1, 2021 and can be extended with the written consent of both parties before expiration.

Other Contractual Arrangements

Zhuan Zhuan Holding, through its PRC subsidiary, Tianjin Zhuanzhuan, has entered into contractual arrangements with Beijing Zhuanzhuan and its shareholders with terms substantially similar to those under the Beijing 58 Agreements, which we refer to as the Beijing Zhuanzhuan Agreements. Through the Beijing Zhuanzhuan Agreements, Tianjin Zhuanzhuan exercises control over the operations of Beijing Zhuanzhuan and receives substantially all its economic benefits and residual returns. Through the exclusive business cooperation agreement between Tianjin Zhuanzhuan and Beijing Zhuanzhuan, Tianjin Zhuanzhuan agrees to provide certain technical and business support and related consulting services to Beijing Zhuanzhuan in exchange for service fees. In addition, pursuant to the exclusive option agreements, Beijing Zhuanzhuan is prohibited from declaring and paying any dividends without Tianjin Zhuanzhuan’s prior consent and Tianjin Zhuanzhuan enjoys an irrevocable and exclusive option to purchase Beijing Zhuanzhuan shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a purchase price of RMB10. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. Through these arrangements, Zhuan Zhuan Holding can obtain all of the income and the residual interests of Beijing Zhuanzhuan, such as undistributed earnings, either through dividend distributions or purchase of equity interests of Beijing Zhuanzhuan from its existing shareholders. As a result of the contractual arrangements, we, through Zhuan Zhuan Holding, consolidate the financial results of Beijing Zhuanzhuan in our consolidated financial statements in accordance with U.S. GAAP.

58 Home has through its PRC subsidiaries entered into contractual arrangements with several entities, or 58 Home VIEs, and their respective shareholders with terms substantially similar to those under the Beijing 58 Agreements, which we refer to as the 58 Home Agreements. Through the 58 Home Agreements, those PRC subsidiaries exercise control over the operations of 58 Home VIEs and receives substantially all their economic benefits and residual returns. As a result of the contractual arrangements, 58 Home consolidates the financial results of 58 Home VIEs in accordance with U.S. GAAP.

D.           Property, Plants and Equipment

Our principal headquarters offices are located on 44,915 square meters of our purchased office space at Building 105 and Building 101, 10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing, China, which were acquired in 2014 for RMB1.0 billion to accommodate our business expansion and increase in headcount. Building 105 and Building 101 were ready for occupancy in October 2015 and August 2016, respectively. We purchased a smaller office space located in Tianjin with 29,823 square meters in 2015 and it was ready for occupancy in 2016. We also lease an additional 36,833 square meters office spaces in other locations in Beijing and Tianjin, China, excluding the office spaces for 58 Home. We maintain leased offices in 57 additional cities in China totaling 113,512 square meters, excluding those for 58 Home. We lease our premises from unrelated third parties under non-cancelable operating lease agreements. The leases typically have terms of one to ten years.

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Our servers are primarily hosted at internet data centers owned by major domestic internet data center providers. The hosting services agreements typically have one-year terms and are renewed automatically upon expiration. We believe that we will be able to obtain adequate facilities, principally through leasing, to accommodate our future expansion plans.

Item 4A.             Unresolved Staff Comments

None.

Item 5.                Operating and Financial Review and Prospects

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion and analysis may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information — D. Risk Factors” or in other parts of this annual report on Form 20-F.

Since January 2020 the outbreak of COVID-19 has widely spread and was quickly declared as a Public Health Emergency of International Concern and subsequently a pandemic by the World Health Organization. To control the spread of COVID-19, PRC government has implemented a series of strict measures, including travel restrictions, quarantines, and a temporary shutdown of businesses which resulted in a decrease in activity level among our paying business users. In particular, paying business users that require in-person meetings to conduct their business, including those in the secondary housing and rental real estate sector, used auto dealers, local service providers, and recruiters, have been adversely and materially affected by these interruptions and delayed business resumption. As our revenues are generated primarily from these paying business users, most of whom are small and medium-sized local businesses, the outbreak of COVID-19 and subsequent prevention and control measures have adversely affected our business operations and financial conditions in the first quarter of 2020. For instance, revenues for the first quarter of 2020 were estimated to decline significantly compared to the same period in 2019. We also scaled back certain expenses, particularly some discretionary advertising expenses to mitigate the adverse impact on our profit. During February 2020, a majority of our employees worked from home. As our customers, many of whom are migrant workers, took longer to resume normal businesses due to these quarantine measures, we also delayed hiring for our sales and customer services teams. The outbreak of COVID-19 also adversely affected the business operations of our investees, which will likely result in downward adjustments to our long-term investments, and if the impact of COVID-19 pandemic become other than temporary, impairment losses will be recognized for our long-term investments.

Since the end of February 2020, as the number of daily new cases of COVID-19 in China have been contained at a relatively low level, the quarantine measures have been gradually relaxed or lifted. Offline business activities have been recovering and our employees are going back to offices. As of the date of filing of this report, quarantine measures are being further relaxed or lifted, and the recovering of the economy is continuing.

Based on our observation of the COVID-19’s breakout and containment in China, we consider its impact to our operations acute but short-term in nature. The adverse impact was primarily resulted from draconian quarantine measures which were meant to be temporary. Our platform serves the very essential needs of people, such as looking for a job and a place for rent or sale. Since the gradual lifting of quarantine, we have seen expected recovery of these activities from both consumer and business traffic on our platforms along with the recovery of offline activities. We believe we have a strong balance sheet and a healthy underlying business. Therefore, we made little change to our business strategies and continued our investment, particularly in our research and development resources.

A.           Operating Results

Overview

We enable local consumers and businesses to connect, share information, address local services needs and conduct local business in China.

Our business currently consists of 58 core businesses and incubated new businesses.

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The 58 core businesses are comprised principally of 58 and Ganji (赶集网), our multi-content category online classifieds platforms, Anjuke (安居客), our real estate listing platform, ChinaHR (中华英才网), our online recruitment platform that focuses on white-collar jobs and Jia Xiao Yi Dian Tong (驾校一点通), an online platform for drivers’ license examination preparation and other related services.

The incubated new businesses include Zhuan Zhuan (转转), an online used goods trading and service platform and 58 Town (58同镇), a rural version of 58.com. These platforms provide more vertically integrated services to users in their respective content categories. Although Zhuan Zhuan and 58 Town are both in relatively early stage of their platform growth and monetization and require our continued investment, we see great market and competitive potential in them. In addition, 58 Home and Che Hao Duo (formerly known as “Guazi”) were initially incubated within 58 or Ganji and have completed fund raisings from additional outside investors. We have deconsolidated the financial results of 58 Home and Che Hao Duo from ours in accordance with U.S. GAAP since 2015.

Our revenues increased from RMB10.1 billion in 2017 to RMB13.1 billion in 2018, and further to RMB15.6 billion in 2019. The increase was primarily driven by increases in paying business users and spending per paying business user, as well as increase in our traffic and improving effectiveness of our various services.

We had a net income of RMB1.4 billion in 2017, RMB2.1 billion in 2018 and RMB8.4 billion in 2019.

The outbreak of COVID-19 and subsequent prevention and control measures have adversely affected our business operations and financial conditions in the first quarter of 2020. See  “Item 3. Key Information — D. Risk Factors — Risks Related to Our Business — We face risks related to natural disasters, health epidemics, terrorist acts or acts of war, social unrest or other public safety concerns or hostile events, which could significantly disrupt our operations.”

How We Generate Revenues

We had approximately 6.4 million paying business users in 2019, an increase of 3.3% from 2018. We define paying business users as business users with unique identity information such as business licenses or personal identification information and who used our subscription-based membership services or purchased at least one type of online marketing services in a given period. One paying business user can open up several paying user accounts on one or multiple online platforms. The number does not include paying business users on Ganji as the Company stopped selling stand-alone Ganji subscription-based membership services in 2018 or earlier in all of its content categories. While many of our users browse and post information on our online platforms for free, we generate revenues from the following services mainly for business users.

Membership

A subscription-based membership is a basic service package consisting mainly of merchant certification, display of an online storefront on our platforms, preferential listing benefits such as daily priority listings and higher quota for daily listings, and access to our dedicated customer service support team and online account management system. Members who subscribe to a membership with us can enjoy more services and achieve more effective marketing than non-paying members on our platforms. 58, Ganji and Anjuke offer subscription-based membership packages that include similar types of services, although the specific details of the services, such as the quotas for daily listings and downloadable resumes, may vary from platform to platform. In some cases, we merge memberships on multiple platforms into a single subscription-based membership package, which enables business users to more easily market on multiple platforms.

We offer memberships of varying lengths across different content categories. Memberships in the yellow pages, jobs and used auto categories are primarily 12-month packages. In China, due to relatively high employee turnover among migrant workers, many businesses have ongoing hiring needs. Memberships in the real estate category are primarily one-month to three-month packages because membership service is provided on an individual real estate agent basis and the turnover of real estate agents is quite high.

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We acquire a majority of subscription-based members through our field sales teams and our sales agent network, even though we have started to make more membership services packages available online and encourage more business users to select and purchase them online. Our centralized and dedicated tele-sales and customer service team supports our members during their membership period to enhance the marketing effectiveness and improve membership renewals. The roles and responsibilities of the field sales and customer services teams may vary by content category, as we constantly optimize our team structure and functions to best develop and serve our business users. Majority of our subscription-based paying members are small and medium-sized local businesses.

We believe that our field sales, sales agency network and customer service teams have been effective in increasing the number of our paying members, retaining high-quality existing paying members and increasing spending by our existing paying members, all of which are important to the growth of our revenues. We have also been developing interfaces for members to purchase and pay for subscription-based membership services online. See “Item 4. Information on the Company — B. Business Overview — Sales and Customer Services” for details of the sales and customer service team operation.

Most paying members pay their membership fees in advance. These advance payments are made to our field sales teams, sales agency companies or through other online interfaces and are recorded as customer advances. When a specific subscription-based membership service is selected and activated, the amount related to the membership services is transferred to deferred revenues, which gets amortized in straight line over the membership period. Revenues are recognized ratably over the membership period as services are rendered.

Online Marketing Services

Our online marketing services primarily include real-time bidding, priority listing, various other lead-generation services and display advertising. All of our 58, Ganji and Anjuke platforms offer some forms of online marketing services. Online marketing services of 58 and Ganji are mainly listing services that customers purchase to enhance the exposure of their listings. Anjuke’s marketing services relate to both listing services for secondary real estate properties and advertising services for primary real estate properties. Our business users purchase online marketing services to enhance their marketing and recruitment effectiveness. Business users can purchase online marketing services without subscribing to subscription-based membership services. However, subscription-based paying members enjoy a discount for additional online marketing services. It is an important strategy for us to continue upselling more online marketing services to members who have already purchased the subscription-based membership services.

Business users can use our real-time bidding services to bid for the most prominent placement of their listings in specific categories and locations on a cost-per-click (CPC) basis. We have developed a user-friendly bidding system, through which business users can create text- and graphic-based descriptions for their listings and bid on placements of their listings. We set minimum bidding prices based on metrics such as traffic and number of clicks generated by precedent placements. We generate much higher revenues than we otherwise could with the same amount of listing space by attracting more customers and monetize the traffic to their market value.

Business users can also purchase our priority listing services, which place their listings below real-time bidding listings and above the area where regular subscription-based paying members’ listings are displayed. Business users can purchase listing placements of varying duration from several hours to several days to several weeks depending on their need.

We provide display advertisement mainly for primary real estate developers on our Anjuke platform, companies that hire more white-collar staff on our ChinaHR platform and auto manufacturers on our 58Che platform. Our customers use these services to enhance their brand recognition and attract consumer attention. They can be text- or graphic-based displays for varying time periods ranging from several days to several months.

In most cases customers are required to make payment in advance before purchasing our online marketing services, in the form of purchasing virtual online currencies of our platforms. Paying members can log into our account management webpage or mobile app and purchase various online marketing services through an easy-to-use interface. Our account management system enables paying members to review and optimize the performance of their existing listings and to upload and market new listings.

Our field sales and customer service teams stay in regular contact with our customers and play an essential role in promoting our online marketing services to our paying users. Leveraging our expertise in online marketing services, we help our paying users to select the most suitable services to maximize their marketing effectiveness.

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E-commerce Services

Our e-commerce services consist of services provided to real estate developers such as sale of discount coupons with which home buyers use to buy properties at a discounted price. Our e-commerce services also include property tours, onsite promotion activities and other services relating to property purchases. The coupon purchased by prospective home buyers is refundable before a purchase of the designated property and prior to the expiry date of the coupon. We recognize revenues when home buyers apply the discount coupon to pay for the purchase price of the designated properties from real estate developers.

Other Revenues

Other revenues are primarily derived from selling used goods and providing services on Zhuan Zhuan, our online used goods trading platform and providing offline recruitment services through China HR.

Taxation

Cayman Islands

We are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gains. Additionally, upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed.

British Virgin Islands

We are exempted from income tax in the British Virgin Islands on our foreign-derived income. There are no withholding taxes in the British Virgin Islands.

Hong Kong

The operations in Hong Kong have incurred net accumulated operating losses for income tax purposes. Our subsidiaries incorporated in Hong Kong are subject to 16.5% Hong Kong profit tax on their taxable income generated from operations in Hong Kong for the years of assessment 2015/2016, 2016/2017 and 2017/2018. Commencing from the year of assessment 2018/2019, the first HK$2 million of profits earned by our subsidiaries incorporated in Hong Kong will be taxed at half the current tax rate (i.e., 8.25%) while the remaining profits will continue to be taxed at the existing 16.5% tax rate. Under the Hong Kong tax laws, we are exempted from the Hong Kong income tax on our foreign-derived income. In addition, payments of dividends from our incorporations in Hong Kong to us are not subject to any Hong Kong withholding tax.

PRC

Pursuant to the Enterprise Income Tax Law, foreign-invested enterprises and domestic companies are subject to enterprise income tax at a uniform rate of 25%. In addition, “high and new technology enterprises” will enjoy a preferential enterprise income tax rate of 15%.

Beijing 58, our consolidated affiliated entity, qualified as a “high and new technology enterprise” under the Enterprise Income Tax Law , is eligible for a preferential enterprise income tax rate of 15% for the period from 2009 to 2020, so long as it obtains approval from the relevant tax authority and if it is profitable during the period.

Wanglin, one of our PRC subsidiaries, qualified as a “high and new technology enterprise” from 2012 to 2020, also obtained its “software enterprise” status in July 2014. The local tax authority granted Wanglin a two-year tax holiday from 2014 to 2015 followed by a three-year 50% tax rate reduction from 2016 to 2018.

Shanghai Ruiting, one of our PRC subsidiaries, qualified as a “high and new technology enterprise” under the Enterprise Income Tax Law, is eligible for preferential enterprise income tax rate of 15% from 2010 to 2019 so long as it obtains approval from the relevant tax authority and maintains the “high and new technology enterprise” status and if it is profitable during that period.

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58 Technology, one of our PRC subsidiaries, obtained its “software enterprise” status in December 2014. The local tax authority granted 58 Technology a two-year tax holiday from 2015 to 2016 followed by a three-year 50% tax rate reduction from 2017 to 2019. 58 Technology obtained “high and new technology enterprise” certificate in 2017.

58 Co., Ltd., one of our consolidated affiliated entities, qualified as a “high and new technology enterprise” under the Enterprise Income Tax Law, is eligible for a preferential enterprise income tax rate of 15% from 2018 to 2020 so long as it obtains approval from the relevant tax authority and maintains the “high and new technology enterprise” status and if it is profitable during that period.

Shanghai Ruijia, one of our consolidated affiliated entities, qualified as a “high and new technology enterprise” under the Enterprise Income Tax Law, is eligible for preferential enterprise income tax rate of 15% from 2018 to 2020 so long as it obtains approval from the relevant tax authority and maintains the “high and new technology enterprise” status and if it is profitable during that period.

Effective January 1, 2012, the PRC Ministry of Finance and the State Administration of Taxation launched a Business Tax to Value-Added Tax Transformation Pilot Program, or the VAT Pilot Program, which imposes VAT in lieu of business tax for certain “modern service industries” in certain regions. According to the implementation circulars released by the Ministry of Finance and the State Administration of Taxation on the VAT Pilot Program, the “modern service industries” include research, development and technology services, information technology services, cultural innovation services, logistics support, lease of corporeal properties, attestation and consulting services. In August 2013, the program was further expanded nationwide. With the adoption of the program, our revenues are subject to VAT. VAT payable on goods sold or taxable services provided by a general VAT taxpayer for a taxable period is the net balance of the output VAT for the period after crediting the input VAT for the period. Hence, the amount of VAT payable does not result directly from output VAT generated from goods sold or taxable services provided. Therefore, we have adopted the net presentation of VAT. From May 1, 2016, the program has been further expanded to cover all industries.

Pursuant to the “Circular on Enterprise Income Tax Policy concerning Deductions for Equipment and Appliances” (Cai Shui [2018] 54) issued by the State Administration of Taxation, during the period from January 1, 2018 to December 31, 2020, the cost of newly purchased equipment with the original cost less than RMB5 million can be fully deducted against taxable profit in the next month after the asset is put into use, instead of being depreciated annually for tax filing.

According to a policy promulgated by the State Tax Bureau of the PRC and effective from 2008 onwards, enterprises engaging in research and development activities are entitled to claim 150% of the research and development expenses so incurred in a year as tax deductible expenses in determining its tax assessable profits for that year, or the Super Deduction. From January 1, 2018 to December 31, 2020, all Chinese resident enterprises will enjoy the Super Deduction of 175% in accordance with the updated policy promulgated by the Stated Tax Bureau of the PRC. Wanglin, Beijing 58, 58 Technology and Shanghai Ruiting claimed such Super Deduction in ascertaining its tax assessable profits for the years ended December 31, 2017, 2018 and 2019, respectively.

Critical Accounting Policies

We prepare our 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 experience 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 our expectations as a result of changes in our 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. The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies, and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our consolidated financial statements. We believe that the following accounting policies involve a higher degree of judgment and complexity 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 annual report.

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Consolidation

Our consolidated financial statements include the accounts of 58.com Inc. and its wholly owned and majority owned subsidiaries and consolidated variable interest entities in which our company has a controlling financial interest. All intercompany transactions are eliminated.

Our variable interest entities are wholly or partially owned by certain of our employees as shareholders. For consolidated variable interest entities, our management made evaluations of our relationships with the variable interest entities and the economic benefit flow of contractual arrangements with the variable interest entities. In connection with such evaluation, we also take into account the fact that, as a result of such contractual arrangements, we control the shareholders’ voting interests in these variable interest entities. As a result of such evaluation, we concluded that we are the primary beneficiary of these consolidated variable interest entities.

Deconsolidation

We deconsolidate our subsidiaries in accordance with Accounting Standards Codification (“ASC”) 810-10-40-4 as of the date we ceased to have a controlling financial interest in the subsidiaries.

We account for the deconsolidation of our subsidiaries by recognizing a gain or loss in net income/(loss) attributable to us in accordance with ASC 810-10-40-5. This gain or loss is measured at the date the subsidiaries are deconsolidated as the difference between (a) the aggregate of the fair values of any consideration received, the fair values of any retained noncontrolling interests in the subsidiaries being deconsolidated, and the carrying amounts of any noncontrolling interests in the subsidiaries being deconsolidated, including any accumulated other comprehensive income/(loss) attributable to the noncontrolling interests, and (b) the carrying amounts of the assets and liabilities of the subsidiaries being deconsolidated.

Business Combination, Noncontrolling Interests and Mezzanine Classified Noncontrolling Interests

We account for our business combinations using the acquisition method of accounting in accordance with ASC 805 Business Combinations (“ASC 805”). The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities incurred by us to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interests in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statements of comprehensive income/(loss).

During the measurement period, which can be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

In a business combination achieved in stages, we re-measure the previously held equity interests in the acquiree immediately before obtaining control at its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of comprehensive income/(loss).

For our majority-owned subsidiaries and VIEs, a noncontrolling interest is recognized to reflect the portion of their equity which is not attributable, directly or indirectly, to us. When the noncontrolling interests are contingently redeemable upon the occurrence of a conditional event, which is not solely within our control, the noncontrolling interests are classified as mezzanine classified noncontrolling interest. Consolidated net income/(loss) on the consolidated income statements includes the net income/(loss) attributable to noncontrolling interests and mezzanine equity holders when applicable. The cumulative results of operations attributable to noncontrolling interests are also recorded as noncontrolling interests in our consolidated balance sheets. Cash flows related to transactions with noncontrolling interests are presented under financing activities in the consolidated statements of cash flows.

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Goodwill

Goodwill represents the excess of the purchase price over fair value of the identifiable assets and liabilities acquired in a business combination.

Goodwill is not depreciated or amortized but is tested for impairment on an annual basis as of December 31 and in between annual tests when an event occurs, or circumstances change that could indicate that the asset might be impaired. In accordance with the FASB guidance on Testing of Goodwill for Impairment, we first have the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If then we decide, as a result of our qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss equal to the difference between the implied fair value of the reporting unit's goodwill and the carrying amount of goodwill will be recorded. Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit. We perform goodwill impairment testing at the reporting unit level on December 31 annually. No impairment of goodwill was recognized for the years ended December 31, 2017, 2018 and 2019, respectively.

Long-lived Assets

Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the “contractual-legal” or “separability” criterion. Purchased intangible assets and intangible assets arising from the acquisitions of subsidiaries and VIE subsidiaries are recognized and measured at fair value upon acquisition. Separately identifiable intangible assets that have determinable lives continue to be amortized over their estimated useful lives using the straight-line method. Separately identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for identifiable intangible assets is based on the amount by which the carrying amount of the assets exceeds the fair value of the asset. Changes in these estimates and assumptions could materially impact our financial condition and results of operations.

Property and equipment are stated at cost less accumulated depreciation and impairment. Property and equipment are depreciated on a straight-line basis over the estimated useful lives, which is generally from 30 to 50 years for buildings and 3 to 5 years for the other properties and equipment. Judgment is required to determine the estimated useful lives, including determining how long existing properties and equipment can function and when new technologies will be introduced at cost-effective price points to replace existing equipment. Changes in these estimates and assumptions could materially impact our financial condition and results of operations. Expenditures for maintenance and repairs are expensed as incurred. The gain or loss on the disposal of property and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statements of comprehensive income/(loss).

Long-term Investments and investment in convertible notes

(i)       Equity Investments Accounted for Using the Equity Method

In accordance with ASC 323 Investment-Equity Method and Joint Ventures, we apply the equity method of accounting to equity investments, in common stock or in-substance common stock, over which it has significant influence but does not own a majority equity interests or otherwise control. Under the equity method, we initially record the investment at cost. The difference between the cost of the equity investment and the amount of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill or as an intangible asset as appropriate. We subsequently adjust the carrying amount of the investment to recognize our proportionate share of each equity investee's net income or loss into consolidated statements of comprehensive income/(loss) after the date of acquisition. We will discontinue applying equity method if the carrying amount of an investment (and additional financial supports to the investee, if any) has been reduced to zero.

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When our investment in common stock has been reduced to zero and we have other investments in the investee, we continue to record our share of income or loss in the equity investees in our consolidated statements of comprehensive income/(loss) to the extent of and as an adjustment to the adjusted basis of the other investments in the investee. The order in which those equity method income or loss should be applied to the other investments shall follow the seniority of the other investments (that is, priority in liquidation). In such instances, we recognize investee income or loss based on the ownership level of the particular investee security or loan/advance held by us.

An investment in in-substance common stock is an investment that has risk and reward characteristics that are substantially similar to that entity’s common stock. We consider subordination, risks and rewards of ownership and obligation to transfer value when determining whether an investment in an entity is substantially similar to one in that entity’s common stock.

The equity method investments are subject to periodic testing for other-than-temporary impairment, by considering factors including, but not limited to, stock prices of public companies in which we have an equity investment, current economic and market conditions, operating performance of investees such as current earnings trends and undiscounted cash flows, and other company-specific information, such as recent financing rounds. The fair value determination, particularly for investments in privately held companies whose revenue model is still evolving, requires significant judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investments and the determination of whether any identified impairment is other-than-temporary. If any impairment is considered other-than-temporary, we will write down the asset to its fair value and take the corresponding charge to the consolidated statements of comprehensive income. We recorded RMB nil, RMB nil and RMB2.6 million impairment charges for equity method investments for the year ended December 31, 2017, 2018 and 2019, respectively.

(ii)       Equity Investment with Readily Determinable Fair Values

According to ASU 2016-01, all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through the consolidated statements of comprehensive income/(loss).

Equity investments with readily determinable fair values are valued using the market approach based on the quoted prices in active markets at the reporting dates. We classify the valuation techniques that use these inputs as Level 1 of fair value measurements.

(iii)       Equity Investments without Readily Determinable Fair Values

Based on ASU 2016-01, we will be able to elect to record equity investments without readily determinable fair values and not accounted for by the equity method either at fair value with changes in fair value recognized in net income or at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer (“measurement alternative”). An election to measure an equity security shall be made for each investment separately. If we elect to use this measurement alternative method, we should measure the equity security at fair value as of the date that observable transaction occurred and report changes in the carrying value of the equity investments in current earnings whenever there are observable price changes in orderly transactions for the identical or similar investment of the same issuer. The values were estimated based on valuation methods using the observable transaction price at the transaction date and other unobservable inputs including volatility, as well as rights and obligations of the securities that we held.

For each reporting period, we would make a qualitative assessment considering impairment indicators to evaluate whether the equity investment without a readily determinable fair value is impaired. Impairment indicators that considered by us include, but are not limited to, 1) a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, 2) a significant adverse change in the regulatory, economic, or technological environment of the investee, 3) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates, 4) a bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment, and 5) factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants.

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When indicators of impairment exist, we prepare quantitative assessments of the fair value of the equity investments. When the assessment indicates that an impairment exists, we will include an impairment loss in net income equal to the difference between the fair value of the investment and its carrying amount.

Because certain investees’ operation metrics and financial performance did not meet the expectations, we recorded RMB37.3 million impairment for the cost method investments for the years ended December 31, 2017. We recorded RMB40.0 million and RMB11.8 million impairments for investments accounted for under measurement alternative for the year ended December 31, 2018 and 2019, respectively. The impairment was recorded in “investment income, net” in our consolidated statements of comprehensive income.

(iv)       Non-marketable equity security held by our investment company

In accordance with ASC 946-320 Financial Services—Investment Companies, Investments—Debt and Equity Securities, we account for long-term equity investments in unlisted companies held by consolidated investment companies at fair value. These investments were initially recorded at their transaction price net of transaction costs, if any. Fair value of these investments is re-measured periodically in accordance with ASC 820.

(v)        Investments accounted for using the fair value option

In accordance with ASC 825 Financial Instruments, we applied the fair value option on an instrument-by-instrument basis. Such fair value option requires the irrevocable election on an instrument-by-instrument basis at initial recognition of an asset or upon an event that gives rise to a new basis of accounting for that instrument. The investments accounted for under the fair value option are carried at the fair value with realized or unrealized gains or losses recorded in the consolidated statements of comprehensive income.

Revenue Recognition

We adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”), from January 1, 2018, applying the modified retrospective method to those contracts which were not completed as of January 1, 2018. Accordingly, revenues for the years ended December 31, 2018 and 2019 were presented under ASC 606, while revenues for the year ended December 31, 2017 were not adjusted and continued to be reported under ASC 605. The adoption had no material impact on our accumulated deficit as of January 1, 2018 and our consolidated financial statements for the years ended December 31, 2018 and 2019.

We generate revenues primarily from membership and online marketing services. We sell these services through our direct sales teams, third-party sales agencies and online self-serve channels. Under ASC 606, revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount of consideration we expect to be entitled to in exchange for those goods or services.

We determine revenue recognition through the following steps:

identification of the contract, or contracts, with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, we satisfy a performance obligation.

Our revenues have been subject to value added tax (“VAT”). To record VAT payable, we use the net presentation method, which presents the difference between the output VAT on goods sold or taxable services and the available input VAT amount (at the rate applicable to the supplier). Revenues are recorded net of VAT in accordance with the ASC 606. The recognition of revenues involves certain management judgments. The amount and timing of our revenues could be materially different for any period if management made different judgments or utilized different estimates.

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Membership. A membership is a basic services package mainly consisting of the following services: customer certification, display of an online storefront on our platforms, preferential listing benefits such as limited daily priority listings and higher limit for free daily listings, and access to our dedicated customer service support team and online account management system. As the receipt of membership fees is for services to be delivered over a period of time, the receipt is initially recorded as customer advances. When a specific subscription-based membership service is selected and activated, the amount related to the membership service is transferred to deferred revenues, and revenue is recognized ratably over the membership period as the service is rendered.

Online marketing services. Our online marketing services include time-based services and performance-based services. Revenues from time-based services are recognized ratably over the service period. Revenues from performance-based services are recognized when the agreed performance criteria are achieved. For service arrangements that include multiple performance obligation, revenues are allocated to each performance obligation. We allocate arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement to all deliverables based on the relative selling price method, generally based on the best estimate of selling price of us.

E-commerce services. Our e-commerce services refer to services provided to the real estate developers such as sale of discount coupons with which home buyers use to buy properties at a discounted price. It might also include tours to visit the properties, onsite promotion activities and other services relating to property purchases. The coupon purchased by prospective home buyers is refundable before a purchase of the specified properties and prior to the expiry date of the coupon. We recognize revenues when home buyers apply the discount coupon to pay for the purchase price of the specified properties from real estate developers. Cash received in advance of the purchase of specified properties is recorded as customer advances, as a type of contract liability.

Other revenues. Other revenues are primarily derived from selling used goods and providing services on Zhuan Zhuan, our online used goods trading and service platform and providing various online to offline recruitment services. We recognize other revenue when the related services are rendered or goods are sold.

For all other arrangements that include multiple performance obligations, we would evaluate all the performance obligations in the arrangement to determine whether each performance obligation is distinct. Consideration is allocated to each performance obligation based on its standalone selling price. If a promised good or service does not meet the criteria to be considered distinct, it is combined with other promised goods or services until a distinct bundle of goods or services exists.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. For certain services customers are required to pay before the services are delivered, we recognize a contract asset or a contract liability in the consolidated balance sheet, depending on the relationship between our performance and the customer’s payment.

We will recognize an account receivable in our consolidated balance sheets when we perform a service or transfers a good in advance of receiving consideration and if we have the unconditional right to receive consideration. Accounts receivable is presented netting of the allowance for doubtful accounts. Accounts receivable as of December 31, 2018 and 2019 were RMB917.4 million and RMB1.2 billion, respectively.

Contract liabilities are recognized if we receive consideration in advance of performance. Customers pay in advance to purchase membership services and online marketing services. The cash proceeds received from customers are initially recorded as customer advances and then transferred to deferred revenues when they are used to purchase desired services. We had customer advances and deferred revenues balances of RMB3.8 billion and RMB4.1 billion as of December 31, 2018 and December 31, 2019, respectively. The majority of the balances as of December 31, 2018 were recognized as revenue in the year ended December 31, 2019. Due to the generally short-term duration of the relevant contracts, a majority of the receipts in advance and deferred revenues are recognized in the following reporting period.

Practical Expedients

We generally expense sales commissions for direct sales team when incurred for all contracts with the contract terms of one year or less. These costs are recorded within sales and marketing expenses.

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Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one year or less. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally do not include a significant financing component.

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. Deferred income taxes are provided using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in the statement of comprehensive income/(loss) in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.

The guidance prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Guidance was also provided on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

In order to assess uncertain tax positions, we apply a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Significant judgment is required in evaluating our uncertain tax positions and determining its provision for income taxes. We recognize interests and penalties, if any, under accrued expenses and other current liabilities on our balance sheet and under other expenses in our statement of comprehensive income/(loss). We did not have any interests or penalties associated with tax positions as of December 31, 2017, 2018 and 2019. In addition, we did not have any significant unrecognized uncertain tax positions as of December 31, 2017, 2018 and 2019.

Share-Based Compensation

We have incentive plans for the granting of share-based awards, including share options, restricted share units (“RSUs”) and restricted shares (“RSs”), to our employees and directors. We account for share-based awards granted to employees in accordance with ASC 718 Compensation - Stock Compensation and share-based awards granted to nonemployees in accordance with ASC 505. On January 1, 2019, we adopted ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvement to Nonemployee Share-based Payment Accounting to amend the accounting for share-based payment awards issued to nonemployees. Under ASU 2018-07, the accounting for awards to non-employees are similar to the model for employee awards. Share-based compensation expenses are recognized as costs and expenses on a straight-line basis over the vesting period in the consolidated statements of comprehensive income/(loss) based on the fair value of the related share-based awards on their grant date, if no performance conditions are required. Under ASC 718, compensation cost should be accrued if it is probable that the performance condition will be achieved and should not be accrued if it is not probable that the performance condition will be achieved. As a result, we recognize no compensation expense for share-based awards with performance conditions unless the performance conditions become probable of being achieved.

Share options

We use the binominal option pricing model to determine the fair value of share options and account for share-based compensation expenses using an estimated forfeiture rate at the time of grant and revising the rate, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based compensation expenses are recorded net of estimated forfeitures such that expenses are recorded only for those share-based awards that are expected to vest.

We adopted an employee stock option plan in March 2010, or the 2010 Plan. The maximum number of shares in respect of which share awards may be granted under the 2010 Plan is 20,173,225. The 2010 Plan will terminate automatically 10 years after its adoption, unless terminated earlier by our shareholders’ approval.

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We also adopted a share incentive plan in September 2013, or the 2013 Plan. The maximum aggregate number of shares which may be issued pursuant to all awards under the 2013 Plan was 2,800,000 shares as of the date of its adoption. The 2013 Plan contains an evergreen provision, pursuant to which the number of shares reserved for future issuances under the 2013 Plan will be increased by a number equal to 1.5% of the total number of outstanding shares on the last day of the immediately preceding calendar year, on the first day of each calendar year during the term of the 2013 Plan beginning in 2015, or such lesser number of ordinary shares as determined by our board of directors. The annual general meeting of our shareholders held on December 17, 2015, further increased the maximum aggregate number of shares that may be issued pursuant to all awards under the 2013 Plan by 1,240,500 Class A ordinary shares and 7,000,000 Class B ordinary shares. Taking into account the automatic increases at the beginning of 2015 through 2020 pursuant to the evergreen provision of the 2013 Plan, the maximum aggregate number of shares that may be issued pursuant to all awards under the 2013 Plan increased to 35,622,530 ordinary shares, consisting of 28,622,530 Class A ordinary shares and 7,000,000 Class B ordinary shares, as of the date of this annual report.

Zhuan Spirit Holdings Limited, or Zhuan Zhuan Holding, adopted its 2017 Share Incentive Plan in September 2017, or the Zhuan Zhuan 2017 Plan. The Zhuan Zhuan 2017 Plan permits the grant of options, restricted shares, restricted share units to the directors, employees and consultants of Zhuan Zhuan Holding. In October 2019, Zhuan Zhuan Holding adopted a share incentive plan, or the Zhuan Zhuan 2019 Plan, permitting the grant of share-based compensation awards to employees, consultants and directors of Zhuan Zhuan Holding and of any present or future parents or subsidiaries or variable interest entities of Zhuan Zhuan Holding.

We estimated the fair value of share options using the binominal option-pricing model with the assistance from an independent valuation firm.

Determining the fair value of our ordinary shares required us to make complex and subjective judgments, assumptions and estimates, which involved inherent uncertainty. Had our management used different assumptions and estimates, the resulting fair value of our ordinary shares and the resulting share-based compensation expenses could have been different.

Restricted share units

RSUs issued to our employees are measured based on the grant date fair value of the underlying ordinary shares and recognized as compensation expense based on the straight-line vesting method, net of estimated forfeitures, over the requisite service period, with a corresponding impact reflected in additional paid-in capital.

Recent Accounting Pronouncements

See Item 17 of Part III, “Financial Statements—Note 2—Summary of significant accounting policies— Recently issued accounting pronouncements.”

Results of Operations

The following table sets forth our consolidated results of operations for the periods indicated. Our business has experienced rapid growth since inception. We expect our growth to continue as we grow our user base and explore new market opportunities. However, due to our limited operating history, our historical growth rate may not be indicative of our future performance. Therefore, we believe that period-to-period comparison of our results of operation should not be relied upon as indicative of future performance.

We have consolidated Anjuke since March 2015 and Ganji since August 2015.

58 Home, a subsidiary that operates a mobile-based transactional platform for home services, has been de-consolidated from our consolidated financial results following its series A financing since November 27, 2015. We shared 87.9% net loss of 58 Home according to the ordinary share ownership since November 27, 2015. Since January 2018, the carrying amount of our investment in 58 Home ordinary shares was reduced to zero as a result of the accumulated losses picked up from 58 Home. We continued to share net loss in 58 Home to the extent of our investment in 58 Home’s preference share ownership at 3.3% since January 2018 and started to share net loss of 58 Home at 5.0% when 58 Freight Inc. completed its equity financing in August 2018.

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Guazi, a subsidiary that operates our C2C used car trading platform, was de-consolidated on December 31, 2015. As our investment in Guazi was accounted for using cost method, and measurement alternative since we adopted ASU 2016-01 since January 1, 2018, we did not recognize a proportionate share of the reported earnings or losses of Guazi for the years ended December 31, 2017, 2018 and 2019.

Prior to the dates when these businesses were de-consolidated, their financial results were part of our consolidated financial results.

The following table sets forth our results of operations for the years ended December 31, 2017, 2018 and 2019:

For the Year Ended December 31,

    

2017

    

2018

    

2019

RMB

RMB

RMB

    

US$

(in thousands)

Revenues

10,068,780

13,137,815

15,576,523

2,232,809

Cost of revenues(1)

 

(925,497)

 

(1,437,795)

 

(1,798,407)

(257,792)

Gross profit

 

9,143,283

 

11,700,020

 

13,778,116

1,975,017

Operating expenses(1):

 

  

 

  

 

Sales and marketing expenses

 

(5,212,360)

 

(6,861,845)

 

(8,049,662)

(1,153,875)

Research and development expenses

 

(1,368,441)

 

(1,702,748)

 

(2,058,663)

(295,098)

General and administrative expenses

 

(766,017)

 

(748,766)

 

(817,302)

(117,156)

Total operating expenses

 

(7,346,818)

 

(9,313,359)

 

(10,925,627)

(1,566,129)

Income from operations

 

1,796,465

 

2,386,661

 

2,852,489

408,888

Other income/(expenses), net

 

(260,534)

 

42,102

 

6,427,071

921,286

Income before income tax

 

1,535,931

 

2,428,763

 

9,279,560

1,330,174

Income taxes expenses

 

(146,689)

 

(299,705)

 

(834,334)

(119,597)

Net income

 

1,389,242

 

2,129,058

 

8,445,226

1,210,577

Note:

(1) Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:

For the Year Ended December 31,

    

2017

    

2018

    

2019

RMB

RMB

RMB

    

US$

(in thousands)

Cost of revenues

3,278

6,354

7,743

1,110

Sales and marketing expenses

 

69,926

 

90,919

 

109,011

15,626

Research and development expenses

 

126,116

 

182,410

 

208,273

29,855

General and administrative expenses

 

151,249

 

183,191

 

219,675

31,489

Total

 

350,569

 

462,874

 

544,702

78,080

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The following table sets forth the results of operations for the periods indicated, as percentages of revenues:

For the Year Ended December 31,

    

2017

    

2018

    

2019

(% of revenues)

Revenues

100.0

100

100

Cost of revenues

 

(9.2)

 

(10.9)

 

(11.5)

Gross profit

 

90.8

 

89.1

 

88.5

Operating expenses:

 

  

 

  

 

Sales and marketing expenses

 

(51.8)

 

(52.2)

 

(51.7)

Research and development expenses

 

(13.6)

 

(13.0)

 

(13.2)

General and administrative expenses

 

(7.6)

 

(5.7)

 

(5.2)

Total operating expenses

 

(73.0)

 

(70.9)

 

(70.1)

Income from operations

 

17.8

 

18.2

 

18.3

Other income/(expenses), net

 

(2.6)

 

0.3

 

41.3

Income before income tax

 

15.2

 

18.5

 

59.6

Income tax expenses

 

(1.4)

 

(2.3)

 

(5.4)

Net income

 

13.8

 

16.2

 

54.2

Comparison of the Years Ended December 31, 2017, 2018 and 2019

Revenues

The following table sets forth the principal components of our revenues, both as absolute amounts and as percentages of total revenues, and year-over-year changes, for the periods indicated.

For the Year Ended December 31,

2017

2018

2019

2018 vs. 2017

2019 vs. 2018

    

    

% of

    

    

% of

    

    

    

% of

    

% of

    

% of

    

RMB

    

revenue

    

RMB

    

revenue

    

RMB

    

US$

    

revenue

    

change

    

change

(in thousands, except for % data)

Membership

3,789,524

37.6

4,399,058

33.5

4,470,916

640,881

28.7

16.1

1.6

Online marketing services

 

5,978,491

59.4

8,282,593

63.0

10,158,442

1,456,157

65.2

38.5

22.6

E-commerce services

 

73,941

0.7

72,596

0.6

266,848

38,251

1.7

(1.8)

267.6

Other revenues

 

226,824

2.3

383,568

2.9

680,317

97,520

4.4

69.1

77.4

Total revenues

 

10,068,780

100.0

13,137,815

100.0

15,576,523

2,232,809

100.0

30.5

18.6

Membership

Membership revenues were RMB3.8 billion, RMB4.4 billion and RMB4.5 billion, representing 37.6%, 33.5% and 28.7% of revenues in 2017, 2018 and 2019, respectively. The increase in membership revenues was primarily driven by an increase in the number of subscription-based paying membership accounts and increase in prices of membership services sold. See “Item 4. Information on the Company — B. Business Overview — 58 Core Business Service Offerings – 58 Core Business Services for business users – Paid premium services to business users – Subscription-based membership services” for details of subscription-based paying membership.

2019 compared to 2018. Our membership revenues increased from RMB4.4 billion in 2018 to RMB4.5 billion in 2019, a slight increase of 1.6%. Changes to the price and volume of membership subscriptions were modest in 2019.

2018 compared to 2017. Our membership revenues increased from RMB3.8 billion in 2017 to RMB4.4 billion in 2018, representing an increase of 16.1%. The increase was primarily driven by an increase in the number of subscription-based paying membership accounts and an increase in prices of membership services sold. We experienced growth in the number of subscription-based paying membership accounts across most of the content categories, particularly in our real estate and jobs categories in 2018. Subsequent to the Ganji transaction in 2015, we continued to reduce discounts for both 58 and Ganji brands, which contributed to the increase in net price of membership across all categories. We also raised list prices for jobs category membership packages in the first quarter of 2018 when our traffic grows rapidly and the market was overall positive.

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Online Marketing Services

Revenues from online marketing services were RMB6.0 billion, RMB8.3 billion and RMB10.2 billion, representing 59.4%, 63.0% and 65.2% of our revenues in 2017, 2018 and 2019, respectively. In addition to subscription-based membership services, which we position as a basic entry-level package services for business users, we aspire to provide various additional online marketing services to meet the customers’ various needs typically beyond what have already been addressed by subscription-based membership services. Online marketing services are generally more flexible to meet needs for customers of different scales, at different times and in different ways. In addition, we continue to try to better leverage technology, including our big data and AI capability, and product design to improve matching between users and information in order to help our business users get more traffic and higher quality leads from their marketing efforts. These innovative and effective services have continued to attract more business users and increased average spending per paying user, which also enhances our ability to more efficiently monetize our substantial traffic. Therefore, while developing and retaining subscription-based members is important, growing online marketing services is of higher priority, and where we will continue to dedicate relatively more resources, especially on products and research and development. See “Item 4. Information on the Company — B. Business Overview — 58 Core Business Service Offerings – 58 Core Business Services for business users – Paid premium services to business users – Online marketing services” for details of online marketing services.

2019 compared to 2018. Our online marketing services revenues increased from RMB8.3 billion in 2018 to RMB10.2 billion in 2019, representing an increase of 22.6%. The increase was primarily due to the increase of our online marketing service paying business users and the increasing adoption and effectiveness of our various online marketing services such as real-time bidding, priority listing and various other online marketing services.

2018 compared to 2017. Our online marketing services revenues increased from RMB6.0 billion in 2017 to RMB8.3 billion in 2018, representing an increase of 38.5%. The increase was primarily driven by the increase of our online marketing service paying business users and the increasing adoption and effectiveness of our various online marketing services such as real-time bidding, priority listing and various other online marketing services.

E-commerce Services

Revenues from e-commerce services were RMB73.9 million, RMB72.6 million and RMB266.8 million, representing approximately 0.7%, 0.6% and 1.7% of our revenues in 2017, 2018 and 2019, respectively, all of which were contributed by primary real estate projects.

Other Revenues

Other revenues were RMB226.8 million, RMB383.6 million and RMB680.3 million, representing approximately 2.3%, 2.9% and 4.4 % of our total revenues in 2017, 2018 and 2019, respectively. Our other revenues primarily consist of revenues from selling used goods and services on Zhuan Zhuan, our online used goods trading platform, and offline recruitment services through ChinaHR.

Cost of Revenues

Cost of revenues primarily consists of (i) costs of goods sold and services rendered in various platforms of the Company, (ii) traffic acquisition cost paid to 58.com advertising union partner, and (iii) expenses associated with the operation of platforms, such as data center bandwidth fees, depreciation and maintenance expenses for computers, servers and other equipment, short message services (“SMS”) costs, salaries, bonuses, benefits and share-based compensation expense relating to web operation and information quality control personnel.

We expect that our cost of revenues will increase in absolute amounts as we further grow our user base and expand our revenue-generating services.

For the share-based compensation charges included in cost of revenues, see “— Critical Accounting Policies — Share-Based Compensation” for more information.

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2019 compared to 2018. Our cost of revenues was RMB1,798.4 million in 2019, an increase of 25.1 % from RMB1,437.8 million in 2018. The increase in cost of revenues was primarily driven by increases in the costs of goods and services provided on Anjuke, Zhuan Zhuan and other platforms, salaries and benefits primarily for information quality control teams, traffic acquisition costs paid to 58.com’s advertising union partners and other costs related to web operations.

2018 compared to 2017. Our cost of revenues was RMB1,437.8 million in 2018, an increase of 55.4% from RMB925.5 million in 2017. The increase in cost of revenues was primarily driven by increases in costs of goods and services sold on Zhuan Zhuan, Anjuke and ChinaHR platforms, traffic acquisition costs paid to 58’s advertising union partners and salaries and benefits primarily for information quality control teams.

Gross Profit

The following table sets forth our gross profit and gross margin for the periods indicated:

For the Year Ended December 31,

 

2017

2018

2019

 

    

RMB

    

RMB

    

RMB

    

US$

 

(in thousands, except for % data)

 

Gross profit

9,143,283

11,700,020

13,778,116

1,975,017

Gross margin

 

90.8

%  

89.1

%  

88.5

%  

88.5

%

2019 compared to 2018. Our gross profit increased from RMB11.7 billion in 2018 to RMB13.8 billion in 2019, representing an increase of 17.8%. The increase in gross profit was primarily attributable to the increases in online marketing services revenues and other revenues, while our gross margin for 2019 slightly decreased compared with 2018, which was mainly due to the revenues generated from business with relatively low gross margin, such as Zhuan Zhuan's revenues in other revenues and Anjuke's revenues in e-commerce services, which have been growing faster than other core business revenues.

2018 compared to 2017. Our gross profit increased from RMB9.1 billion in 2017 to RMB11.7 billion in 2018, representing an increase of 28.0%. The increase in gross profit was primarily attributable to the increases in membership revenues and online marketing services revenues, while our gross margin for 2018 slightly decreased compared with 2017.

Operating Expenses

Our operating expenses consist of sales and marketing expenses, research and development expenses and general and administrative expenses. The following table sets forth our operating expenses, both as absolute amounts and as percentages of our revenues, and year-over-year changes, for the periods indicated.

For the Year Ended December 31,

2017

2018

2019

2018 vs. 2017

2019 vs. 2018

% of

% of

% of

% of

% of

    

RMB

    

revenue

    

RMB

    

revenue

    

RMB

    

US$

    

revenue

    

change

    

change

(in thousands, except for % data)

Sales and marketing expenses

5,212,360

51.8

6,861,845

52.2

8,049,662

1,153,875

51.7

31.6

17.3

Research and development expenses

 

1,368,441

13.6

1,702,748

13.0

2,058,663

295,098

13.2

24.4

20.9

General and administrative expenses

 

766,017

7.6

748,766

5.7

817,302

117,156

5.2

(2.3)

9.2

Total operating expenses

 

7,346,818

73.0

9,313,359

70.9

10,925,627

1,566,129

70.1

26.8

17.3

Our sales and marketing expenses, research and development expenses and general and administrative expenses include share-based compensation charges. See “— Critical Accounting Policies — Share-Based Compensation” for more information.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of advertising expenses and non-advertising expenses.

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Advertising expenses include online traffic acquisition expenses from mobile and PC channels, including pre-installation of apps in smart phones, fees paid for app downloads from OEM and third-party app markets and various other platforms, including new feed and search engines and offline brand advertising which are mainly for attracting consumer users. See “Item 4. Information on the Company — B. Business Overview — Marketing and Brand Promotion” for more details.

Non-advertising sales and marketing expenses include salaries, benefits, commissions and share-based compensation for our sales, sales support, customer service, marketing dealer management personnel, online and offline promotion expenses and other operating expenses that are associated with sales and marketing activities. See “Item 4. Information on the Company — B. Business Overview — Sales and Customer Services” for more details.

The following table sets forth our advertising expenses, non-advertising sales and marketing expenses and total sales and marketing expenses, both as absolute amounts and as percentages of our revenues, and year-over-year changes, for the periods indicated.

For the Year Ended December 31,

2017

2018

2019

2018 vs. 2017

2019 vs. 2018

% of

% of

% of

% of

% of

    

RMB

    

revenue

    

RMB

    

revenue

    

RMB

    

US$

    

revenue

    

change

    

change

(in thousands, except for % data)

Advertising expenses

2,087,066

20.8

3,309,560

25.2

3,717,505

532,884

23.9

58.6

12.3

Non-advertising sales and marketing expenses

 

3,125,294

31.0

3,552,285

27.0

4,332,157

620,991

27.8

13.7

22.0

Total sales and marketing expenses

 

5,212,360

51.8

6,861,845

52.2

8,049,662

1,153,875

51.7

31.6

17.3

Since the consolidation of Ganji in August 2015, as competition in online classifieds space subsided, we have been exercising tighter control on advertising expenses and sales and services headcount increase and focusing more on platform product-driven enhancement and providing better tools and management guidance to increase the efficiency of the teams. However, in recent years, the competition on user acquisition, especially for app users, has increased in the broader internet sector in China. To support longer term platform growth, we will continue to make appropriate sales and marketing investments in different business lines depending on the stage of the businesses and market environment, while we continue to make progress on sales and customer service automation and customer self-serve products to increase our sales and customer service teams’ efficiency. The sales and marketing expenses as a percentage of revenues were 51.8%, 52.2% and 51.7% for the years ended December 31, 2017, 2018 and 2019, respectively.

The advertising expenses charged by Tencent, a related party of our company, amounted to RMB422.3 million, RMB621.6 million and RMB800.4 million for the years ended December 31, 2017, 2018 and 2019, respectively.

We expect that our sales and marketing expenses will increase in absolute amounts going forward as we continue to see opportunities in attracting more users and launch new services, particularly on mobile internet through our advertising campaigns.

2019 compared to 2018. Our sales and marketing expenses increased from RMB6.9 billion in 2018 to RMB8.0 billion in 2019, representing an increase of 17.3%. Our advertising expenses increased from RMB3.3 billion in 2018 to RMB3.7 billion in 2019, representing an increase of 12.3%, which was primarily due to an increase in mobile traffic acquisition expenses, particularly for mobile apps such as 58.com and Anjuke, which are part of our core business. Our non-advertising sales and marketing expenses increased from RMB3.6 billion in 2018 to RMB4.3 billion in 2019, representing an increase of 22.0%. The increase was primarily related to an increase in marketing and promotional expenses for 58.com newer platforms such as 58 Town and Zhuan Zhuan, partially offset by a decrease in salaries for employees in sales, customer service and marketing functions and commissions. The average quarter end number of employees in sales, customer service and marketing functions has decreased 3.4% from 16,237 in 2018 to 15,679 in 2019.

2018 compared to 2017. Our sales and marketing expenses increased from RMB5.2 billion in 2017 to RMB6.9 billion in 2018, representing an increase of 31.6%. Our advertising expenses increased from RMB2.1 billion in 2017 to RMB3.3 billion in 2018, representing an increase of 58.6%, which was primarily due to an increase in mobile traffic acquisition expenses, particularly for mobile apps such as 58, Anjuke and Zhuan Zhuan. Our non-advertising sales and marketing expenses increased from RMB3.1 billion in 2017 to RMB3.6 billion in 2018, representing an increase of 13.7%. The increase was primarily related to field sales and customer service personnel commissions and salaries for core businesses and marketing and promotional expenses for relatively newly incubated businesses such as 58 Town and Zhuan Zhuan. The average quarter end number of employees in sales, customer service and marketing functions has decreased 5.2% from 17,125 in 2017 to 16,236 in 2018.

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Research and Development Expenses

Research and development expenses mainly consist of salaries, benefits and share-based compensation for product development and engineering personnel and other operating expenses such as rental and depreciation of equipment that are associated with product development and engineering activities.

We expect our research and development expenses to increase in absolute amounts as we intend to hire additional research and development personnel to develop new features, applications and services for our online platforms and further improve our technologies and infrastructure. See “Item 4. Information on the Company — B. Business Overview — Technology” for details of the technology aspect of the business.

2019 compared to 2018. Research and development expenses increased from RMB1.7 billion in 2018 to RMB2.1 billion in 2019, representing an increase of 20.9%. The increase was primarily attributable to increases in salaries and benefits and share-based compensation expenses for our research and development personnel for the development of new features and services.

2018 compared to 2017. Research and development expenses increased from RMB1.4 billion in 2017 to RMB1.7 billion in 2018, representing an increase of 24.4%. The increase was primarily attributable to increases in salaries and benefits and share-based compensation expenses as a result of increases in salary and bonus and growth in headcount of our research and development personnel for the development of new features and services.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and share-based compensation for our general and administrative personnel, general office expenses and fees and expenses for third-party professional services.

We expect our general and administrative expenses to increase in absolute amounts in the future as our business grows.

2019 compared to 2018. Our general and administrative expenses increased from RMB748.8 million in 2018 to RMB817.3 million in 2019, representing an increase of 9.2%. The increase was primarily driven by increases in share-based compensation expenses and salaries and benefits for administrative personnel.

2018 compared to 2017. Our general and administrative expenses were RMB748.8 million in 2018, which was generally stable compared with RMB766.0 million in 2017.

Income from operations

The following table sets forth our operating profit and operating margin for the periods indicated:

For the Year Ended December 31,

 

2017

2018

2019

 

    

RMB

    

RMB

    

RMB

    

US$

 

(in thousands, except for % data)

 

Income from operations

1,796,465

2,386,661

2,852,489

408,888

Operating margin

 

17.8

%  

18.2

%  

18.3

%  

18.3

%

We had an operating income of RMB2.9 billion for 2019, compared with RMB2.4 billion for 2018 and RMB1.8 billion for 2017. Our operating margin was 18.3% for 2019, compared with the operating margin of 18.2% and 17.8%, respectively, for 2018 and 2017. The increase in our operating profit and operating margin was primarily due to the significant increase in revenues and more stringent control in costs and expenses.

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Other income/(expenses), net

Other income/(expenses), net mainly consisted of share of results of equity investees, investment income/(loss), net, interest income and expenses, gain on disposal of businesses, government subsidies and foreign currency exchange gain/(loss).

We had net other expenses of RMB260.5 million for the year ended December 31, 2017. For the year ended December 31, 2018 and 2019, we had net other income of RMB42.1 million and RMB6.4 billion, respectively.

Net other income in 2019 mainly included RMB6.1 billion in net investment income and RMB217.9 million in tax refunds and other government subsidies. Within net investment income was a RMB6.1 billion gain recognized for the sale of a portion of equity stake in Che Hao Duo, of which RMB4.8 billion was realized gains for the portion sold and RMB1.4 billion was unrealized gains arising from remeasuring the fair value of the remaining equity stake in Che Hao Duo. We accounted for this investment using the measurement alternative method. The change in fair value of this investment is recognized because the sale of a portion of equity stake in Che Hao Duo is considered to be an observable price change event.

Net other income in 2018 mainly included investment income of RMB194.1 million from short-term commercial bank investment products we purchased with our surplus cash, partially offset by loss in change in fair value of long-term investments of RMB139.3 million, which was primarily due to a decrease in share price of a 5i5j, a publicly traded company in which we hold a minority stake, and share of loss of equity investees amounted to RMB91.5 million, which was primarily related to loss pick-up from 58 Home, our non-consolidated subsidiary.

Loss pick-up in 58 Home decreased significantly in 2018 largely because of the change in the percentage of ownership used in calculating the loss pick-up. We shared 87.9% net loss of 58 Home according to the ordinary share ownership since November 27, 2015. Since January 2018, the carrying amount of our investment in 58 Home ordinary shares was reduced to zero as a result of the accumulated losses picked up from 58 Home. We continued to share net loss in 58 Home to the extent of our investment in 58 Home’s preference share ownership at 3.3% since January 2018 and started to share net loss of 58 Home at 5.0% when 58 Freight Inc. completed its equity financing in August 2018.

Net other expenses in 2017 was mainly a RMB687.4 million share of loss of equity investees, which primarily consisted of a RMB663.2 million share of the net loss attributable to 58 Home’s ordinary shareholders calculated based on our company’s ordinary shareholding in 58 Home, partially offset by investment income of RMB342.2 million from disposal of long-term investments and short-term commercial bank investment products we purchased with our surplus cash and government subsidies of RMB81.4 million.

Income tax expenses

Income tax expense was RMB834.3 million for the year ended December 31, 2019, compared RMB299.7 million and RMB146.7 million for the year ended December 31, 2018 and 2017, respectively. The significant increase in income tax expense in 2017, 2018 and 2019 is due to significant increases in our profits.

Net income

As a result of the foregoing, we had a net income of RMB8.4 billion for 2019, compared to a net income of RMB2.1 billion and RMB1.4 billion, respectively, for 2018 and 2017. Net income for the year ended December 31, 2019 would have been RMB2,827.8 million if the gain from the sale of a portion of equity stake and revaluation of the remaining equity stake in Che Hao Duo and the related income tax expenses were excluded.

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Seasonality

We experience seasonality in our business. Throughout a year, our traffic and revenues are typically lower during the extended holiday periods in China, particularly during the Chinese New Year, which always occurs in the first quarter. Large number of migrant workers working in cities and towns return to their hometown in rural areas in China during Chinese New Year holiday period. Many businesses close or substantially reduce their activities, including hiring and marketing, during this period. Job search and rental home search activities also slow down substantially during the Chinese New Year. Even though these activities typically rebound very strongly after the Chinese New Year holiday, the short peak traffic period cannot offset the lower revenue during the holiday. Therefore, our revenues for the first quarter typically decrease substantially from the fourth quarter of the prior year and our revenues for the second quarter typically increase substantially from the first quarter. In addition, the Chinese New Year is based on the Chinese Lunar Calendar and falls on a different date each year. Therefore, our year over year growth of our first quarter revenues also depends on which date the Chinese New Year falls.

Due to our limited operating history, the seasonal trends that we have experienced in the past may not apply to, or be indicative of, our future operating results.

Inflation

Since our inception, inflation in China 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 2017, 2018 and 2019 were increases of 1.6%, 2.1% and 2.9%, 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 China. 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 consist of cash and cash equivalents, term deposits 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.

Impact of Foreign Currency Fluctuation

See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk — Foreign Exchange Risk.”

Impact of Governmental Policies

See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China” and “Item 4. Information on the Company — B. Business Overview — Regulation.”

B.         Liquidity and Capital Resources

Cash Flows and Working Capital

Our principal sources of liquidity have been financing activities and operating activities.

Our financing activities in the past three years include various loan borrowings. In April 2017, we fully repaid a US$275.0 million loan from China Merchants Bank, Co., Ltd. or CMB Bank, that we obtained in April 2016 and the 12.4 million Class B ordinary shares, owned by Mr. Jinbo Yao, our chairman of board of directors and chief executive office and pledged as security were released accordingly. In April 2019, we fully repaid a US$107.5 million loan from CMB Bank that we obtained in April 2017, which was secured by a two-year RMB-denominated term deposit amounted to RMB792.0 million, using our own funds. As of December 31, 2019, we have no outstanding bank borrowings.

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We have also sought additional financings to improve our liquidity position. On September 9, 2019, Zhuan Zhuan Holding, one of our subsidiaries, entered into definitive agreements with a group of investors, including its existing shareholders such as our Company and Tencent, for its series B round of financing of approximately US$200 million in cash and additional business resources. As of December 31, 2019, US$170 million of the cash consideration has received.

We had net cash provided by operating activities of RMB2.8 billion, RMB3.8 billion and RMB4.4 billion in 2017, 2018 and 2019, respectively. The increase in net cash provided by operating activities in 2018 and 2019 was primarily contributed by increased revenues and improved cost control after Anjuke’s and Ganji’s businesses were fully integrated into our own.

As of December 31, 2019, we had cash and cash equivalents, term deposits, restricted cash and short-term investments totaling RMB14.3 billion. These included (i) RMB 5.3 billion in cash and cash equivalents, which primarily consisted of cash, demand deposits and highly liquid investments placed with banks or other financial institutions that have original maturities of three months or less, (ii) RMB477.1 million in restricted cash, which primarily consisted of cash legally restricted from withdrawal and cash pledged with commercial banks as guarantee for short-term bank borrowings by a related party of us, (iii) RMB8.4 billion in short-term investments, placed with banks with terms from three months to one year, and (iv) RMB70.0 million in term deposits, placed with banks with terms over three months.

As of December 31, 2019, our current assets exceeded our current liabilities by RMB10.0 billion, and we had retained earnings of RMB8.9 billion. For the year ended December 31, 2019, we had a net income attributable to 58.com Inc. ordinary shareholders of RMB8.3 billion.

Our ability to continue as a going concern is dependent on our ability to successfully execute our business plan, which includes increasing revenues while controlling operating expenses, as well as generating cash flows from operating activities. We believe our current cash and cash equivalents and anticipated cash flow from operations provide sufficient funds to meet the working capital requirements to fund planned operations and other commitments for at least the next 12 months from the date of this annual report. We may, however, need additional cash resources in the future if we experience changes in business, financial conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand, we may seek to issue debt or equity securities or obtain additional credit facilities.

Although we consolidate the results of our consolidated variable interest entities and their subsidiaries, our access to cash balances or future earnings of these entities is only through our contractual arrangements with them and their shareholders. See “Item 4. Information on the Company — C. Organizational Structure — Our Contractual Arrangements” and “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — PRC regulation of direct investment and loans by offshore holding companies to PRC entities and governmental control of currency conversion may delay or limit us from using the proceeds of our securities offerings to make additional capital contributions or loans to our PRC subsidiaries.”

Cash Flow

The following table sets forth a summary of our cash flows for the periods indicated.

For the Year Ended December 31,

2017

2018

2019

    

RMB

    

RMB

    

RMB

    

US$

(in thousands, except for % data)

Net cash provided by/(used in):

Operating activities

 

2,779,880

 

3,799,581

 

4,354,420

624,184

Investing activities

 

(3,210,290)

 

(3,086,965)

 

(1,769,651)

(253,671)

Financing activities

 

571,076

 

46,920

 

19,300

2,766

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

 

(82,731)

 

29,610

 

(33,242)

(4,765)

Net increase in cash, cash equivalents and restricted cash

 

57,935

 

789,146

 

2,570,827

368,514

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Operating Activities

Net cash provided by operating activities was RMB4.4 billion in 2019. Our net cash provided by operating activities in 2019 reflected a net income of RMB8.4 billion, adjusted by (i) the add back of non-cash items mainly consisting of share-based compensation expenses of RMB544.7 million, depreciation and amortization expenses of RMB399.7 million, lease expenses to reduce right-of-use assets of RMB147.4 million, change in deferred income taxes of RMB50.1 million, allowance for doubtful accounts of RMB33.0 million, foreign currency exchange loss of RMB17.6 million, impairment loss of long-term investments of RMB14.4 million, share of results of equity investees of RMB9.4 million, and (ii) partially offset by gain from investment income of RMB4.8 billion, change in fair value of long-term investments and investment in convertible notes of RMB1.1 billion. The RMB615.7 million increase in operating assets and liabilities, net of acquisitions and disposals mainly arises from an increase in taxes payable of RMB531.8 million, an increase in customer advances of RMB426.4 million, an increase in accrued expenses and other liabilities of RMB244.5 million, an increase in accounts payable of RMB168.7 million, an increase of salary and welfare payable of RMB111.9 million, partially offset by an increase in accounts receivable of RMB377.8 million, a decrease in deferred revenues of RMB193.4 million, an increase in prepayments and other assets of RMB149.5 million, and a decrease in operating lease liabilities of RMB147.0 million.

Net cash provided by operating activities was RMB3.8 billion in 2018. Our net cash provided by operating activities in 2018 reflected a net income of RMB2.1 billion, adjusted by (i) the add back of non-cash items mainly consisting of share-based compensation expenses of RMB462.9 million, depreciation and amortization expenses of RMB413.1 million, fair value change of long-term investments of RMB139.3 million, share of results of equity investees of RMB91.5 million, impairment loss of long-term investments of RMB40.0 million, allowance for doubtful accounts of RMB6.0 million, and (ii) partially offset by change in deferred income taxes of RMB70.4 million, gain from investment income of RMB24.3 million, income from disposal of property and equipment of RMB3.2 million, and foreign currency exchange income of RMB0.6 million. The RMB585.0 million increase in operating assets and liabilities, net of acquisitions and disposals mainly arises from an increase in accounts payable of RMB268.8 million, an increase in deferred revenues of RMB224.6 million, an increase in salary and welfare payable of RMB106.5 million, an increase in customer advances of RMB99.6 million, an increase in taxes payable of RMB64.2 million, a decrease in prepayment and other assets of RMB52.7 million, an increase in accrued expenses and other liabilities of RMB29.8 million, partially offset by an increase in accounts receivable of RMB261.2 million.

Net cash provided by operating activities was RMB2.8 billion in 2017. Our net cash provided by operating activities in 2017 reflected a net income of RMB1.4 billion, adjusted by (i) the add back of non-cash items mainly consisting of share of results of equity investees of RMB687.4 million, depreciation and amortization expenses of RMB435.6 million, share-based compensation expenses of RMB350.6 million, impairment loss of long-term investments and other non-current assets of RMB37.3 million, allowance for doubtful accounts of RMB16.8 million, and (ii) partially offset by gain from investment income of RMB319.7 million and change in deferred income taxes of RMB65.8 million. The RMB197.0 million increase in operating assets and liabilities, net of acquisitions and disposals mainly arises from an increase in deferred revenues of RMB285.4 million, an increase in accrued expenses and other liabilities of RMB238.6 million, an increase in customer advances of RMB129.4 million, an increase in taxes payable of RMB122.7 million, an increase in accounts payable of RMB40.5 million, partially offset by an increase in prepayment and other assets of RMB345.3 million, an increase in accounts receivable of RMB260.3 million and a decrease in salary and welfare payable of RMB13.9 million.

Investing Activities

Net cash used in investing activities primarily consists of long-term investments and business acquisitions, purchase of office equipment, investment in short-term financial instruments and term deposits to increase the interest income for our excess cash. We expect that our capital expenditures will increase as we purchase additional equipment and servers and expand our technology infrastructure to support the growth of our business.

Our net cash used in investing activities in 2019 was RMB1.8 billion, primarily due to RMB38.7 billion used in the purchase of short-term commercial bank investment products, RMB2.2 billion used in the purchase of long-term investments, RMB116.8 million used in the purchase of property and equipment and intangible assets, RMB70.0 million used in the purchase of term deposits, RMB38.4 million paid for acquisitions of other subsidiaries, and RMB5.2 million loss on disposal of businesses, which were partially offset by RMB34.9 billion of proceeds from maturity of short-term commercial bank investment products, and RMB4.4 billion received from disposal of long-term investments.

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Our net cash used in investing activities in 2018 was RMB3.1 billion, primarily due to RMB26.5 billion used in the purchase of short-term commercial bank investment products, RMB1.8 billion used in the purchase of long-term investments, RMB183.7 million used in the purchase of property and equipment and intangible assets, and RMB9.8 million paid for acquisitions of other subsidiaries, net of acquisition of cash, which were partially offset by RMB25.3 billion of proceeds from maturity of short-term commercial bank investment products, RMB22.0 million received due to deconsolidation and disposal of businesses, and RMB16.5 million received from disposal of long-term investments.

Our net cash used in investing activities in 2017 was RMB3.2 billion, primarily due to RMB18.5 billion used in the purchase of short-term commercial bank investment products, RMB467.4 million used in the purchase of long-term investments, RMB330.2 million decrease due to deconsolidation and disposal of businesses, RMB121.3 million used in the purchase of property and equipment and intangible assets, RMB91.9 million paid for step-acquisition of Ganji, net of acquisition of cash, and RMB15.8 million paid to term deposits and other advances, which were partially offset by RMB15.9 billion of proceeds from maturity of short-term commercial bank investment products, RMB353.5 million received from disposal of long-term investments, and RMB61.2 million proceeds from maturity of term deposits.

Financing Activities

Net cash provided by financing activities primarily consists of net proceeds from the issuance of ordinary and preference shares as well as borrowing from an existing shareholder.

Our net cash provided by financing activities in 2019 was RMB19.3 million, and primarily consisted of RMB825.6 million of proceeds from the issuance of preferred shares by Zhuan Zhuan to Tencent and other companies, RMB588.8 million of proceeds from short-term loans, RMB118.0 million of capital injection from noncontrolling shareholders, and RMB4.1 million proceeds from exercise of share options, which were partially offset by RMB1.4 billion repayment of short-term loans to commercial banks, RMB81.3 million paid on behalf of a related party, and RMB28.1 million paid for acquisition of noncontrolling interests, net of acquisition of cash.

Our net cash provided by financing activities in 2018 was RMB46.9 million, and primarily consisted of RMB82.4 million received on behalf of a related party, RMB80.0 million of capital injection from a noncontrolling interest shareholder, and RMB13.5 million proceeds from exercise of share options, which were partially offset by RMB75.0 million repayment of loan to Pudong Bank and RMB49.8 million paid for acquisitions of noncontrolling interests, net of acquisition of cash.

Our net cash provided by financing activities in 2017 was RMB571.1 million, and primarily consisted of RMB1.4 billion proceeds from the issuance of preferred shares by Zhuan Zhuan to Tencent, RMB740.1 million of proceeds from long-term loans, RMB164.6 million contribution from noncontrolling interest holders, and RMB100.9 million proceeds from exercise of share options, which was partially offset by RMB1.8 billion repayment of short-term loans to CMB Bank.

Capital Expenditures

We had capital expenditures of RMB121.3 million, RMB183.7 million and RMB116.8 million in 2017, 2018 and 2019, respectively. Our capital expenditures were primarily for the purchase of servers and other equipment. Our capital expenditures have been primarily funded by net cash provided by financing activities and operating activities.

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Holding Company Structure

We are a holding company with no material operations of our own. We conduct our operations primarily through our wholly owned subsidiaries and consolidated variable interest entities in China. As a result, our ability to pay dividends to our shareholders depends upon dividends paid by our PRC subsidiaries. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our PRC subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and our consolidated variable interest entities 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, each of our subsidiaries and consolidated variable interest entities in China may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds at its discretion. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. Most of our PRC subsidiaries and consolidated variable interest entities have incurred accumulated losses. Our PRC subsidiaries have never paid dividends and do not plan to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.

C.           Research and Development

As of December 31, 2019, we had approximately 3,900 product development and engineering professionals who focus on developing products to deliver and enhance user experience. We have developed a robust technology platform capable of efficiently processing large amounts of data, screening the relevance and credibility of information, and delivering a superior search indexing function. Our system is built on a distributed, load balanced computing infrastructure, which is highly scalable and reliable. This allows us to expand processing capacity and add new features and functionalities efficiently without incurring significant additional costs.

Our success and ability to compete depend, in part, upon our ability to establish and adequately protect our intellectual property rights. In this regard, we rely primarily on a combination of patent, copyright, software registration, trademark, trade secret and unfair competition laws and contractual rights, such as confidentiality and license agreements with our employees, partners and others. As of March 31, 2020, we held 91 patents and had applied for the registration of 878 other patents, which cover a variety of technologies, including those relating to data processing, search, distribution and publishing. As of March 31, 2020, we had registered 366 computer software copyrights and 140 artwork copyrights in China, and had registered 43 domain names that are material to our business, including www.58.com, www.58.com.cn, www.ganji.com, www.ganji.com.cn, www.anjuke.com and www.anjuke.cn, and 2,173 trademarks, including GRAPHIC , GRAPHIC and GRAPHIC , in China, excluding those relating to 58 Home.

D.           Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period since January 1, 2019 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E.           Off-Balance Sheet Arrangements

In 2019, one of the PRC subsidiaries of Golden Pacer that operates the Finance Business borrowed RMB400 million with an interest rate of 4.25% per annum and one-year maturity from a third party Chinese local commercial bank. We have provided guarantees for the RMB400 million loan and deposited and pledged a total amount of RMB417 million to that bank as collateral against the loan. The borrower of the loan shall pay us RMB16 million guarantee service fees and reimburse us for any payment to the bank in case of its default on the loan. According to ASC 460, we recognized guarantee liabilities amounting to RMB16 million which equals to the fair values of the guarantees at their inception. The guarantee liabilities were recorded as other current liabilities in our consolidated balance sheets. We also recorded the RMB16 million guarantee service fees receivable as other current assets and the RMB417 million cash deposited and pledged with the bank as restricted cash-current, respectively in its consolidated balance sheets as of December 31, 2019.

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Except for the arrangements abovementioned, we have not entered into any other 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 serve 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.

F.           Tabular Disclosure of Contractual Obligations

We engaged third parties for promoting our brand image through various advertising channels, including advertising on internet search engines, platforms and other traditional off-line media. The amount of advertising commitments relates to the committed advertising services that have not been delivered and paid. As of December 31, 2019, future minimum advertising commitments under non-cancelable agreements were RMB73.8 million.

Our investment commitments primarily relate to capital contribution obligations under certain arrangements. The total investment commitments contracted but not yet reflected in the financial statements amounted to RMB80 million.

The following table sets forth our contractual obligations and commercial commitments as of December 31, 2019:

Payment Due by Period

    

Total

    

Less than 1 year

    

2–3 years

    

4–5 years

    

More than 5 years

(in thousands of RMB)

Advertising commitments

 

73,798

 

64,600

 

9,198

 

 

Investment commitment obligations

80,000

80,000

Total

 

153,798

 

144,600

 

9,198

 

 

Other than the contractual obligations set forth above, we do not have any contractual obligations that are long-term debt obligations, capital/(finance) lease obligations, purchase obligations or other long-term liabilities reflected on our balance sheet as of December 31, 2019.

G.           Safe Harbor

This annual report on Form 20-F contains forward-looking statements. These statements are made under the “safe harbor” provisions of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “confident” and similar statements. Among other things, the sections titled “Item 3. Key Information — D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects” in this annual report on Form 20-F, as well as our strategic and operational plans, contain forward-looking statements. We may also make written or oral forward-looking statements in our filings with the SEC, in our annual report to shareholders, in press releases and other written materials and in oral statements made by our officers, directors or employees to third parties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements and are subject to change, and such change may be material and may have a material and adverse effect on our financial condition and results of operations for one or more prior periods.

Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained, either expressly or implicitly, in any of the forward-looking statements in this annual report on Form 20-F. Potential risks and uncertainties include, but are not limited to, our goals and strategies, our future business development, financial condition and results of operations, ability to retain and grow our user base and network of business users for our online platforms, the growth of, and trends in, the markets for our services in China, the demand for and market acceptance of our brand and services, competition in our industry in China, our ability to maintain the network infrastructure necessary to operate our platforms and mobile apps, relevant government policies and regulations relating to the corporate structure, business and industry, and our ability to protect our users’ information and adequately address privacy concerns. All information provided in this annual report on Form 20-F and in the exhibits is as of the date of this annual report on Form 20-F, and we do not undertake any obligation to update any such information, except as required under applicable law.

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Item 6.                 Directors, Senior Management and Employees

A.           Directors and Senior Management

The following table sets forth information regarding our executive officers and directors as of the date of this annual report.

Directors and

Executive Officers

    

Age

    

Position/Title

Jinbo Yao

43

Chairman and Chief Executive Officer

Xiaoguang Wu

44

Director

Herman Yu

49

Independent Director

Chi (Eric) Zhang

44

Independent Director

Li (Lily) Dong

49

Independent Director

Robert Frank (Bob) Dodds Jr.

53

Independent Director

Jiandong Zhuang

51

Co-President

Mingke He

41

Co-President

Hao Zhou

44

President of International Business, Head of IR and Chief Strategic Officer

Wei Ye

47

Chief Financial Officer

Hongyu Xing

47

Chief Technology Officer

Minghui Xiang

40

Chief People Officer

Mr. Jinbo Yao is our founder and has served as chairman of our board of directors and chief executive officer of our company since our inception. Mr. Yao is a pioneer in the PRC internet industry. Before founding our company, in 2000, Mr. Yao founded domain.cn, a domain name transaction and value-added service website in China. After domain.cn was acquired by net.cn in September 2000, Mr. Yao served various managerial roles at net.cn including vice president of sales until 2005. Mr. Yao currently serves on the board of directors of Golden Pacer and two NYSE-listed companies, namely Noah Holdings Limited, a leading wealth and asset management service provider in China, and Cheetah Mobile Inc., a leading mobile internet company. Mr. Yao received bachelor’s degrees in computer science and chemistry from Ocean University of China (formerly known as Ocean University of Qingdao) in 1999.

Mr. Xiaoguang Wu has served as our director since August 2014. Mr. Wu has served as a senior management adviser at Tencent since June 2015. Mr. Wu joined Tencent in 1999 to lead development and product planning for Tencent’s core product QQ instant messaging. He served successively as project manager for QQ’s research and development team, general manager for IM Products, and general manager for the internet business division. Mr. Wu was promoted to senior vice president of Internet Services Division and chief executive officer of Tencent E-Commerce Holdings Limited. Mr. Wu also serves on the board of directors of Lexin Fintech Holdings Ltd., China Online Education Group, eLong, Inc., Wanda Electronic Commerce Technology Co., Ltd., Shanghai New Feifan E-commerce Co., Ltd. and Yixun.com. Mr. Wu received his bachelor’s degree in weather dynamics from Nanjing University in 1996 and an EMBA degree from China Europe International Business School (CEIBS) in 2008.

Mr. Herman Yu has served as an independent director since the listing of our company in October 2013. Mr. Yu is currently the chief financial officer of Baidu, Inc., the leading Chinese language Internet search provider listed on Nasdaq, and also serves as director at ZTO Express Inc, a leading express delivery company in China listed on the NYSE. Prior to joining Baidu in September 2017, Mr. Yu served as chief financial officer of Weibo Corporation, a leading social media listed on Nasdaq, from 2015 to 2017. From 2004 to 2015, Mr. Yu worked at Sina Corporation, a leading online media company serving China and the global Chinese communities listed on Nasdaq and served as its chief financial officer from 2007 to 2015. Mr. Yu began his career at Arthur Andersen and held various finance and accounting management positions at Adobe Systems Inc., Cadence Design Systems, Inc. and VeriFone Systems, Inc. Mr. Yu, a California Certified Public Accountant, received his bachelor’s degree in economics from the University of California, Santa Cruz, and master’s degree in accountancy from the University of Southern California.

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Mr. Chi (Eric) Zhang has served as our independent director and a member of the nominating and corporate governance committee of our board of directors since November 2015. Eric Zhang is a Managing Director at General Atlantic, which he joined in 2016. Mr. Zhang heads the Firm’s business in China. He serves on the boards of Futu, Kaiyuan, Bytedance, Xiabu Xiabu and Ocean Link. Mr. Zhang also serves on the Investment Committee of Ocean Voyage. Prior to joining General Atlantic, Mr. Zhang was a Global Partner and Managing Director at The Carlyle Group, where he focused on investment opportunities in Asia from 2006 to 2016. He is currently an independent director on the board of 58.com and has previously served on the boards of China Reading, SouFun, Yashili, Plateno Group, Crystal Orange Hotel Group, Asia Medical, NetEase Cloud Music, Today Inc., New Century Asset Management Co. Ltd. and AnNeng Logistics Group. He also served as a board member for both the general partner and the management company of Carlyle Beijing Partner – RMB Fund. Before joining Carlyle in 2006, Mr. Zhang was a Vice President of M&A at Credit Suisse, based in the firm’s Hong Kong office. Prior to that, he was a Vice President in the Investment Banking Division at China International Capital Corporation Limited in Beijing. Mr. Zhang received an M.A. in economics from Shanghai University of Finance and Economics.

Ms. Li (Lily) Dong has served as our independent director and a member of the audit committee and nominating and corporate governance committee of our board of directors since April 2020. Ms. Dong is currently an independent non-executive director, a member of the audit committee, the remuneration committee and the nomination committee of YiXin Group, a company listed on Hong Kong Stock Exchange. Ms. Dong joined YiXin Group in June 2017 and was appointed as independent non-executive director in November 2017. From August 2015 to June 2017, Ms. Dong was the chief financial officer of eDaijia, an online designated driver service provider. Prior to that, she served as the chief financial officer at RDA Microelectronics, Inc., a fabless semiconductor company previously listed on Nasdaq Global Select Market, from November 2007 to July 2015, and served as its director from January 2014 to July 2015. Prior to that, Ms. Dong worked for Hewlett-Packard in China since 1992, and was the Finance Operations Manager of Hewlett-Packard Technology (Shanghai) Co., Ltd. when she left in 2005. Ms. Dong received her bachelor's degree in economics from the Nanjing University of Sciences and Technology, and her executive master's degree in business administration from China Europe International Business School.

Mr. Robert Frank (Bob) Dodds Jr. has served as our independent director and a member of the compensation committee of our board of directors since April 2020. Mr. Dodds is the founder and managing director of DRP Capital Limited, an investment banking firm that provides cross-border mergers and acquisitions advisory services. Mr. Dodds has lived and worked in Beijing, Shanghai and Hong Kong for over 20 years. Prior to founding DRP Capital in 2009, Mr. Dodds was the head of China M&A for the Global Investment Banking Division of HSBC Holdings PLC. Before joining HSBC in 2004, Mr. Dodds was a vice president at China International Capital Corporation Limited where he was responsible for M&As and participated in IPOs and equity placement of major Chinese companies. Mr. Dodds also serves on the board of Guangdong Fuxin Technology Co., Ltd. Mr. Dodds received his bachelor's degree in political science and international relations from Columbia University and his J.D. and M.S.F.S. degrees from Georgetown University.

Mr. Jiandong Zhuang currently serves as our co-president. Prior to that, Mr. Zhuang served as our executive vice president of Housing Business Group (HBG) and Automative Business Group (ABG) and as our senior vice president of sales from September 2007 to 2014. From January 2005 to January 2007, Mr. Zhuang founded and managed Beijing Yingpu Bailian Technology Trading Co., Ltd., a SMS website and wireless service operator. Prior to founding his own company, Mr. Zhuang managed the China Unicom CDM operation and sales at Beijing Lianyin Investment Co., Ltd from May 2003 to December 2004. Mr. Zhuang currently serves on the board of directors of Tianjin Wuba Financial Service Limited and Shanghai Gengying Information Technology Co., Ltd. Mr. Zhuang received a bachelor’s degree in chemistry from Capital Normal University in 1991.

Mr. Mingke He currently serves as our co-president. Prior to that, Mr. He served as our senior vice president of Human Resource Group (HRG) and Life Service Group (LSG) since December 2016, and served as our senior vice president of Service and Automative Group (SAG) from June 2016 to December 2016. Mr. He joined the Company in July 2015 as a senior vice president. Before joining us, Mr. He was the founder and chief executive officer of Yimian Data from May 2014 to July 2015, senior vice president of QVOD Technologies from May 2013 to April 2014, vice president of SAIF Partners (Softbank Asia Investment Fund) from July 2008 to May 2012. Mr. He currently serves on the board of directors of Guazi, Beijing Babaili Automobile Technology Co., Ltd. and Beijing Nowcoder Technology Co., Ltd. Mr. He received a master’s degree in business administration from Stanford University in 2008, and a bachelor’s degree in automotive engineering and a master’s degree in management science from Tsinghua University in 2001 and 2003, respectively.

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Mr. Hao Zhou has served as our president of international business and head of IR since September 2019 and as our chief strategic officer since April 2020. Prior to that, Mr. Zhou served as our chief financial officer since May 2011. Mr. Zhou also serves as director at Meitu, Inc., a global innovator in mobile video and photography listed on HKSE. Prior to joining our company, Mr. Zhou was chief financial officer in CITIC Pharmaceutical Co., Ltd. since September 2010. From May 2009 to September 2010, Mr. Zhou held two senior management positions at Wuxi PharmaTech (Cayman) Inc., with the latest position as the chief financial officer. From 1998 to 2009, Mr. Zhou held various senior finance managerial positions at General Electric Company and served as the senior finance manager of Greater China from 2007 to 2009. Mr. Zhou received his bachelor’s degree from Shanghai International Studies University in 1998.

Mr. Wei Ye has served as our chief financial officer since September 2019 and as our deputy chief financial officer since July 2018. Mr. Ye joined the company in October 2015 as our senior vice president of finance. Prior to joining us, Mr. Ye was a financial controller at Arconic’s (previously known as Alcoa) North America extrusion operations in Lafayette and Halethorpe from May 2012 to October 2015. From 1995 to 2012, Mr. Ye worked at General Electric Company where he started his career and held various senior financial management positions in both China and United States in GE’s healthcare division. Mr. Ye is a certified public accountant in Illinois. He received his bachelor’s degree in economics from Peking University in 1995 and his M.B.A. from the University of Chicago Booth School of Business in 2008.

Mr. Hongyu Xing has served as our chief technology officer since March 2016 and began to lead Automotive Business Group (ABG) since January 2020. He joined the company in February 2015 as a senior vice president. Mr. Xing has more than 10 years of experience in the internet industry. Prior to joining us, Mr. Xing held various positions at Tencent including general manager in charge of search products, network and media products and microblogs from June 2005 to February 2015. Prior to that, Mr. Xing worked at IBM China’s Research Center from April 1999 to March 2000. Mr. Xing received a master’s degree in electronics engineering from Tsinghua University in 1999.

Ms. Minghui Xiang has served as our chief people officer since July 2018. Ms. Xiang joined the company in June 2011. She has steadily increased her responsibilities for our human resources management and corporate culture development. Most recently, Ms. Xiang served as vice president of human resources starting in November 2016. Prior to joining us, Ms. Xiang served as the deputy director of human resources at Sina.com from 2008 to 2011. Ms. Xiang obtained her bachelor’s degree in economics (human resource management) from Capital University of Economics and Business in 2001.

B.           Compensation

In 2019, we paid an aggregate of approximately RMB20.3 million in cash to our executive officers as of the date of this annual report, and we did not pay any cash compensation to our independent directors as of the date of this annual report.

Employment Agreements and Indemnification Agreements

We have entered into employment agreements with each of our executive officers. We may terminate an executive officer’s employment for cause at any time without advance notice or remuneration for certain acts of the officer, such as conviction or guilty plea 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 by giving one-month advance written 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. An executive officer may resign at any time by giving one-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.

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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.

Share Incentive Plans

We have adopted two share incentive plans, namely, the 2010 Plan and the 2013 Plan. The purpose of these two-share incentive plans is to attract, motivate and retain the best available personnel by linking their personal interests to the success of our business. As of March 31, 2020, restricted share units to receive and options to purchase a total of 1,440,820 ordinary shares and 9,959,690 ordinary shares were outstanding under the 2010 Plan and the 2013 Plan, respectively.

The 2010 Employee Stock Option Plan

The maximum number of shares in respect of which share awards may be granted under the 2010 Plan is 20,173,225. The following paragraphs summarize the terms of the 2010 Plan.

Plan Administration. The plan administrator is our board of directors, or one or more committees designated by our board of directors. The plan administrator will determine the provisions and terms and conditions of each grant.

Award Agreement. Options granted under the plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each grant.

Option Exercise Price. The exercise price subject to an option shall be determined by the plan administrator and set forth in the award agreement. The exercise price may be amended or adjusted by the administrator for the benefit of any eligible person.

Eligibility. We may grant awards to our directors, officers, employees and consultants of our company or any of our subsidiaries.

Term of the Awards. The term of each option grant shall not exceed 10 years from the date of the grant.

Vesting Schedule. In general, the plan administrator determines the vesting schedule or conditions, which is set forth in the award agreement.

Transfer Restrictions. Awards for options may not be transferred in any manner by the award holders and may be exercised only by such holders, subject to limited exceptions. However, the award holder shall be permitted to transfer options to a trust controlled by such award holder during his or her lifetime for estate planning purposes.

Termination of Employment or Service. In the event that an award recipient ceases employment with us or ceases to provide services to us, any vested options will generally terminate after a period of time following the termination of employment if the award recipient does not exercise the options during this period.

Termination and Amendment of the Plan. Unless terminated earlier, the 2010 Plan will terminate automatically in 2020. Our board of directors has the authority to amend or terminate the plan subject to shareholder approval with respect to certain amendments. 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 2013 Share Incentive Plan

We adopted the 2013 Plan in September 2013. The maximum aggregate number of shares which may be issued pursuant to all awards under the 2013 Plan was 2,800,000 Class A ordinary share as of the date of its adoption. The 2013 Plan contains an evergreen provision, pursuant to which the number of shares reserved for future issuances under the 2013 Plan will be increased by a number equal to 1.5% of the total number of outstanding shares on the last day of the immediately preceding calendar year, on the first day of each calendar year during the term of the 2013 Plan beginning in 2015, or such lesser number of Class A ordinary shares as determined by our board of directors. The annual general meeting of our shareholders held on December 17, 2015, further increased the maximum aggregate number of shares that may be issued pursuant to all awards under the 2013 Plan by 1,240,500 Class A ordinary shares and 7,000,000 Class B ordinary shares. Taking into account the automatic increases at the beginning of 2015 through 2020 pursuant to the evergreen provision of the 2013 Plan, the maximum aggregate number of shares which may be issued pursuant to all awards under the 2013 Plan is 35,622,530 ordinary shares, consisting of 28,622,530 Class A ordinary shares and 7,000,000 Class B ordinary shares, as of the date of this annual report.

The following paragraphs describe the principal terms of the 2013 Plan.

Types of Awards. The 2013 Plan permits the awards of options, restricted shares, restricted share units or any other type of awards that the committee or the board decides.

Plan Administration. Our board of directors, our compensation committee or a committee designated by our board will administer the 2013 Plan. The committee or the full board of directors, as applicable, 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 2013 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 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.

Acceleration of Awards upon Change in Control. If a change in control of our company occurs, the plan administrator may, in its sole discretion, provide for (i) all awards outstanding to terminate at a specific time in the future and give each participant the right to exercise the vested portion of such awards during a specific period of time, 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, or (iii) the replacement of such award with other rights or property selected by the plan administrator in its sole discretion, or (iv) payment of award in cash based on the value of ordinary shares on the date of the change-in-control transaction plus reasonable interest.

Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.

Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. The vested portion of option 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 the tenth anniversary after the date of a grant.

Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and distribution, except as otherwise provided by the plan administrator.

Termination of the 2013 Plan. Unless terminated earlier, the 2013 Plan will terminate automatically in 2023. Our board of directors has the authority to amend or terminate the plan subject to shareholder approval or home country practice.

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The following table summarizes, as of March 31, 2020, outstanding options and restricted share units held by our executive officers and directors under our 2010 Plan and 2013 Plan.

Ordinary Shares

Underlying

Options Awarded

and Restricted

Exercise

Name

    

Share Units

    

Price (US$/Share)

    

Date of Grant

    

Date of Expiration

Jinbo Yao

 

*(1)

N/A

August 24, 2015

August 23, 2025

 

*(1)

N/A

March 24, 2017

March 23, 2027

 

*(1)

N/A

August 20, 2017

August 19, 2027

*(1)

N/A

September 27, 2019

September 26, 2029

Herman Yu

 

*

0.005

May 22, 2018

May 22, 2028

 

*

0.003

November 13, 2018

November 13, 2028

Jiandong Zhuang

 

*(1)

N/A

April 13, 2015

April 13, 2025

 

*(1)

N/A

August 24, 2015

August 23, 2025

 

*(1)

N/A

September 21, 2016

September 20, 2026

 

*(1)

N/A

February 24, 2017

February 23, 2027

 

*(1)

N/A

August 20, 2017

August 19, 2027

 

*(1)

N/A

July 5, 2018

July 4, 2028

 

*(1)

N/A

September 27, 2019

September 26, 2029

Mingke He

 

*(1)

N/A

August 24, 2015

August 23, 2025

*(1)

N/A

September 21, 2016

September 20, 2026

*(1)

N/A

February 24, 2017

February 23, 2027

*(1)

N/A

August 20, 2017

August 19, 2027

*(1)

N/A

July 5, 2018

July 4, 2028

*(1)

N/A

September 27, 2019

September 26, 2029

Hao Zhou

 

*

2.220

May 31, 2011

May 30, 2021

 

*

2.500

July 31, 2013

July 30, 2023

 

*(1)

N/A

August 24, 2015

August 23, 2025

 

*

20.980

August 24, 2015

August 23, 2025

 

*(1)

N/A

September 21, 2016

September 20, 2026

 

*(1)

N/A

February 24, 2017

February 23, 2027

 

*(1)

N/A

August 20, 2017

August 19, 2027

*(1)

N/A

July 5, 2018

July 4, 2028

 

*(1)

N/A

September 27, 2019

September 26, 2029

Wei Ye

 

*(1)

N/A

November 23,2015

November 22, 2025

 

*(1)

N/A

September 21, 2016

September 20, 2026

 

*(1)

N/A

February 24, 2017

February 23, 2027

 

*(1)

N/A

August 20, 2017

August 19, 2027

 

*(1)

N/A

July 5, 2018

July 4, 2028

*(1)

N/A

September 27, 2019

September 26, 2029

Hongyu Xing

 

*(1)

N/A

February 27, 2015

February 26, 2025

 

*

18.675

February 27, 2015

February 26, 2025

 

*

20.980

August 24, 2015

August 23, 2025

 

*(1)

N/A

September 21, 2016

September 20, 2026

 

*(1)

N/A

February 24, 2017

February 23, 2027

 

*(1)

N/A

August 20, 2017

August 19, 2027

 

*(1)

N/A

July 5, 2018

July 4, 2028

 

*(1)

N/A

September 27, 2019

September 26, 2029

Minghui Xiang

 

*(1)

N/A

September 21, 2016

September 20, 2026

 

*(1)

N/A

February 24, 2017

February 23, 2027

 

*(1)

N/A

August 20, 2017

August 19, 2027

 

*(1)

N/A

July 5, 2018

July 4, 2028

 

*(1)

N/A

September 27, 2019

September 26, 2029

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* Less than one percent of our total outstanding share capital.

(1)  Represents restricted share units.

As of March 31, 2020, other employees as a group held restricted share units to receive and options to purchase a total of 7,279,280 ordinary shares of our company, with exercise prices of options ranging from nil to US$38.14 per ordinary share.

The Zhuan Zhuan 2017 Plan and 2019 Plan

In September 2017, Zhuan Zhuan Holding, our subsidiary, adopted a share incentive plan, or the Zhuan Zhuan 2017 Plan. The Zhuan Zhuan 2017 Plan permits the awards of options, restricted share units and restricted shares. Awards of share rights may be granted under Zhuan Zhuan 2017 Plan to employees and management of Zhuan Zhuan Holding and of any present or future parents or subsidiaries or variable interest entities of Zhuan Zhuan Holding. The maximum term of any share right granted under the plan is ten years from the grant date. The Zhuan Zhuan 2017 Plan will expire on September 30, 2027.

In October 2019, Zhuan Zhuan Holding adopted a share incentive plan, or the Zhuan Zhuan 2019 Plan. The Zhuan Zhuan 2019 Plan permits the grant of share-based compensation awards to employees, consultants and directors of Zhuan Zhuan Holding and of any present or future parents or subsidiaries or variable interest entities of Zhuan Zhuan Holding. The maximum term of any awards granted under the plan is ten years from the grant date. The Zhuan Zhuan 2019 Plan will expire on October 1, 2029.

C.           Board Practices

Our board of directors currently consists of five directors. A director is not required to hold any shares in our company to qualify to serve as a director. Subject to any separate requirement for audit committee approval and unless disqualified by the chairman of the relevant board meeting, a director may vote with respect to any contract, proposed contract, or arrangement in which he or she is interested provided the necessary disclosure of interests is made. A director may exercise all the powers of the company to borrow money, mortgage its undertaking, property, assets and uncalled capital and issue debentures, bonds 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 have an audit committee, a compensation committee and a nominating and corporate governance committee under the board of directors. We have adopted a charter for each of the three committees. In April 2020, we have also formed a special committee of the board of directors . Each committee’s members and functions are described below.

Audit Committee. Our audit committee consists of Herman Yu, Chi (Eric) Zhang and Li (Lily) Dong, and is chaired by Herman Yu. Mr. Yu, Mr. Zhang and Ms. Dong 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 Exchange Act. We have determined that Herman Yu qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm;
reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response;
reviewing and approving all proposed related party transactions;
discussing the annual audited financial statements with management and the independent registered public accounting firm;
reviewing and discussing our company’s earnings press releases;

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reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;
meeting separately and periodically with management and the independent registered public accounting firm; 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 consists of Chi (Eric) Zhang, Herman Yu and Robert Frank (Bob) Dodds Jr., and is chaired by Chi (Eric) Zhang. Messrs. Zhang, Yu and Dodds satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The compensation committee assists 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 upon. The compensation committee is 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 consists of Li (Lily) Dong, Herman Yu and Chi (Eric) Zhang, and is chaired by Li (Lily) Dong. Ms. Dong, Mr. Yu and Mr. Zhang satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The nominating and corporate governance committee assists the board 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 is responsible for, among other things:

recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board;
reviewing annually with the board the current composition of the board with regards to characteristics such as independence, skills, experience, expertise and diversity;
selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself;
developing and reviewing the corporate governance principles adopted by the board and advising the board with respect to significant developments in the law and practice of corporate governance and our compliance with such laws and practices; and
evaluating the performance and effectiveness of the board as a whole.

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Special Committee. In April 2020, our board of directors formed a special committee of independent directors consisting of Mr. Robert Frank (Bob) Dodds Jr. and Ms. Li (Lily) Dong in response to a preliminary non-binding proposal letter from Ocean Link Partners Limited notifying our board of directors of their interest in acquiring all of our outstanding shares not already beneficially owned by them.

Duties of Directors

Under Cayman Islands law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the skill 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. A shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.

Terms of Directors and Officers

Our officers are elected by and serve at the discretion of the board. Our directors are not subject to a term of office and hold office until such time as they resign or are removed from office by an ordinary resolution of our shareholders. A director will vacate office automatically if, among other things, the director (i) becomes bankrupt or suspends payments or compounds with his creditors; or (ii) dies or becomes of unsound mind.

D.           Employees

The following table sets forth the numbers of our employees, categorized by function, as of December 31, 2017, 2018 and 2019, which exclude the employees of 58 Home:

As of December 31,

    

2017

    

2018

    

2019

Function

Sales, customer service and marketing

 

16,212

 

16,462

 

15,004

Research and development

 

3,011

 

3,615

 

3,935

Website operations

 

863

 

1,454

 

1,488

Management and administrative positions

 

1,261

 

1,385

 

1,316

Total

 

21,347

 

22,916

 

21,743

Our success depends on our ability to attract, retain and motivate qualified personnel. We believe we offer our employees competitive compensation packages and an environment that encourages initiative and meritocracy, and as a result, we have generally been able to attract and retain qualified personnel and maintain a stable core management team. We design and implement in-house training programs tailored to each job function and a set of responsibilities to enhance performance. Specific training is provided to new employees at orientation to familiarize them with our working environment and operational procedures.

As required by PRC regulations, we participate in various statutory employee benefit plans, including pension, unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housing insurance. We are required under PRC 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.

E.           Share Ownership

Please refer to “Item 7. Major Shareholders and Related Party Transactions — A. Major Shareholders.”

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Item 7.                 Major Shareholders and Related Party Transactions

A.          Major Shareholders

The following table sets forth information concerning the beneficial ownership of our ordinary shares as of the date of this annual report by:

each of our directors and executive officers; and
each person known to us to beneficially own more than 5% of our ordinary shares.

The calculations in the table below are based on 299,728,769 ordinary shares outstanding as of March 31, 2020, comprising 254,496,649 Class A ordinary shares and 45,232,120 Class B ordinary shares and excluding 1,225,544 Class A ordinary shares issued to our depositary and reserved for future exercise of vested options and RSUs under our share incentive plans by our management and other employees, which are not deemed as outstanding for the purpose of calculating the beneficial ownership in the following table.

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

    

Class A

Class B

% of

ordinary

ordinary

Total ordinary

% of total

aggregate

    

shares

    

shares

    

shares

    

ordinary shares†

    

voting power ††

Directors and Executive Officers**:

  

  

  

  

  

Jinbo Yao(1)

1,008,514

29,590,120

30,598,634

10.2

%

42.0

%

Xiaoguang Wu(2)

Herman Yu(3)

*

*

*

*

Chi (Eric) Zhang(4)

Li (Lily) Dong

Robert Frank (Bob) Dodds Jr.

Jiandong Zhuang(5)

*

*

*

*

Mingke He

*

*

*

*

Hao Zhou

*

*

*

*

Wei Ye

*

*

*

*

Hongyu Xing

*

*

*

*

Minghui Xiang

*

*

*

All Directors and Executive Officers as a group

3,602,136

29,590,120

33,192,256

11.0

%

42.2

%

Principal Shareholders:

Tencent Holdings Limited(6)

52,563,898

14,722,000

67,285,898

22.4

%

28.3

%

Standard Life Aberdeen plc(7)

29,984,972

29,984,972

10.0

%

4.2

%

Nihao China Corporation(8)

831,436

28,587,204

29,418,640

9.8

%

40.6

%

T. Rowe Price Associates, Inc.(9)

19,754,314

19,754,314

6.6

%

2.8

%

*      Less than one percent of our total outstanding capital.

**   Except for Mr. Xiaoguang Wu, , Mr. Herman Yu and Mr. Eric Zhang, the business address of our directors and executive officers is c/o Building 105, 10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing 100015, the People’s Republic of China.

The number of ordinary shares outstanding in calculating the percentages for each listed person or group includes the ordinary shares underlying the options held by such person or group exercisable within 60 days of March 31, 2020. Percentage of beneficial ownership of each listed person or group is based on (i) 299,728,769 ordinary shares outstanding as of March 31, 2020, and (ii) the number of ordinary shares underlying share incentive awards exercisable by such person or group within 60 days of March 31, 2020.

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††

For each person or group included in this column, percentage of total voting power represents voting power based on both Class A and Class B ordinary shares held by such person or group with respect to all outstanding shares of our Class A and Class B ordinary shares as a single class. Each holder of our Class A ordinary shares is entitled to one vote per share. Each holder of our Class B ordinary shares is entitled to ten votes per share. Our Class B ordinary shares are convertible at any time by the holder into Class A ordinary shares on a one-for-one basis.

(1) Consists of (i) 28,587,204 Class B ordinary shares and 415,718 ADSs (representing 831,436 Class A ordinary shares) held by Nihao China Corporation, a British Virgin Islands company beneficially owned by Mr. Yao through a trust; and (ii) 1,002,916 Class B ordinary shares beneficially owned by certain of our executive officers and employees who acquired the ownership of these shares pursuant to our employee stock option plan and who authorize Mr. Yao to vote these shares on their behalf under power of attorney; and (iii) 177,078 Class A ordinary shares issuable to Mr. Jinbo Yao upon conversion of restricted share units within 60 days of March 31, 2020.
(2) The business address of Mr. Wu is 50F, Tencent Binhai Building, Haitian 2nd Avenue, Nanshan District, Shenzhen, P. R. China.
(3) The business address of Mr. Yu is Baidu Campus, No. 10 Shangdi 10th Street, Haidian District, Beijing 100085, PRC.
(4) The business address of Mr. Zhang is Suite 5704-07, Two IFC, 8 Finance Street, Central, Hong Kong.
(5) Mr. Zhuang has authorized Mr. Jinbo Yao under power of attorney to vote the ordinary shares that Mr. Zhuang currently owns through Magic Mirror Holdings Limited, a British Virgin Islands company wholly owned by Mr. Zhuang.
(6) Consists of (i) 41,419,336 Class A ordinary shares and 14,722,000 Class B ordinary shares directly held by Ohio River Investment Limited, (ii) 4,384,207 ADSs (representing 8,768,414 Class A ordinary shares) directly held by THL E Limited and (iii) 1,188,074 ADSs (representing 2,376,148 Class A ordinary shares) directly held by Huang River Investment Limited. Tencent Holdings Limited is reported as the beneficial owner of the aforementioned shares. The business address of Ohio River Investment Limited and THL E Limited is c/o Tencent Holdings Limited, 29/F., Three Pacific Place, No. 1 Queen’s Road East, Wanchai, Hong Kong, as reported on Schedule 13D/A filed on November 22, 2016.
(7) Consists of 14,992,486 ADSs (representing 29,984,972 Class A ordinary shares) held by Standard Life Aberdeen plc, an investment advisor incorporated in the United Kingdom, as reported on Schedule 13G filed by Standard Life Aberdeen plc on February 10, 2020. The address of Standard Life Aberdeen plc is 1 George Street, Edinburgh X0 EH2 2LL, as reported on the same Schedule 13G.
(8) Consists of 28,587,204 Class B ordinary shares and 415,718 ADSs (representing 831,436 Class A ordinary shares) held by Nihao China Corporation, a British Virgin Islands company beneficially owned by Mr. Yao through a trust. Nihao China Corporation has pledged 18,834,627 Class B ordinary shares as security for a loan extended to Mr. Yao by UBS AG, London Branch in December 2015, with the most recent amendment and restructuring in January 2020.
(9) Consists of 9,877,157 ADSs (representing 19,754,314 Class A ordinary shares) held by T. Rowe Price Associates, Inc., an investment advisor incorporated in Maryland, as reported on Schedule 13G filed by T. Rowe Price Associates, Inc. on February 14, 2020. Such ADSs are beneficially owned by the individual and institutional clients which Rowe Price Associates, Inc. serves as investment adviser. The address of T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, MD 21202, as reported on the same Schedule 13G.

To our knowledge, as of March 31, 2020, a total of 214,302,850 Class A ordinary shares were held by a record holder in the United States, the depositary of our ADS program, representing approximately 71.5% of our total outstanding shares on an as-converted basis. Among the Class A ordinary shares held by such record holder, 1,225,544 Class A ordinary shares were issued and reserved for future exercise of vested options and RSUs under our share incentive plans by our management and other employees. None of our outstanding Class B ordinary shares were held by record holders in the United States as of March 31, 2020. The number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of record holders of our ordinary shares in the United States.

Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share. Holders of Class A and

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Class B ordinary shares vote together as one class on all matters subject to a shareholders’ vote. 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 circumstance. All options, regardless of grant dates, will entitle holders to the equivalent number of Class A ordinary shares once the vesting and exercising conditions on such share-based compensation awards are met. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

B.           Related Party Transactions

Contractual Arrangements with Our Consolidated Variable Interest Entities

PRC law currently limits direct foreign equity ownership of business entities providing value-added telecommunications services. As a result of these foreign ownership restrictions requirements, we conduct substantially all of our businesses in China through a series of contractual arrangements with our consolidated variable interest entities and their shareholders. For a description of these contractual arrangements, see “Item 4. Information on the Company — C. Organizational Structure — Our Contractual Arrangements.”

Investor Rights Agreement with Ohio River Investment Limited

On June 30, 2014, we entered into an investor rights agreement with Ohio River Investment Limited, an affiliate of Tencent Holdings Limited, which granted Ohio River Investment Limited, among other things, certain registration rights with respect to our ordinary shares owned by it. The investor rights agreement also granted certain board representation rights to Ohio River Investment Limited and placed certain restrictions on the transfer of our ordinary shares by our founder.

Board representation. For so long as Ohio River Investment Limited is the beneficial owner of at least 50% of our ordinary shares that it initially purchased, Ohio River Investment Limited will have the right to designate one director to our board of directors.

Investor Observer. If at any time the director designated by Ohio River Investment Limited is not a member of any committee of the board, such director shall have the right, as a non-voting observer to any such committee.

Restrictions on transfer. Our founder agreed to certain transfer restrictions, which restrictions have expired as of the date of this annual report.

Preemptive Rights. For so long as Ohio River Investment Limited is the beneficial owner of at least 50% of our ordinary shares that it initially purchased, it has certain preemptive rights to purchase its pro-rata portion of new securities issued by us, subject to certain exceptions.

Registration Rights

Investor Rights Agreement with Tencent

Pursuant to an investor rights agreement dated June 30, 2014 that we entered into with Tencent, we have granted certain registration rights to Tencent. We have ceased to have any obligation to effect any demand, Form F-3, or piggyback registration since June 30, 2019, the date that is five years after the date of the agreement.

Registration Rights Agreement with Former Ganji Shareholders

Pursuant to a registration rights agreement dated April 20, 2015 that we entered into with certain new shareholders in connection with our issuance of new Class A ordinary shares as share portion of the purchase price for our acquisition of Ganji shares from the selling shareholders, we have granted certain registration rights to such new shareholders. We have ceased to have any obligation to effect any demand, Form F-3, or piggyback registration since April 20, 2020, the date that is five years after the date of the agreement.

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Short-term Bank Borrowing Secured by Ordinary Shares Held by Our Chief Executive Officer

In April 2016, we obtained an interest-bearing loan of US$275.0 million denominated in U.S. dollars from CMB Bank. The loan was secured by 12.4 million Class B ordinary shares personally owned by Mr. Jinbo Yao, the chief executive officer of our company. Based on the covenant of the loan agreement, if the aggregate fair value of the pledged shares on any trading date was less than 120% of the outstanding amount of the corresponding loan and accrued interest payable, we were required to pledge sufficient amount of cash or the chief executive officer of the company can pledge additional number of shares to cover the shortfall in the fair value of the pledged shares. We used the proceeds from this loan to prepay the principal and accrued interest of the amended loan from Tencent. The loan was fully repaid and the shares pledged to CMB Bank were released in May 2017.

Investment in Zhuan Zhuan

In April 2017, Tencent invested US$200.0 million in cash and additional business resources in Zhuan Zhuan Holding in exchange for a minority equity ownership. Zhuan Zhuan Holding is an entity we created and into which we transferred our business relating to the Zhuan Zhuan app and certain used goods related listing channels from the 58 and Ganji classified platforms. We continue our direct traffic and other business support to Zhuan Zhuan Holding. In September 2019, Zhuan Zhuan Holding entered into definitive agreements with a group of investors, including our Company, Tencent and certain new investors for its series B round financing for a combination of cash and additional business resources amounted to approximately US$300 million. Currently we remain the majority shareholder of Zhuan Zhuan Holding, owning 63.5% of equity interests in Zhuan Zhuan on an issued and outstanding basis, and continue to consolidate its financial results. As of December 31, 2019, US$170 million cash consideration of this financing were received.

Acquisition of the Remaining Ganji Equity Interests from Tencent

See “Item 4. Information on the Company—A. History and Development of the Company.”

Transactions related to Finance Business

In September 2017, we entered into a framework agreement with Mr. Jinbo Yao, the chief executive officer of our company, and other parties thereto, and disposed our financial services and other finance related business, or the Finance Business, to Mr. Jinbo Yao, who in return contributed RMB150 million to the Finance Business subsequent to the disposal. We agreed to provide to the Finance Business, among other things, some traffic support and the right to use certain intellectual property rights. In return, we are entitled to share a certain fixed percentage of profit generated by the Finance Business, or the profit participation right.

In September 2019, in order to provide the Finance Business with more flexibility in future fund raising and acquisitions, we entered into definitive agreements to convert such profit participation rights to certain number of shares of Golden Pacer. In parallel, Golden Pacer entered into definitive agreements with Uxin Limited pursuant to which Golden Pacer will acquire the loan facilitation related business from Uxin Limited. In April 2020, the two transactions abovementioned were completed when Golden Pacer and Uxin Limited entered into supplementary agreements to modify their transactions in light of the changes in the regulatory environment and the impact of COVID-19 outbreak. We have converted the abovementioned profit participation rights into equity of Golden Pacer, and we currently hold 40% of the share capital of Golden Pacer on a fully diluted basis.

In 2019, one of the PRC subsidiaries of Golden Pacer that operates the Finance Business obtained a one-year term loan of RMB400 million at an interest rate of 4.25% per annum from a local commercial bank. We have agreed to provide guarantee for the loan and deposited and pledged a total amount of RMB417 million with such bank. The borrower of the loan has agreed to pay us RMB16 million guarantee service fees and reimburse us for any payment to the bank in case of its default on the loan.

In January 2020, pursuant to the arrangement in the abovementioned framework agreement, we contributed US$71.4 million as capital injection and helped Golden Pacer set up a financial guarantee company, and Golden Pacer will repay the amount of contribution in installments, plus interest to be determined based on the market interest rate, over the subsequent three-year period.  

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Transactions related to Uxin Limited

On May 29, 2019, we purchased a convertible note in a principal amount of US$100 million issued by Uxin Limited, which bears interest at a rate of 3.75% per annum from the issuance date and mature in five years thereafter. Such note is convertible into class A ordinary shares of Uxin Limited at an initial conversion price of US$1.03 per share, subject to certain adjustments, after a 180-day period following the date of issuance. We are entitled to registration rights with respect to all the class A ordinary shares of Uxin Limited that the note may convert into. As of the date of this annual report, we have not converted such note to class A ordinary shares of Uxin Limited. We are also entitled to nominate one director to the board of directors of Uxin Limited.

On March 24, 2020, we entered into definitive agreements with Uxin Limited to purchase certain assets and liabilities related to Uxin's B2B online used car auction business for a total cash consideration of US$105 million. The transactions contemplated under the definitive agreements are subject to customary closing conditions, and are currently expected to close by the first half of 2020.

Loan to 58 Home

In February 2020, we lent RMB104.7 million to 58 Home, which will be due within one-year from the date of lending.

Investment in Ai Fang

In 2019, we jointly established Ai Fang, with a publicly traded company and a private company in China to engage in the promotion and sale of primary property for real estate developers. We invested RMB153 million in cash and held 30% of the equity interests in Ai Fang as of December 31, 2019.

To support the fast growth of Ai Fang’s business, in March 2020, we further invested RMB139.1 million in Ai Fang’s equity and RMB370.9 million in Ai Fang’s convertible notes. Upon completion of this further investment, our equity interest in Ai Fang was increased to 45%. As of December 31, 2019, we accounted for our investment in Ai Fang using equity method.

Employment Agreements and Indemnification Agreements

See “Item 6. Directors, Senior Management and Employees — B. Compensation — Employment Agreements and Indemnification Agreements.”

Share Incentive Plans

See “Item 6. Directors, Senior Management and Employees — B. Compensation — Share Incentive Plans.”

C.           Interests of Experts and Counsel

Not applicable.

Item 8.                 Financial Information

A.           Consolidated Statements and Other Financial Information

Please refer to Item 18.

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Legal Proceedings

From time to time, we have become and may in the future become a party to various legal or administrative proceedings arising in the ordinary course of our business. Internet companies are frequently involved in litigation based on allegations of infringement or other violations of intellectual property rights and other allegations in connection with the content available on their platforms or services they provide. We are currently not involved in any legal or administrative proceedings that would materially and adversely affect our business.

Dividend Policy

We have not previously declared or paid cash dividends and we have no present plan to declare or pay any dividends in the near future on our shares or ADSs. We currently intend to retain and reinvest most, if not all, of our undistributed earnings and any future earnings to operate and expand our business for the foreseeable future.

Our board of directors has complete discretion on whether to distribute dividends subject to our memorandum and articles of association and certain restrictions under Cayman Islands law. Our shareholders may by ordinary resolution declare dividends, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands 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 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 are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our PRC subsidiaries 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 “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Foreign Currency Exchange.”

Our board of directors has discretion as to whether to distribute dividends, subject to applicable laws. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend on our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

B.           Significant Changes

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

Item 9.                 The Offer and Listing

A.           Offering and Listing Details

See “— C. Markets.”

B.           Plan of Distribution

Not applicable.

C.           Markets

Our ADSs, each representing two of our Class A ordinary shares, have been listed on the NYSE since October 31, 2013. Our ADSs trade under the symbol “WUBA.”

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D.           Selling Shareholders

Not applicable.

E.           Dilution

Not applicable.

F.           Expenses of the Issue

Not applicable.

Item 10.               Additional Information

A.           Share Capital

Not applicable.

B.           Memorandum and Articles of Association

We are a Cayman Islands company and our affairs are governed by our current memorandum and articles of association, as amended from time to time, and the Companies Law of the Cayman Islands, which is referred to below as the Companies Law.

The following are summaries of the material provisions of our current memorandum and articles of association and the Companies Law insofar as they relate to the material terms of our ordinary shares. The information set forth in Exhibit 2.4 to this Annual Report on Form 20-F is incorporated herein by reference. This summary is not complete, and you should read our third current memorandum and articles of association, which has been filed as Exhibit 1.1 to this annual report on Form 20-F.

Registered Office and Objects

Our registered office in the Cayman Islands is located at Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. As set forth in clause 3 of our current memorandum of association, the objects for which our company are established are unrestricted.

Board of Directors

See “Item 6. Directors, Senior Management and Employees — C. Board Practices — Committees of the Board of Directors” and “Item 6. Directors, Senior Management and Employees — C. Board Practices — Terms of Directors and Officers.”

Ordinary Shares

General. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. All of our outstanding ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders who are non-residents of the Cayman Islands may freely hold and transfer their ordinary shares.

Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Our 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 determines 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. Holders of Class A ordinary shares and Class B ordinary shares will be entitled to the same amount of dividends, if declared.

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Voting Rights. In respect of all matters subject to a shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes, voting together as one class. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one or more shareholders who together hold not less than 10% of the nominal value of the total issued voting shares of our company present in person or by proxy.

A quorum required for a meeting of shareholders consists of one or more shareholders who hold at least one-third of all voting power of our share capital in issue present in person or by proxy at the meeting or, if a corporation or other non-natural person, by its duly authorized representative. Shareholders’ meetings may be held annually. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting. Extraordinary general meetings may be called by a majority of our board of directors or our chairman or upon a requisition of shareholders holding at the date of deposit of the requisition not less than one-third of the aggregate voting power of our company. Advance notice of at least ten clear days is required for the convening of our annual general meeting and other general meetings.

An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes cast attaching to the ordinary shares at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the ordinary shares at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our memorandum and articles of association.

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 transfer of Class B ordinary shares by a holder to any person or entity which is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into the equivalent number of Class A ordinary shares. In addition, if at any time, Mr. Jinbo Yao and his affiliates collectively own less than 5% of the total number of the issued and outstanding Class B ordinary shares, each issued and outstanding Class B ordinary share will be automatically and immediately converted into one Class A ordinary share, and we will not issue any Class B ordinary shares thereafter.

Transfer of Ordinary Shares. Subject to the restrictions set out below and the provisions above in respect of Class B ordinary shares, 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 or recognize any instrument of transfer unless:

the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;
the instrument of transfer is in respect of only one class of ordinary shares;
the instrument of transfer is properly stamped, if required;
in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and
a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within three 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 NYSE, 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 days in any year as our board may determine.

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Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption or repurchase of ordinary shares), assets available for distribution among the holders of ordinary shares shall be distributed among the holders of the ordinary shares on a pro rata basis. 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 proportionately. Any distribution of assets or capital to a holder of a Class A ordinary share and a holder of a Class B ordinary share will be the same in any liquidation event.

Calls on Ordinary Shares and Forfeiture of Ordinary Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 clear days prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.

Redemption of Ordinary Shares. The Companies Law and our articles of association permit us to purchase our own shares. In accordance with our articles of association and provided the necessary shareholders or board approval have been obtained, we may issue shares on terms that are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner, including out of capital, as may be determined by our board of directors.

Variations of Rights of Shares. All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied 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. 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.

Inspection of Books and Records. Holders of our ordinary shares 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 “— H. Documents on Display.”

Issuance of Additional Shares. Our articles 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 articles 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:

the designation of the series;
the number of shares of the series;
the dividend rights, dividend rates, conversion rights, voting rights; and
the rights and terms of redemption and liquidation preferences.

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.

Anti-Takeover Provisions. Some provisions of our 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 authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or action by our shareholders.

Exempted Company. We are 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 registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:

does not have to file an annual return of its shareholders with the Registrar of Companies;

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is not required to open its register of members for inspection;
does not have to hold an annual general meeting;
may issue shares with no par value;
may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);
may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
may register as a limited duration company; and
may register as a segregated portfolio company.

“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company.

Limitations on the Right to Own Shares. There are no limitations on the right to own our ordinary shares.

C.           Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company,” “Item 7. B related party transactions,” or elsewhere in this annual report.

D.           Exchange Controls

The Cayman Islands currently has no exchange control restrictions. See also “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Foreign Currency Exchange” and “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Offshore Financing.”

E.           Taxation

The following summary of the material Cayman Islands, People’s Republic of China and United States 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 annual report, 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 state, local and other tax laws.

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 levied by the Government of the Cayman Islands that are likely to be material to holders of ADSs or ordinary shares. The Cayman Islands is not party to any double tax treaties except for a double tax treaty entered into with the United Kingdom in 2010. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor-in-Council:

(i)       that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to us or our operations; and

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(ii)       that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our shares, debentures or other obligations.

The undertaking for us is for a period of 20 years from June 14, 2011.

People’s Republic of China Taxation

Under the Enterprise Income Tax Law, an enterprise established outside the PRC with “de facto management bodies” within China 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. Under the implementation rules to the Enterprise Income Tax Law, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition, SAT Circular 82, issued by the State Administration of Taxation in April 2009 and amended in January 2014, specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident in China: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting rights. Further to SAT Circular 82, the State Administration of Taxation issued the SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details of determination on resident status and administration on post-determination matters. We do not believe that 58.com Inc., or China Classified Network Corporation or China Classified Information Corporation Limited meet all of the conditions above or are PRC resident enterprises. If the PRC tax authorities determine that our Cayman Islands holding company is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. One example is that a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or ADSs and potentially a 20% of withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and with respect to gains derived by our non-PRC individual shareholders from transferring our shares or ADSs.

It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ADSs would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. See “Item 3. Key Information — D. Risk Factors — Risk Factors Related to Doing Business in China — Under the Enterprise Income Tax Law, we may be classified as a PRC ‘resident enterprise’ for PRC enterprise income tax purposes. Such classifications would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.”

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The Enterprise Income Tax Law and the implementation rules provide that an income tax rate of 10% will normally be applicable to dividends payable to investors that are “non-resident enterprises,” and gains derived by such investors, which (i) do not have an establishment or place of business in China or (ii) have an establishment or place of business in China, but the relevant income is not effectively connected with the establishment or place of business to the extent such dividends and gains are derived from sources within China. The PRC State Council or an applicable tax treaty between the PRC and the jurisdictions in which the non-PRC investors reside may reduce such income tax rate. Pursuant to an Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income, or the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the relevant PRC tax authority to have satisfied the relevant conditions and requirements under the Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%. However, based on SAT Circular 81 issued by the State Administration of Taxation in February 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, the PRC tax authorities may adjust the preferential tax treatment. Pursuant to SAT Circular 9 issued by the State Administration of Taxation in February 2018, which took effect on April 1, 2018 and superseded SAT Circular 601 issued by the State Administration of Taxation in October 2009, companies not engaged in substantive business activities may not be recognized as beneficial owners and thus are not entitled to the above-mentioned reduced income tax rate of 5% under the Double Tax Avoidance Arrangement. In August 2015, the State Administration of Taxation promulgated SAT Circular 60, which became effective on November 1, 2015. SAT Circular 60 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 rate. Instead, non-resident enterprises and their withholding agents may, by self-assessment and upon their confirmation that the prescribed criteria are met, directly apply the reduced withholding tax rate, and file the necessary forms and supporting documents when conducting tax filings, which will be subject to post-filing examinations by the relevant tax authorities. In October 2019, SAT issued SAT Circular 35, which took effect on January 1, 2020 and superseded SAT Circular 60. SAT Circular 35 abolished the record-filing procedure for justifying the tax treaty eligibility of taxpayers, and stipulates that non-resident taxpayers can enjoy tax treaty benefits via the "self-assessment of eligibility, claiming treaty benefits, retaining documents for inspection" mechanism. Non-resident taxpayers can claim tax treaty benefits after self-assessment provided that relevant supporting documents shall be collected and retained by the taxpayers for post-filing inspection by the tax authorities. None of our Hong Kong subsidiaries have applied for the approval for a withholding tax rate of 5% from local tax authority prior to SAT Circular 35, nor have any of our PRC subsidiaries applied the 5% tax rate directly to any dividend payment after the SAT Circular 35, as our PRC subsidiaries have not paid dividends to us.

On February 3, 2015, the State Administration of Taxation issued SAT Notice 7, which partially replaced and supplemented previous rules under SAT Circular 698. On October 17, 2017, the SAT issued SAT Bulletin 37, which came into effect on December 1, 2017 and concurrently abolished SAT Circular 698. The SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax. By promulgating and implementing these circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests or other taxable assets in a PRC resident enterprise by a non-resident enterprise. Under SAT Notice 7 and SAT Bulletin 37, where a non-resident enterprise transfers the equity interests or other taxable assets of a PRC “resident enterprise” indirectly by disposition of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority this “indirect transfer.” Using a “substance over form” principle, the PRC tax authority may re-characterize such indirect transfer as a direct transfer of the equity interests in the PRC tax resident enterprise and other properties in China. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. We face uncertainties on the reporting and consequences on private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises, or sale or purchase of shares in other non-PRC resident companies or other taxable assets by us. We and our non-resident investors may be at risk of being required to file a return and being taxed under SAT Notice 7 and SAT Bulletin 37, and we may be required to expend valuable resources to comply with SAT Notice 7 and SAT Bulletin 37 or to establish that we should not be taxed under these circulars.

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United States Federal Income Tax Considerations

The following is a summary of United States federal income tax consequences of the ownership and disposition of our ADSs or Class A ordinary shares by a U.S. Holder, as defined below, that holds our ADSs or Class A ordinary shares 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 on the tax laws of the United States as in effect on the date of this annual report on Form 20-F and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report on Form 20-F, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax considerations described below. No ruling has been sought from the Internal Revenue Service, or 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 address 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 (such as, for example, certain financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships and their partners, tax-exempt organizations (including private foundations), investors who are not U.S. Holders, investors that own (directly, indirectly, or constructively) 10% or more of our stock (by vote or value), investors that hold their ADSs or Class A ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction, 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 summarized below. In addition, this summary does not discuss the Medicare tax on net investment income or any state, local, or estate or gift tax considerations and, except for the limited instances where PRC tax law and potentially PRC taxes are discussed below, does not discuss any non-United States tax considerations. U.S. Holders should consult their tax advisors regarding the United States federal, state, local, and non-United States income and other tax considerations of an investment in our ADSs or Class A ordinary shares.

General

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or Class A ordinary shares that is, for United States federal income tax purposes, (i) an individual who is a citizen or 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 laws 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 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 Class A 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 and partners of a partnership holding our ADSs or Class A ordinary shares are urged to consult their tax advisors regarding an investment in our ADSs or Class A ordinary shares.

The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit agreement and any related agreement have been and will be complied with in accordance with their terms. U.S. Holders who hold ADSs will be treated as the beneficial owner for United States federal income tax purposes of the underlying shares represented by the ADSs.

Passive Foreign Investment Company Considerations

A non-United States corporation, such as our company, will be a “passive foreign investment company,” or PFIC, for United States federal income tax purposes for any taxable year, if 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 produce or are held for the production of passive income (the “asset test”). Passive income generally includes dividends, interest, royalties, rents, annuities, net gains from the sale or exchange of property producing such income and net foreign currency gains. For this purpose, cash and assets readily convertible into cash are categorized as passive assets and the company’s unbooked goodwill is taken into account for determining the value of its 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.

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Although the law in this regard is not entirely clear, we treat Beijing 58 and other consolidated variable interest entities as being owned by us for United States federal income tax purposes, because we control their management decisions and are entitled to substantially all of their economic benefits, 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 are not the owner of Beijing 58 and other consolidated variable interest entities for United States federal income tax purposes, we would likely be treated as a PFIC for our current taxable year and any subsequent taxable year.

Assuming that we are the owner of Beijing 58 and other consolidated variable interest entities for United States federal income tax purposes, we believe that we primarily operate as an active provider of online marketing services. Based on our current income and assets and projections as to the value of our assets based, in part, on the market value of our ADSs and outstanding Class A ordinary shares, we do not believe that we were a PFIC for our taxable year ended December 31, 2019 and, although no assurances can be made in this regard, we do not expect to be a PFIC for the current taxable year or any subsequent taxable year. While we do not anticipate becoming a PFIC, because our value of the assets for purposes of the asset test may be determined by reference to the market price of our ADSs or ordinary shares, fluctuations in the market price of our ADSs or Class A ordinary shares may cause us to become a PFIC for the current or subsequent taxable years. Under circumstances where revenues from activities that produce passive income significantly increase relative to our revenues from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.

Furthermore, because there are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of certain income and assets as non-passive or our valuation of our tangible and intangible assets, each of which may result in our becoming a PFIC for the current or subsequent taxable years. Because PFIC status is a fact-intensive determination made on an annual basis and will depend upon the composition of our assets and income and the value of our tangible and intangible assets from time to time, no assurance can be given that we will not become a PFIC in a subsequent taxable year. In particular, if we are a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we generally will continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which such U.S. Holder holds our ADSs or Class A ordinary shares unless we cease to be a PFIC and the U.S. Holder makes a “deemed sale” election with respect to the ADSs or Class A ordinary shares.

If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares, 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% 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 Class A ordinary shares), and (ii) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of ADSs or Class A ordinary shares. Under the PFIC rules:

the excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or Class A ordinary shares;
the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are a PFIC, or pre-PFIC year, will be taxable as ordinary income; and
the amount allocated to each prior taxable year, other than the current taxable year or a pre-PFIC year, will be subject to tax at the highest tax rate in effect applicable to the individuals or corporations, as appropriate, for that year and will be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to each such other taxable year.

If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares and any of our non-United States 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 and would be subject to the rules described above on certain distributions by a lower-tier PFIC and a disposition of shares of a lower-tier PFIC even though such U.S. Holder would not receive the proceeds of those distributions or dispositions. U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.

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If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares, our ADSs or Class A ordinary shares generally will continue to be treated as shares in a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or Class A ordinary shares, unless we cease to be a PFIC and such U.S. Holder makes a “deemed sale” election with respect to their ADSs or Class A ordinary shares. If a U.S. Holder makes a deemed sale election, such U.S. Holder will be deemed to have sold their ADSs or Class A ordinary shares at fair market value as of the last day of the last year during which we were a PFIC. Any gain from such deemed sale would be taxed as an excess distribution as described above. U.S. Holders should consult their tax advisors regarding our possible status as a PFIC as well as the benefit of making a deemed sale election.

As an alternative to the foregoing rules, if we are a PFIC, a U.S. Holder of “marketable stock” may make a mark-to-market election with respect to our ADSs, but not our Class A ordinary shares, provided that the ADSs continue to be listed on the NYSE and continue to be regularly traded. The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter, or “regularly traded” on a qualified exchange or other market, as defined in applicable Treasury regulations. 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 net 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 and we cease to be a PFIC, the holder will not be required to take into account the mark-to-market gain or loss described above during any period that we are not 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. In the case of a U.S. Holder who has held ADSs or Class A ordinary shares during any taxable year in respect of which we were classified as a PFIC and continues to hold such ADSs or Class A ordinary shares (or any portion thereof) and has not previously determined to make a mark-to-market election, and who is now considering making a mark-to-market election, special tax rules may apply relating to purging the PFIC taint of such ADSs or Class A ordinary shares.

Because, as a technical matter, 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 Class A ordinary shares during any taxable year that we are a PFIC, the holder must file an annual report, Form 8621 with the U.S. Internal Revenue Service. U.S. Holders should consult their tax advisors concerning the United States federal income tax consequences of purchasing, holding, and disposing ADSs or Class A ordinary shares if we are or become a PFIC, including the possibility of making a mark-to-market election and the unavailability of the qualified electing fund election.

Dividends

Any cash distributions (including the amount of any PRC tax withheld) paid on our ADSs or Class A 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 Class A ordinary shares, or by the depositary bank, 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 paid will generally be reported as a “dividend” for United States federal income tax purposes. Dividends received on our ADSs or Class A ordinary shares will not be eligible for the dividends received deduction allowed to corporations.

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With respect to individuals and certain other non-corporate U.S. Holders, dividends may constitute “qualified dividend income” that is subject to tax at the lower applicable capital gains rates provided that (1) the ADSs or ordinary shares on which the dividends are paid are readily tradable on an established securities market in the United States, or, in the event that we are deemed to be a resident enterprise under the PRC tax law, we are eligible for the benefit of the United States-PRC income tax treaty (the “Treaty”), (2) we are not a PFIC for either our taxable year in which the dividend was paid or the preceding taxable year, and (3) certain holding period requirements are met. The ADSs, but not our ordinary shares, are listed on the New York Stock Exchange so we anticipate that the ADSs should qualify as readily tradable on an established securities market in the United States, although there can be no assurances in this regard. In the event we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, we may be eligible for the benefits of the Treaty. If we are eligible for such benefits, dividends we pay on our ordinary shares, regardless of whether such shares are represented by the ADSs, and regardless of whether our ADSs are readily tradable on an established securities market in the United States, would be eligible for the reduced rates of taxation applicable to qualified dividend income. U.S. Holders should consult their tax advisors regarding the availability of the lower capital gains rate applicable to qualified dividend income for dividends paid with respect to the ADSs or ordinary shares.

For United States foreign tax credit purposes, dividends paid on our ADSs or Class A ordinary shares generally will be treated as income from foreign sources and generally will constitute passive category income. 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, if any, on our ADSs or Class A ordinary shares. A U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any non-refundable foreign withholding taxes imposed on dividends received on our ADSs or Class A 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. U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

Sale or Other Disposition of ADSs or Class A Ordinary Shares

A U.S. Holder will generally recognize capital gain or loss, if any, upon the sale or other disposition of ADSs or Class A 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 Class A ordinary shares. The gain or loss will generally be capital gain or loss. Individuals and other non-corporate U.S. Holders who have held the ADS or Class A ordinary shares for more than one year will generally be eligible for reduced tax rates. The deductibility of a capital loss may be subject to limitations. Any such gain or loss that the U.S. Holder recognizes will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes, which will generally limit the availability of foreign tax credits. However, in the event we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, we may be eligible for the benefits of the Treaty. In such event, if PRC tax were to be imposed on any gain from the disposition of the ADSs or Class A ordinary shares, a U.S. Holder that is eligible for the benefits of the Treaty may elect to treat such gain as PRC source income. If a U.S. Holder is not eligible for the benefits of the Treaty or fails to make the election to treat any gain as foreign-source, then such U.S. Holder may not be able to use the foreign tax credit arising from any PRC tax imposed on the disposition of the ADSs or Class A ordinary shares unless such credit can be applied (subject to applicable limitations) against U.S. federal income tax due on other income derived from foreign sources in the same income category (generally, the passive category). 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 Class A ordinary shares, including the availability of the foreign tax credit under their particular circumstances.

F.           Dividends and Paying Agents

Not applicable.

G.           Statements by Experts

Not applicable.

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H.           Documents on Display

We previously filed with the SEC our registration statement on Form F-1 (Registration No. 333-191424), as amended, including the prospectus contained therein, to register our ordinary shares in relation to our initial public offering and our registration statement on Form F-1 (File Number: 333-194610), as amended, including the prospectus contained therein, to register our ordinary shares in relation to a follow-on public offering. We have also filed with the SEC a related registration statement on Form F-6 (Registration No. 333-191776) to register the ADSs.

We are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC, including filing annually a Form 20-F within four months after the end of each fiscal year, which is December 31. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

We will furnish Citibank, N.A., the depositary of our ADSs, 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, upon our written 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.

I.            Subsidiary Information

Not applicable.

Item 11.               Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Risk

Our operating transactions and assets and liabilities are mainly denominated in Renminbi. Although our exposure to foreign exchange risks should be limited in general, the value of your investment in our ADSs will be affected by the exchange rate between U.S. dollar and Renminbi because the value of our business is effectively denominated in RMB, while our ADSs will be traded in U.S. dollars.

The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the 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 the Renminbi against the U.S. dollar would have an adverse effect on the RMB 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 the Renminbi would have a negative effect on the U.S. dollar amounts available to us.

The net foreign exchange loss recognized in 2019 was insignificant. We do not believe that we currently have any significant direct foreign exchange risk and have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk.

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Interest Rate Risk

Our exposure to interest rate risk primarily relates to excess cash invested in fixed rate term deposits and variable rate short-term financial products with original maturities of less than a year. Investments in both fixed rate and variable rate interest-earning instruments carry a degree of interest rate risk. Fixed rate instruments may have their fair market value adversely impacted due to a rise in interest rates, while variable rate instruments may produce less income than expected if interest rates fall. Due in part to these factors, our future interest income and investment income may fall short of expectations due to changes in market interest rates. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates and therefore have not used any derivative financial instruments to manage our interest risk exposure. See “Item 5 — Operating and Financial Review and Prospects — Liquidity and Capital Resources.”

Item 12.               Description of Securities Other Than Equity Securities

A.           Debt Securities

Not applicable.

B.           Warrants and Rights

Not applicable.

C.           Other Securities

Not applicable.

D.           American Depositary Shares

Fees and Charges Our ADS Holders May Have to Pay

Holders of our ADSs will be required to pay the following service fees to the depositary bank:

Service

    

Fees

     Issuance of ADSs

Up to U.S. 5¢ per ADS issued

     Cancellation of ADSs

Up to U.S. 5¢ per ADS canceled

     Distribution of cash dividends or other cash distributions

Up to U.S. 5¢ per ADS held

     Distribution of ADSs pursuant to stock dividends, free stock distributions or exercise of rights.

Up to U.S. 5¢ per ADS held

     Distribution of securities other than ADSs or rights to purchase additional ADSs

Up to U.S. 5¢ per ADS held

     Depositary Services

Up to U.S. 5¢ per ADS held on the applicable record date(s) established by the depositary bank

Holders of our ADSs will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges such as:

fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in the Cayman Islands (i.e., upon deposit and withdrawal of ordinary shares);
expenses incurred for converting foreign currency into U.S. dollars;
expenses for cable, telex and fax transmissions and for delivery of securities;

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taxes and duties upon the transfer of securities (i.e., when ordinary shares are deposited or withdrawn from deposit); and
fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.

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. In the case of distributions other than cash (i.e., stock dividend, 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 fees and charges holders of our ADSs may be required to pay may vary over time and may be changed by us and by the depositary bank. Holders of our ADSs will receive prior notice of such changes.

Fees and Other Payments Made by the Depositary to Us

The depositary bank may reimburse us for certain expenses incurred by us in respect of the ADR program established pursuant to the deposit agreement, by making available a portion of the depositary fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank may agree from time to time. We did not receive any reimbursement from the depositary in 2019.

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PART II

Item 13.               Defaults, Dividend Arrearages and Delinquencies

None.

Item 14.               Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

Item 15.               Controls and Procedures

Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2019, the end of the period covered by this annual report.

Based upon that evaluation, our management has concluded that, as of December 31, 2019, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and form, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officers and chief financial officer, to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act, for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted accounting principles, including those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules promulgated by the SEC, our management, including our chief executive officer and chief financial officer, assessed the effectiveness of internal control over financial reporting as of December 31, 2019 using the criteria set forth in the report “Internal Control — Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission (known as COSO).

Our management has concluded that we maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm, as stated in their report which is included in Item 18 of this annual report.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 16A.            Audit Committee Financial Expert

Our board of directors has determined that Herman Yu qualifies as an audit committee financial expert and that Herman Yu qualifies as an independent director (under the standards set forth under Section 303A of the Corporate Governance Rules of the New York Stock Exchange and Rule 10A-3 under the Exchange Act).

Item 16B.             Code of Ethics

Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers, employees and advisors, which became effective in November 2013. We have posted a copy of our code of business conduct and ethics on our website at www.58.com.

Item 16C.            Principal Accountant Fees and Services

The following table sets forth the aggregate fees by the categories specified below in connection with certain professional services rendered by PricewaterhouseCoopers Zhong Tian LLP, our independent registered public accounting firm for the years ended December 31, 2018 and 2019. We did not pay any other fees to our auditors during the periods indicated below.

For the Year Ended December 31,

2018

2019

(in thousands of RMB)

Audit fees (1)

    

17,500

    

18,000

Other fees (2)

750

(1) “Audit fees” represent the aggregate fees for professional services rendered by our principal auditors for the audit of our annual consolidated financial statements, review of quarterly financial information and audit services that are normally provided by the principal accountant in connection with regulatory filings or engagements.
(2) "Other fees" represent the aggregate fees incurred in each of the fiscal years listed for services rendered by our principal auditors other than services reported under "Audit fees".

The policy of our audit committee is to pre-approve all audit and non-audit services to be provided by PricewaterhouseCoopers Zhong Tian LLP, including audit services, audit-related services, tax services and other services as described above, other than those for de minimis services which are approved by the audit committee prior to the completion of the audit.

Item 16D.            Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E.            Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

Item 16F.             Change in Registrant’s Certifying Accountant

Not applicable.

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Item 16G.            Corporate Governance

As a Cayman Islands company listed on the NYSE, we are subject to the NYSE corporate governance listing standards. Among other things, Section 303A.08 of the NYSE Listed Company Manual requires shareholder approval of material revisions to equity-compensation plans and Section 312.03(c) of the NYSE Listed Company Manual requires shareholder approval of new share issuances above the 20% threshold specified therein. However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from the NYSE corporate governance listing standards. We have elected to follow the Cayman Islands practices with respect to the amendment of our 2013 Plan to increase the total number of ordinary shares that may be issued pursuant to awards granted under the plan by 7,000,000 Class B ordinary shares in April 2015. In addition, we have also elected to follow the Cayman Islands practices with respect to the issuance of new ordinary shares above the 20% threshold to Tencent and former shareholders of Ganji in April 2015 and the issuance of new ordinary shares above the 20% threshold to certain private equity funds and issuance of a convertible promissory note to Tencent in July 2015, as specified in Section 312.03(c). We have followed the home country practice and obtained the board approval but not shareholder approval for amending our 2013 Plan and the share issuances as described above.

Other than the matters described above, there are no significant differences between our corporate governance practices and those followed by U.S. domestic companies under the NYSE Listed Company Manual.

Item 16H           Mine Safety Disclosure

Not applicable.

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PART III

Item 17.               Financial Statements

We have elected to provide financial statements pursuant to Item 18.

Item 18.               Financial Statements

The consolidated financial statements of 58.com Inc. are included at the end of this annual report.

Item 19.               Exhibits

Exhibit Number

 

Description of Document

 

 

 

1.1

Third Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated herein by reference to Exhibit 3.2 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the SEC on September 27, 2013).

 

2.1

Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3).

 

2.2

Registrant’s Specimen Certificate for Class A Ordinary Shares (incorporated herein by reference to Exhibit 4.2 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the SEC on September 27, 2013).

 

2.3

Deposit Agreement dated October 31, 2013, among the Registrant, the depositary and holders of the American Depositary Receipts (incorporated herein by reference to Exhibit 4.3 to the registration statement on Form S-8 (File No. 333-194873), initially filed with the SEC on March 28, 2014).

 

2.4*

Description of Securities registered under Section 12 of the Securities Exchange Act of 1934.

4.1

2010 Employee Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the SEC on September 27, 2013).

 

4.2

2013 Share Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the SEC on September 27, 2013), and Amendment No.1 to the 2013 Share Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the registration statement on Form S-8 (File No. 333-205011) filed with the SEC on June 17, 2015).

 

4.3

Form of Indemnification Agreement with the Registrant’s directors and executive officers (incorporated herein by reference to Exhibit 10.3 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the SEC on September 27, 2013).

 

4.4

Form of Employment Agreement between the Registrant and an executive officer of the Registrant (incorporated herein by reference to Exhibit 10.4 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the SEC on September 27, 2013).

 

4.5

English translation of the Amended and Restated Exclusive Business Cooperation Agreement between Beijing Chengshi Wanglin Information Technology Co., Ltd. and Beijing 58 Information Technology Co., Ltd. dated October 10, 2011 (incorporated herein by reference to Exhibit 10.5 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the SEC on September 27, 2013).

4.6

English translation of the Equity Interest Pledge Agreements, as amended and restated, among Beijing Chengshi Wanglin Information Technology Co., Ltd., Beijing 58 Information Technology Co., Ltd. and each of the shareholders of Beijing 58 Information Technology Co., Ltd. dated April 30, 2018 and June 28, 2013, respectively (incorporated herein by reference to Exhibit 4.6 of the Registrant's Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 19, 2019).

 

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Exhibit Number

 

Description of Document

4.7

English translation of the Amended and Restated Exclusive Option Agreements among Beijing Chengshi Wanglin Information Technology Co., Ltd., Jinbo Yao and Beijing 58 Information Technology Co., Ltd. dated April 30, 2018 (incorporated herein by reference to Exhibit 4.7 of the Registrant's Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 19, 2019).

 

4.8

English translation of Power of Attorney issued by each of the shareholders of Beijing 58 Information Technology Co., Ltd. dated April 30, 2018 and June 28, 2013, respectively (incorporated herein by reference to Exhibit 4.8 of the Registrant's Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 19, 2019).

 

4.9

English translation of Loan Agreements between Beijing Chengshi Wanglin Information Technology Co., Ltd. and each of the individual shareholders of Beijing 58 Information Technology Co., Ltd. (incorporated herein by reference to Exhibit 4.9 of the Registrant's Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 19, 2019).

 

4.10

Investor Rights Agreement, dated June 30, 2014, between the Registrant, Ohio River Investment Limited, Nihao China Corporation and Jinbo Yao (incorporated herein by reference to Exhibit 4.14 of the Registrant’s Annual Report on Form 20-F filed with the SEC on April 29, 2015).

 

4.11

Registration Rights Agreement, dated April 20, 2015, by and among the Registrant and certain selling shareholders of Falcon View Technology (incorporated herein by reference to Exhibit 4.16 of the Registrant’s Annual Report on Form 20-F filed with the SEC on May 13, 2016).

 

4.12

English translation of form of the Exclusive Business Cooperation Agreement between 58 Home’s WFOE and a VIE (incorporated herein by reference to Exhibit 4.12 of the Registrant's Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 19, 2019).

 

4.13

English translation of form of the Amended and Restated Equity Interest Pledge Agreements among 58 Home’s WFOE, a VIE and each of the shareholders of a VIE (incorporated herein by reference to Exhibit 4.13 of the Registrant's Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 19, 2019)

 

4.14

English translation of form of the Amended and Restated Exclusive Option Agreements among 58 Home’s WFOE, a VIE and each of the shareholders of a VIE (incorporated herein by reference to Exhibit 4.14 of the Registrant's Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 19, 2019).

 

4.15

English translation of form of the Amended and Restated Power of Attorney issued by each of the shareholders of a VIE (incorporated herein by reference to Exhibit 4.15 of the Registrant's Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 19, 2019).

 

4.16

English translation of form of the Amended and Restated Loan Agreements between 58 Home’s WFOE and each of the shareholders of a VIE (incorporated herein by reference to Exhibit 4.16 of the Registrant's Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 19, 2019).

4.17

 

English translation of the Exclusive Business Cooperation Agreement between Tianjin Zhuanzhuan World Technology Co., Ltd. and Beijing Zhuanzhuan Spirit Technology Co., Ltd. dated June 22, 2017 (incorporated herein by reference to Exhibit 4.29 of the Registrant’s Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 30, 2018).

 

 

4.18

 

English translation of the Equity Interest Pledge Agreements among Tianjin Zhuanzhuan World Technology Co., Ltd., Beijing Zhuanzhuan Spirit Technology Co., Ltd. and each of the shareholders of Beijing Zhuanzhuan Spirit Technology Co., Ltd. dated February 11, 2018 (incorporated herein by reference to Exhibit 4.30 of the Registrant’s Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 30, 2018).

 

 

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Exhibit Number

 

Description of Document

4.19

 

English translation of the Exclusive Option Agreements among Tianjin Zhuanzhuan World Technology Co., Ltd., Beijing Zhuanzhuan Spirit Technology Co., Ltd. and each of the shareholders of Beijing Zhuanzhuan Spirit Technology Co., Ltd. dated February 11, 2018 (incorporated herein by reference to Exhibit 4.31 of the Registrant’s Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 30, 2018).

 

 

4.20

 

English translation of Power of Attorney issued by each of the shareholders of Beijing Zhuanzhuan Spirit Technology Co., Ltd. dated February 11, 2018 (incorporated herein by reference to Exhibit 4.32 of the Registrant’s Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 30, 2018).

 

 

4.21†

 

English translation of Equity Transfer Agreement on 5i5j Holding Group Co., Ltd. between Beijing Hezhao Jiusheng Investment Co., Ltd., Kunming Handing Shiji Enterprise Management Co., Ltd., Tibet Shengju Investment Co., Ltd. and 58 Co., Ltd. dated June 22, 2018 (incorporated herein by reference to Exhibit 4.23 of the Registrant’s Annual Report on Form 20-F (File No. 001-36140), as amended, initially filed with the SEC on April 19, 2019).

 

 

4.22*

 

Convertible Note Purchase Agreement among Uxin Limited, Mr. Kun Dai, Redrock Holding Investments Limited, TPG Growth III SF Pte. Ltd., 58.com Holdings Inc., ClearVue UXin Holdings, Ltd., Magic Carpet International Limited and Zhuhai Guangkong Zhongying Industrial Investment Fund (Limited Partnership), dated May 29, 2019 (incorporated herein by reference to Exhibit 7.02 of the Schedule 13D (File No. 005-90751) filed by 58.com Holdings Inc. and 58.com Inc. with the SEC on June 20, 2019).

 

 

4.23*

Investors’ Rights Agreement among Uxin Limited, Redrock Holding Investments Limited, TPG Growth III SF Pte. Ltd., 58.com Holdings Inc., Mr. Kun Dai, Xin Gao Group Limited, Gao Li Group Limited and JenCap UX, dated June 10, 2019 (incorporated herein by reference to Exhibit 7.03 of the Schedule 13D (File No. 005-90751) filed by 58.com Holdings Inc. and 58.com Inc. with the SEC on June 20, 2019).

4.24*

Series B Preferred Share and Warrant Purchase Agreement by and among Zhuan Spirit Holdings Limited, Magic Heart Inc., CIVILIZATION AND TIME LTD, Tencent Mobility Limited, 58 Co., Ltd., Qingdao Caigao Group Co., Ltd., TOPLAND GLOBAL HOLDINGS LIMITED, Shanghai Yuya Enterprise Management Partnership (Limited Partnership), Qingdao Panshi Kaiyuan Trade Co., Ltd., Qingdao Lida Shopping Center Co., Ltd., Lemi (Tianjin) Architectural Engineering Programming and Design  Co., Ltd. and certain other parties dated September 9, 2019.

4.25*

Amended and Restated Shareholders’ Agreement among Magic Heart Inc., Tencent Mobility Limited, CIVILIZATION AND TIME LTD, Huang Wei, 58 Co., Ltd., Qingdao Caigao Group Co., Ltd., TOPLAND GLOBAL HOLDINGS LIMITED, Shanghai Yuya Enterprise Management Partnership (Limited Partnership), Qingdao Panshi Kaiyuan Trade Co., Ltd., Qingdao Lida Shopping Center Co., Ltd., Lemi (Tianjin) Architectural Engineering Programming and Design Co., Ltd., Zhuan Spirit Holdings Limited and certain other parties dated September 9, 2019.

4.26*

Series Angel Preferred Share Purchase Agreement between Golden Pacer and 58.com Inc. dated September 30, 2019.

4.27*

Amended and Restated Shareholders Agreement by and among Golden Pacer, Golden Hawk Limited, Tianjin Wuba Shuke Information Technology Co., Ltd., Tianjin Wuba Rongxin Information Technology Co., Ltd., Tianjin Wuba Jinfu Co., Ltd., Jinbo Yao, Golden Rhapsody Limited, Golden Rockets L.P., 58.com Inc., Tencent Mobility Limited and certain other parties dated April 23, 2020.

8.1*

 

Principal subsidiaries of the Registrant

 

 

11.1

 

Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the SEC on September 27, 2013).

 

 

12.1*

 

Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

12.2*

 

Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

13.1**

 

Certification by Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

143

Table of Contents

Exhibit Number

 

Description of Document

13.2**

 

Certification by Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

15.1*

 

Consent of PricewaterhouseCoopers Zhong Tian LLP, Independent Registered Public Accounting Firm

 

 

15.2*

 

Consent of Han Kun Law Offices

15.3***

Consent of PricewaterhouseCoopers Zhong Tian LLP regarding the opinion in Exhibit 99.1

99.1***

 

Consolidated Financial Statements of 58 Daojia Inc. as of December 31, 2019 and 2018 and for the three years ended December 31, 2019.

 

 

101.INS*

 

Inline XBRL Instance Document- The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document

 

 

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document

 

 

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

101.LAB*

 

Inline XBRL Taxonomy Extension Labels Linkbase Document

 

 

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104*

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*      Filed herewith

**    Furnished herewith

***  To be filed by amendment within six months of December 31, 2019

†      Portions of this exhibit have been omitted pursuant to Rule 406 under the Securities Act

144

Table of Contents

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

58.com Inc.

 

 

 

 

By:

/s/ Jinbo Yao

 

 

Name:

Jinbo Yao

 

 

Title:

Chairman and Chief Executive Officer

Date: April 29, 2020

145

Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Page

Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets as of December 31, 2018 and 2019

F-4

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2018 and 2019

F-5

Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2017, 2018 and 2019

F-6

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2018 and 2019

F-7

Notes to the Consolidated Financial Statements

F-8

F-1

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of 58.com Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of 58.com Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2(v) to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting 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 Company 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.  

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

F-2

Table of Contents

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Investments in Preference Shares of Guazi.com Inc. (“Guazi”)

As described in Notes 6 and 14 to the consolidated financial statements, the Company’s investments in preference shares of Guazi were re-measured at a fair value of RMB1,897.9 million, as of the date that an observable price change of these securities was identified, which is included in the Company’s long-term investments as of December 31, 2019. Management recorded a fair value change of RMB1,381.1 million as investment income for the year ended December 31, 2019. Management used a market approach to determine the total equity value of Guazi, then used an equity allocation model to determine the fair value of the underlying preference shares, which involved the use of significant assumptions including risk-free rate, lack of marketability discount and expected volatility.

The principal considerations for our determination that performing procedures relating to the valuation of investments in preference shares of Guazi is a critical audit matter are (i) there was significant judgment made by management when developing the fair value measurement, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence related to the valuation; (ii) significant audit effort was required in evaluating significant assumptions used in the valuation including risk-free rate, lack of marketability discount and expected volatility; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained from these procedures.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of the Guazi preference shares, including controls over the model, data and assumptions used in the valuation. These procedures also included, among others, testing management’s process for developing the fair value measurement; evaluating the appropriateness of the valuation model; testing the completeness, accuracy, and relevance of data used in the model; and evaluating significant assumptions used by management including risk-free rate, lack of marketability discount and expected volatility. Evaluating management’s assumptions involved evaluating whether the assumptions were reasonable considering (i) the consistency with external market data and (ii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s valuation model and certain significant assumptions including risk-free rate, lack of marketability discount and expected volatility.

/s/ PricewaterhouseCoopers Zhong Tian LLP

Beijing, the People’s Republic of China

April 29, 2020

We have served as the Company’s auditor since 2011.

F-3

Table of Contents

58.com Inc.

CONSOLIDATED BALANCE SHEETS

As of December 31, 2018 and 2019

(in thousands, except share and per share data, unless otherwise noted)

As of December 31,

2018

2019

2019

    

    

US$

RMB

    

RMB

Note 2(c)

ASSETS

Current assets:

Cash and cash equivalents

 

2,387,478

 

5,293,206

 

758,752

Restricted cash-current

 

812,000

 

477,099

 

68,390

Term deposits

70,000

10,034

Short-term investments

 

4,587,610

 

8,414,348

 

1,206,151

Accounts receivable (net of allowance for doubtful accounts of RMB65,620 and RMB95,765 as of December 31, 2018 and 2019, respectively)

 

917,443

 

1,209,251

 

173,339

Prepayments and other current assets

 

813,403

 

2,326,920

 

333,551

Total current assets

 

9,517,934

 

17,790,824

 

2,550,217

Non-current assets:

Property and equipment, net

 

1,329,752

 

1,305,793

 

187,178

Intangible assets, net

 

1,099,945

 

886,565

 

127,084

Right-of-use assets, net

275,459

39,486

Land use rights, net

 

3,610

 

3,532

 

506

Goodwill

 

15,874,220

 

15,874,220

 

2,275,482

Long-term investments

 

3,365,906

 

6,086,511

 

872,468

Investment in convertible notes

669,715

96,000

Long-term prepayments and other non-current assets

 

639,478

 

469,592

 

67,314

Total non-current assets

 

22,312,911

 

25,571,387

 

3,665,518

Total assets

 

31,830,845

 

43,362,211

 

6,215,735

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term loans

 

812,794

 

 

Accounts payable (including accounts payable of the consolidated variable interest entities (“VIEs”) without recourse to the Company of RMB297,774 and RMB383,504 as of December 31, 2018 and 2019, respectively)

 

887,558

 

1,042,697

 

149,465

Deferred revenues (including deferred revenues of the consolidated VIEs without recourse to the Company of RMB803,140 and RMB595,045 as of December 31, 2018 and 2019, respectively)

 

2,348,333

 

2,154,920

 

308,896

Customer advances (including customer advances of the consolidated VIEs without recourse to the Company of RMB239,622 and RMB337,952 as of December 31, 2018 and 2019, respectively)

 

1,465,169

 

1,986,108

 

284,698

Taxes payable (including taxes payable of the consolidated VIEs without recourse to the Company of RMB35,583 and RMB77,417 as of December 31, 2018 and 2019, respectively)

 

250,231

 

698,104

 

100,069

Salary and welfare payable (including salary and welfare payable of the consolidated VIEs without recourse to the Company of RMB295,430 and RMB320,769 as of December 31, 2018 and 2019, respectively)

 

642,445

 

753,267

 

107,977

Operating lease liabilities-current (including operating lease liabilities-current of the consolidated VIEs without recourse to the Company of nil and RMB108,211 as of December 31, 2018 and 2019, respectively)

137,310

19,683

Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIEs without recourse to the Company of RMB312,681 and RMB535,823 as of December 31, 2018 and 2019, respectively)

 

878,368

 

1,053,007

 

150,943

Total current liabilities

 

7,284,898

 

7,825,413

 

1,121,731

Non-current liabilities:

Deferred tax liabilities (including deferred tax liabilities of the consolidated VIEs without recourse to the Company of RMB246,858 and RMB208,050 as of December 31, 2018 and 2019, respectively)

 

283,112

 

389,719

 

55,864

Operating lease liabilities-non-current (including operating lease liabilities-non-current of the consolidated VIEs without recourse to the Company of nil and RMB120,247 as of December 31, 2018 and 2019, respectively)

138,554

19,861

Other non-current liabilities (including other non-current liabilities of the consolidated VIEs without recourse to the Company of nil as of both December 31, 2018 and 2019)

 

1,675

 

 

Total non-current liabilities

 

284,787

 

528,273

 

75,725

Total liabilities

 

7,569,685

 

8,353,686

 

1,197,456

Commitments and contingencies (Note 26)

Mezzanine equity:

Mezzanine classified noncontrolling interests

 

1,944,397

 

3,668,876

 

525,913

Total mezzanine equity

 

1,944,397

 

3,668,876

 

525,913

Shareholders’ equity:

58.com Inc. shareholders’ equity:

Ordinary shares (US$0.00001 par value, 5,000,000,000 (including 4,800,000,000 Class A and 200,000,000 Class B) shares authorized as of both December 31, 2018 and 2019; 296,444,579 (including 250,858,415 Class A and 45,586,164 Class B) and 299,277,413 (including 254,045,293 Class A and 45,232,120 Class B) shares issued and outstanding as of December 31, 2018 and 2019, respectively)

 

19

 

19

 

3

Additional paid-in capital

 

21,621,665

 

21,942,829

 

3,145,384

Retained earnings

 

439,514

 

8,892,773

 

1,274,730

Accumulated other comprehensive income/(loss)

 

(40,622)

 

95,903

 

13,747

Total 58.com Inc. shareholders’ equity

 

22,020,576

 

30,931,524

 

4,433,864

Noncontrolling interests

 

296,187

 

408,125

 

58,502

Total shareholders’ equity

 

22,316,763

 

31,339,649

 

4,492,366

Total liabilities, mezzanine equity and shareholders’ equity

 

31,830,845

 

43,362,211

 

6,215,735

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Table of Contents

58.com Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31, 2017, 2018 and 2019

(in thousands, except share, per share and per ADS data, unless otherwise noted)

For the Year Ended December 31,

2017

2018

2019

2019

    

    

US$

RMB

    

RMB

    

RMB

Note 2(c)

Revenues:

Membership

 

3,789,524

 

4,399,058

 

4,470,916

 

640,881

Online marketing services

 

5,978,491

 

8,282,593

 

10,158,442

 

1,456,157

E-commerce services

 

73,941

 

72,596

 

266,848

 

38,251

Other revenues

 

226,824

 

383,568

 

680,317

 

97,520

Total revenues

 

10,068,780

 

13,137,815

 

15,576,523

 

2,232,809

Cost of revenues(1)

 

(925,497)

 

(1,437,795)

 

(1,798,407)

 

(257,792)

Gross profit

 

9,143,283

 

11,700,020

 

13,778,116

 

1,975,017

Operating expenses(1):

Sales and marketing expenses

 

(5,212,360)

 

(6,861,845)

 

(8,049,662)

 

(1,153,875)

Research and development expenses

 

(1,368,441)

 

(1,702,748)

 

(2,058,663)

 

(295,098)

General and administrative expenses

 

(766,017)

 

(748,766)

 

(817,302)

 

(117,156)

Total operating expenses

 

(7,346,818)

 

(9,313,359)

 

(10,925,627)

 

(1,566,129)

Income from operations

 

1,796,465

 

2,386,661

 

2,852,489

 

408,888

Other income/(expenses):

Interest income/(expense), net

 

(1,623)

 

15,529

 

55,937

 

8,019

Investment income, net

 

342,241

 

38,634

 

6,135,089

 

879,431

Share of results of equity investees

 

(687,400)

 

(91,497)

 

(9,423)

 

(1,351)

Gain/(loss) on deconsolidation and disposal of businesses

 

 

(3,274)

 

3,653

 

524

Foreign currency exchange (loss)/gain, net

 

793

 

597

 

(17,592)

 

(2,522)

Others, net

 

85,455

 

82,113

 

259,407

 

37,185

Income before income tax

 

1,535,931

 

2,428,763

 

9,279,560

 

1,330,174

Income tax expenses

 

(146,689)

 

(299,705)

 

(834,334)

 

(119,597)

Net income

 

1,389,242

 

2,129,058

 

8,445,226

 

1,210,577

Net loss/(income) attributable to noncontrolling interests

 

(4,667)

 

139

 

8,033

 

1,151

Net income attributable to 58.com Inc.

 

1,384,575

 

2,129,197

 

8,453,259

 

1,211,728

Deemed dividend to mezzanine classified noncontrolling interests

 

(99,507)

 

(132,202)

 

(175,045)

 

(25,092)

Net income attributable to 58.com Inc. ordinary shareholders

 

1,285,068

 

1,996,995

 

8,278,214

 

1,186,636

Net income

 

1,389,242

 

2,129,058

 

8,445,226

 

1,210,577

Other comprehensive income:

Foreign currency translation adjustment, net of nil tax

 

82,926

 

15,486

 

137,371

 

19,691

Comprehensive income

 

1,472,168

 

2,144,544

 

8,582,597

 

1,230,268

Comprehensive loss/(income) attributable to noncontrolling interests

 

(4,667)

 

(298)

 

7,187

 

1,030

Deemed dividend to mezzanine classified noncontrolling interests

 

(99,507)

 

(132,202)

 

(175,045)

 

(25,092)

Comprehensive income attributable to 58.com Inc.

 

1,367,994

 

2,012,044

 

8,414,739

 

1,206,206

Net earnings per ordinary share attributable to ordinary shareholders - basic

 

4.41

 

6.77

 

27.79

 

3.98

Net earnings per ordinary share attributable to ordinary shareholders - diluted

 

4.35

 

6.66

 

27.46

 

3.94

Net earnings per ADS attributable to ordinary shareholders - basic (One ADS represents two ordinary shares)

 

8.82

 

13.54

 

55.59

 

7.97

Net earnings per ADS attributable to ordinary shareholders - diluted (One ADS represents two ordinary shares)

 

8.70

 

13.33

 

54.92

 

7.87

Weighted average number of ordinary shares used in computing basic earnings per share

 

291,475,725

 

294,902,518

 

297,836,268

 

297,836,268

Weighted average number of ordinary shares used in computing diluted earnings per share

 

295,304,995

 

299,711,258

 

301,449,100

 

301,449,100

Note:

(1) Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:

For the Year Ended December 31,

2017

2018

2019

2019

    

    

US$

RMB

    

RMB

    

RMB

Note 2(c)

Cost of revenues

 

3,278

 

6,354

 

7,743

 

1,110

Sales and marketing expenses

 

69,926

 

90,919

 

109,011

 

15,626

Research and development expenses

 

126,116

 

182,410

 

208,273

 

29,855

General and administrative expenses

 

151,249

 

183,191

 

219,675

 

31,489

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Table of Contents

58.com Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Years Ended December 31, 2017, 2018 and 2019

(in thousands, except share data and per share data, unless otherwise noted)

Attributable to 58.com Inc. ordinary shareholders

Retained

Accumulated

Additional

earnings/

other

Total

Ordinary shares

paid-in

(Accumulated

comprehensive

Noncontrolling

shareholders’

Shares*

Amount

capital

Deficit)

income/(loss)

Interests

equity

    

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

Balance as of December 31, 2016

 

289,670,997

 

18

 

20,907,599

 

(3,070,735)

 

(138,597)

 

67,434

 

17,765,719

Net income

 

 

 

1,384,575

 

 

4,667

 

1,389,242

Share-based compensation

 

 

 

339,835

 

 

 

 

339,835

Exercise of share options and restricted share units

 

4,294,134

 

 

100,801

 

 

 

 

100,801

Deemed dividend to mezzanine classified noncontrolling interests

 

 

(99,507)

 

 

 

 

(99,507)

Foreign currency translation adjustment, net of nil tax

 

 

 

 

 

82,926

 

 

82,926

Contribution from noncontrolling interests

 

 

 

 

 

164,589

 

164,589

Disposal of subsidiaries

 

 

87,781

 

 

 

(15,004)

 

72,777

Others

 

 

2,278

 

(3,523)

 

 

 

(1,245)

Balance as of December 31, 2017

 

293,965,131

 

18

 

21,338,787

 

(1,689,683)

 

(55,671)

 

221,686

 

19,815,137

Net income/(loss)

 

2,129,197

(139)

 

2,129,058

Share-based compensation

 

 

 

414,685

 

 

 

28,627

 

443,312

Exercise of share options and restricted share units

 

2,479,448

 

1

 

13,517

 

 

 

 

13,518

Deemed dividend to mezzanine classified noncontrolling interests

 

 

 

(132,202)

 

 

 

 

(132,202)

Foreign currency translation adjustment, net of nil tax

 

 

 

 

 

15,049

 

437

 

15,486

Capital injection from noncontrolling interest shareholder

 

 

 

 

 

80,000

 

80,000

Acquisition of noncontrolling interests in subsidiaries

 

 

(13,122)

 

 

 

(36,689)

 

(49,811)

Disposal of subsidiaries

 

 

 

 

 

 

6,410

 

6,410

Others

 

 

 

 

 

 

(4,145)

 

(4,145)

Balance as of December 31, 2018

 

296,444,579

 

19

 

21,621,665

 

439,514

 

(40,622)

 

296,187

 

22,316,763

Net income/(loss)

 

 

8,453,259

(8,033)

 

8,445,226

Share-based compensation

 

 

 

499,128

 

 

 

27,866

 

526,994

Exercise of share options and restricted share units

 

2,832,834

 

 

4,108

 

 

 

 

4,108

Deemed dividend to mezzanine classified noncontrolling interests

 

 

 

(175,045)

 

 

 

 

(175,045)

Foreign currency translation adjustment, net of nil tax

 

 

 

 

 

136,525

 

846

 

137,371

Capital injection from noncontrolling interest shareholder

 

 

 

 

 

 

118,000

 

118,000

Acquisition of noncontrolling interests in subsidiaries

 

 

 

(7,027)

 

 

 

(21,086)

 

(28,113)

Others

 

 

 

 

 

 

(5,655)

 

(5,655)

Balance as of December 31, 2019

 

299,277,413

 

19

 

21,942,829

 

8,892,773

 

95,903

 

408,125

 

31,339,649

*

Ordinary shares include Class A ordinary shares and Class B ordinary shares. Please refer to Note 22 for more detail.

The accompanying notes are an integral part of these consolidated financial statements.

F-6

Table of Contents

58.com Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2017, 2018 and 2019

(in thousands, except share data, unless otherwise noted)

For the Year Ended December 31,

2017

2018

2019

2019

    

    

US$

RMB

    

RMB

    

RMB

Note 2(c)

Cash flows from operating activities:

Net income

 

1,389,242

 

2,129,058

 

8,445,226

 

1,210,577

Adjustments to reconcile net income to net cash provided by operating activities:

Share-based compensation expenses

 

350,569

 

462,874

 

544,702

 

78,080

Depreciation and amortization expenses

 

435,627

 

413,092

 

399,668

 

57,290

Lease expense to reduce right-of-use assets

147,391

21,128

Investment income, net

 

(319,739)

 

(24,305)

 

(4,790,453)

 

(686,685)

Share of results of equity investees

 

687,400

 

91,497

 

9,423

 

1,351

Interest expense

 

51,404

 

28,086

 

12,365

 

1,772

Allowance for doubtful accounts and other current assets write-off

 

16,762

 

5,974

 

33,021

 

4,733

Change in fair value of long-term investments and investment in convertible notes

 

 

139,250

 

(1,139,844)

 

(163,390)

Loss/(gain) on deconsolidation and disposal of businesses

 

 

3,274

 

(3,653)

 

(524)

Impairment loss of long-term investments and other non-current assets

 

37,300

 

40,000

 

14,403

 

2,065

Loss/(income) on disposal of property and equipment

 

968

 

(3,225)

 

(1,202)

 

(172)

Deferred income taxes

 

(65,839)

 

(70,444)

 

50,060

 

7,176

Foreign currency exchange loss/(gain), net

 

(793)

 

(597)

 

17,592

 

2,522

Changes in operating assets and liabilities, net of acquisitions and disposals:

Accounts receivable

 

(260,265)

 

(261,151)

 

(377,771)

 

(54,151)

Prepayments and other assets

 

(345,300)

 

52,744

 

(149,467)

 

(21,425)

Accounts payable

 

40,503

 

268,784

 

168,662

 

24,177

Deferred revenues

 

285,352

 

224,578

 

(193,412)

 

(27,725)

Customer advances

 

129,362

 

99,621

 

426,444

 

61,128

Salary and welfare payable

 

(13,897)

 

106,483

 

111,910

 

16,042

Taxes payable

 

122,653

 

64,152

 

531,793

 

76,230

Operating lease liabilities

(146,986)

(21,070)

Accrued expenses and other liabilities

 

238,571

 

29,836

 

244,548

 

35,055

Net cash provided by operating activities

 

2,779,880

 

3,799,581

 

4,354,420

 

624,184

Cash flows from investing activities:

Purchase of property and equipment and intangible assets

 

(121,278)

 

(183,679)

 

(116,812)

 

(16,745)

Cash received for disposal of property and equipment

 

499

 

1,951

 

2,143

 

307

Purchase of long-term investments and investment in convertible notes

 

(467,385)

 

(1,792,895)

 

(2,150,344)

 

(308,240)

Cash received for disposal of long-term investments

353,485

16,500

4,407,267

631,757

Cash paid to term deposits and other advances

 

(15,824)

 

 

(70,000)

 

(10,034)

Proceeds from maturity of term deposits

 

61,228

 

 

 

Purchase of short-term investments

 

(18,527,200)

 

(26,461,220)

 

(38,714,305)

 

(5,549,483)

Proceeds from maturity of short-term investments

 

15,931,400

 

25,320,170

 

34,916,005

 

5,005,018

Cash paid for step-acquisition of Ganji, net of acquisition of cash

 

(91,867)

 

 

 

Cash paid for acquisitions of other subsidiaries, net of acquisition of cash

 

(3,100)

 

(9,796)

 

(38,356)

 

(5,499)

Net cash (paid)/received upon disposal of businesses

 

(330,248)

 

22,004

 

(5,249)

 

(752)

Net cash used in investing activities

 

(3,210,290)

 

(3,086,965)

 

(1,769,651)

 

(253,671)

Cash flows from financing activities:

Proceeds from exercise of share options

 

100,866

 

13,518

 

4,108

 

589

Proceeds from short-term and long-term loans

 

740,084

 

 

588,846

 

84,408

Repayment of short-term and long-term loans

 

(1,804,498)

 

(75,000)

 

(1,402,157)

 

(200,992)

Proceeds from issuance of preference shares of a subsidiary to Tencent and other investors

 

1,373,558

 

 

825,599

 

118,345

Contribution from noncontrolling interest holders

 

164,589

 

80,000

 

118,000

 

16,915

Cash received/(paid) on behalf of a related party

 

 

82,358

 

(81,328)

 

(11,658)

Cash paid for acquisitions of noncontrolling interests

 

 

(49,811)

 

(28,113)

 

(4,030)

Other financing payment

 

(3,523)

 

(4,145)

 

(5,655)

 

(811)

Net cash provided by financing activities

 

571,076

 

46,920

 

19,300

 

2,766

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

 

(82,731)

 

29,610

 

(33,242)

 

(4,765)

Net increase in cash, cash equivalents and restricted cash

 

57,935

 

789,146

 

2,570,827

 

368,514

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

 

2,352,397

 

2,410,332

 

3,199,478

 

458,628

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

 

2,410,332

 

3,199,478

 

5,770,305

 

827,142

Supplemental disclosure of cash flow information:

Income tax paid, net

 

166,800

 

238,589

 

450,857

 

64,628

Interest expense paid

 

66,336

 

43,877

 

12,760

 

1,829

Supplemental disclosure of non-cash activities:

Property and equipment in accounts payable

 

9,001

 

4,434

 

40,319

 

5,780

Consideration receivable for disposal of Guazi preference shares

497,837

71,362

Deemed dividend to mezzanine classified noncontrolling interests

 

89,024

 

132,202

 

175,045

 

25,092

Non-cash consideration for investment in Sweetome Property Consulting Group Co.,Ltd. ("Sweetome")

 

 

 

94,923

 

13,607

Non-cash consideration for disposal of Finance Business

150,908

Non-cash contribution from Tencent for Zhuanzhuan preference share financing

 

345,306

 

 

705,636

 

101,149

The accompanying notes are an integral part of these consolidated financial statements.

F-7

Table of Contents

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

1.

Organization and principal activities

58.com Inc. (the “Company”), through its consolidated subsidiaries, including wholly-foreign owned enterprises (“WFOEs”), variable interest entities (“VIEs”) and VIEs’ subsidiaries (collectively, the “Group”), is primarily engaged in the operation of various multi-category online classifieds platforms and vertical listing platforms that enable local businesses and consumers to connect, share information and conduct business in the People’s Republic of China (the “PRC” or “China”).

In 2019, the Company’s major consolidated subsidiaries, VIEs and VIEs’ subsidiaries are as follows:

Percentage

 

of

 

direct or

 

Date of

indirect

 

incorporation or

Place of

economic

 

Name

acquisition

incorporation

ownership

 

Wholly owned and majority owned subsidiaries of the Company:

 

  

 

  

 

  

China Classified Network Corporation (“CCNC BVI”)

January 5, 2010

 

British Virgin Islands

 

100

%

China Classified Information Corporation Limited (“CCIC HK”)

January 18, 2010

 

Hong Kong

 

100

%

Beijing Chengshi Wanglin Information Technology Co., Ltd. (“Wanglin”)

March 8, 2010

 

PRC

 

100

%

58 Tongcheng Information Technology Co., Ltd. (“58 Technology”)

March 15, 2012

 

PRC

 

100

%

Anjuke Inc. (“Anjuke”)

March 2, 2015

 

Cayman Island

 

100

%

Ruiting Network Technology (Shanghai) Co., Ltd. (“Shanghai Ruiting”)

March 2, 2015

 

PRC

 

100

%

58.com Holdings Inc. (“58 Holdings”)

July 11, 2014

 

British Virgin Islands

 

100

%

Falcon View Technology (“Ganji”)

August 6, 2015

 

Cayman Island

 

100

%

Beijing Yangguang Gudi Science Development Co., Ltd. (“Yangguang Gudi”)

August 6, 2015

 

PRC

 

100

%

Zhuan Spirit Holdings Limited (“Zhuan Zhuan Holding”)

March 24, 2017

 

Cayman Island

 

63.5

%

Zhuan Vision Holdings Limited (“Zhuan Vision”)

April 20, 2017

 

Hong Kong

 

63.5

%

Tianjin Zhuanzhuan World Technology Co., Ltd (“Tianjin Zhuanzhuan”)

June 21, 2017

 

PRC

 

63.5

%

VIEs and VIEs’ subsidiaries:

 

  

 

  

Beijing 58 Information Technology Co., Ltd. (“Beijing 58”)

December 12, 2005

 

PRC

 

100

%

58 Co., Ltd.

July 28, 2011

 

PRC

 

100

%

Shanghai Ruijia Information Technology Co., Ltd.

March 2, 2015

 

PRC

 

100

%

Beijing 58 Auto Technology Co., Ltd. (“Beijing 58 Auto”, formerly known as Beijing Leftbrain Network Technology Co., Ltd.)

November 26, 2015

 

PRC

 

89.8

%

Beijing Shanjing Kechuang Network Technology Co., Ltd. (“Shanjing Kechuang”)

August 6, 2015

 

PRC

 

100

%

Beijing Zhuanzhuan Spirit Technology Co., Ltd. (“Beijing Zhuanzhuan”)

April 11, 2017

 

PRC

 

63.5

%

Note:

58 Daojia Inc. (“58 Home”), which was established on January 26, 2015, completed its Series A equity financing in November 2015. As certain approval rights were granted to noncontrolling preference shareholders and such rights were considered as substantive participating rights in accordance with ASC 810-10, the Company deconsolidated 58 Home, its subsidiaries and VIEs upon completion of the transaction. See Note 5 for more information.

F-8

Table of Contents

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

a.

Contractual arrangements with the Group’s VIEs

In order to comply with the PRC laws and regulations which prohibit or restrict foreign control of companies involved in the provision of internet content and other restricted businesses, the Group operates its platforms and other restricted businesses in the PRC through certain PRC domestic companies, whose equity interests are held by certain management members of the Group (“Nominee Shareholders”). The Group obtained control over these PRC domestic companies by entering into a series of contractual agreements with these PRC domestic companies and their respective Nominee Shareholders. These contractual agreements include loan agreements, exclusive purchase option agreements, exclusive technology consulting and services agreements, intellectual property rights license agreement, equity pledge agreements, powers of attorney, business cooperation agreements and business operation agreements. These contractual agreements can be extended at the Group’s relevant PRC subsidiaries’ options prior to the expiration dates. Management concludes that these PRC domestic companies are VIEs of the Group, of which the Group is the ultimate primary beneficiary. As such, the Group consolidated the financial results of these PRC domestic companies and their subsidiaries in the Group’s consolidated financial statements. Refer to Note 2(a) to the consolidated financial statements for the principles of consolidation.

The following is a summary of the contractual agreements (collectively, “Contractual Agreements”) that the Group, through its subsidiaries, entered into with the VIEs and their Nominee Shareholders:

(i) Contractual Arrangements with Beijing 58

The Company’s subsidiary Wanglin has entered into contractual arrangements with Beijing 58 and its shareholders described below, which are referred to as the Beijing 58 Agreements. Through the Beijing 58 Agreements, the Company exercises control over the operations of Beijing 58 and receives all its economic benefits and residual returns substantially.

Through the amended and restated exclusive business cooperation agreement between Beijing 58 and Wanglin, Wanglin agrees to provide certain technical and business support and related consulting services to Beijing 58 in exchange for service fees. In addition, pursuant to the amended and restated exclusive option agreement, Beijing 58 is prohibited from declaring and paying any dividends without Wanglin’s prior consent and Wanglin enjoys an irrevocable and exclusive option to purchase Beijing 58 shareholders’ equity interests, to the extent permitted by the applicable PRC laws, at a nominal price from Beijing Wanglintong Information Technology Co., Ltd. (“Beijing Wanglintong”), which is one of the shareholders of Beijing 58, or at a specified price equal to the loan provided by Wanglin to the individual shareholders. If the lowest price permitted under PRC laws is higher than the above price, the lowest price permitted under PRC laws shall apply. Through the arrangements, the Company can obtain all of Beijing 58’s income and all of its residual interests, such as undistributed earnings, either through dividend distribution or purchase of Beijing 58’s equity interests from its existing shareholders. As a result of the contractual arrangements, the Company consolidates Beijing 58’s financial results in its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Exclusive Business Cooperation Agreement

Under the exclusive business cooperation agreement between Beijing 58 and Wanglin, as amended and restated, Wanglin has the exclusive right to provide, among other things, technical and business support and related consulting services to Beijing 58 and Beijing 58 agrees to accept all the advice and services provided by Wanglin. Without Wanglin’s prior written consent, Beijing 58 is prohibited from engaging any third party to provide any of the services under this agreement. In addition, Wanglin exclusively owns all intellectual property rights arising from or created during the performance of this agreement. Beijing 58 agrees to pay a quarterly service fee to Wanglin at an amount determined solely by Wanglin after taking into account factors including the complexity and difficulty of the services provided, the time consumed, the seniority of the Wanglin employees providing services to Beijing 58, the value of services provided, the market prices of comparable services and the operating conditions of Beijing 58. This agreement will remain effective unless Wanglin terminates the agreement in writing or a competent governmental authority rejects the renewal applications by either Beijing 58 or Wanglin to renew its respective business license upon expiration. Beijing 58 is not permitted to terminate this agreement in any events unless required by applicable laws. In 2017, 2018 and 2019, Wanglin provided technical support services to Beijing 58 and its subsidiaries and collected service fee payments of approximately RMB0.4 million, RMB18.7 million and RMB12.8 million, respectively.

F-9

Table of Contents

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

Powers of Attorney

Pursuant to the powers of attorney, each shareholder of Beijing 58 irrevocably appointed Wanglin as the attorney-in-fact to act on their behalf on all matters pertaining to Beijing 58 and to exercise all of their rights as a shareholder of Beijing 58, including but not limited to attend shareholders’ meetings, vote on their behalf on all matters of Beijing 58 requiring shareholders’ approval under the PRC laws and regulations and the articles of association of Beijing 58, and designate and appoint directors and senior management members. Wanglin may authorize or assign its rights under this appointment to any other persons or entities at its sole discretion without prior notice to the shareholders of Beijing 58. Each power of attorney will remain in force until the shareholder ceases to hold any equity interests in Beijing 58.

Equity Interest Pledge Agreements

Under the equity interest pledge agreements among Wanglin, Beijing 58 and the shareholders of Beijing 58, as amended and restated, the shareholders pledged all of their equity interests in Beijing 58 to Wanglin to guarantee Beijing 58’s and Beijing 58’s shareholders’ performance of their obligations under the contractual arrangements including but not limited to the payments due to Wanglin for services provided. If Beijing 58 or any of Beijing 58’s shareholders breaches its contractual obligations under the contractual arrangements, Wanglin, as the pledgee, will be entitled to certain rights and entitlements, including receiving proceeds from the auction or sale of the whole or part of the pledged equity interests of Beijing 58 in accordance with the legal procedures. Wanglin has the right to receive dividends generated by the pledged equity interests during the term of the pledge. If any events of default as provided in the contractual arrangements occur, Wanglin, as the pledgee, will be entitled to dispose of the pledged equity interests in accordance with the PRC laws and regulations. The pledge will become effective on the date when the pledge of equity interests contemplated in these agreements are registered with the relevant local administration for industry and commerce and will remain binding until Beijing 58 and its shareholders discharge all their obligations under the contractual arrangements. These equity interest pledge agreements were registered with Chaoyang Branch of Beijing Administration for Industry and Commerce in July 2013.

Exclusive Option Agreements

Under the exclusive option agreements among Wanglin, Beijing 58 and each of the shareholders of Beijing 58, as amended and restated, irrevocably granted Wanglin or its designated representative(s) an exclusive option to purchase all or part of his, her or its equity interests in Beijing 58 to the extent permitted under PRC law. In addition, Wanglin has the option to acquire all the equity interests of Beijing 58 for either a nominal price from Beijing Wanglintong, or at a specified price equal to the loan provided by Wanglin to the individual shareholders. If the lowest price permitted under the PRC laws is higher than the above price, the lowest price permitted under the PRC laws shall apply. Wanglin and its designated representative(s) have sole discretion as to when to exercise such options, either in part or in full. Without Wanglin’s prior written consent, Beijing 58’s shareholders shall not transfer, donate, pledge, or dispose of any equity interests in Beijing 58. These agreements will remain effective until all equity interests held in Beijing 58 by the Beijing 58’s shareholders are transferred or assigned to Wanglin or Wanglin’s designated representatives. At the moment, the Company cannot exercise the exclusive option to purchase the current shareholders’ equity interests in Beijing 58 due to the PRC regulatory restrictions on foreign ownership in the value-added telecommunications services and internet content services. The Company intends to exercise such option once China opens up these industries to foreign investment.

Loan Agreements

Pursuant to the loan agreements between Wanglin and each individual shareholder of Beijing 58, Wanglin provided interest-free loans with an aggregate amount of approximately RMB7.8 million to the individual shareholders of Wanglin for the sole purpose of funding the capital of Beijing 58. The loans can be repaid by transferring the individual shareholders’ equity interests in Beijing 58 to Wanglin or its designated person pursuant to Exclusive Option Agreements. The term of each loan agreement is ten years from the date of the agreement, expiring on December 1, 2021 and can be extended with the written consent of both parties before expiration.

F-10

Table of Contents

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

(ii) Contractual Arrangements with Shanjing Kechuang

Ganji, through its PRC subsidiary, Yangguang Gudi, has entered into contractual arrangements with Shanjing Kechuang and its shareholders with terms substantially similar to those under the Beijing 58 Agreements, which are referred to as the Shanjing Kechuang Agreements. Through the Shanjing Kechuang Agreements, Ganji exercises control over the operations of Shanjing Kechuang and receives all its economic benefits and residual returns substantially. Through the exclusive business cooperation agreement between Yangguang Gudi and Shanjing Kechuang, Yangguang Gudi agrees to provide certain technical and business support and related consulting services to Shanjing Kechuang in exchange for service fees. In addition, pursuant to the exclusive option agreements, Shanjing Kechuang is prohibited from declaring and paying any dividends without Yangguang Gudi’s prior consent and Yangguang Gudi enjoys an irrevocable and exclusive option to purchase Shanjing Kechuang shareholders’ equity interests, to the extent permitted by the applicable PRC laws, at a specified price equal to the loan amount provided by Yangguang Gudi to the shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under the PRC laws shall apply. Through these arrangements, Ganji can obtain all of the income and the interests of Shanjing Kechuang, such as undistributed earnings, either through dividend distributions or purchase of equity interests of Shanjing Kechuang from its existing shareholders. As a result of the contractual arrangements, the Company, through Ganji, consolidates the financial results of Shanjing Kechuang in its consolidated financial statements in accordance with U.S. GAAP.

In January 2018, Haoyong Yang, Chunyan Guo and Yang Liu, who previously held 0.3%, 20% and 30.7 % equity interests in Shanjing Kechuang transferred all their equity interests to 58 Co., Ltd, a wholly owned subsidiary of Beijing 58. Subsequent to the share transfer, Shanjing Kechuang is 100% owned by 58 Co., Ltd.

(iii) Contractual Arrangements with Beijing Zhuanzhuan

Zhuan Zhuan Holding, through its PRC subsidiary, Tianjin Zhuanzhuan, has entered into contractual arrangements with Beijing Zhuanzhuan and its shareholders with terms substantially similar to those under the Beijing 58 Agreements, which was referred to as the Beijing Zhuanzhuan Agreements. Through the Beijing Zhuanzhuan Agreements, Tianjin Zhuanzhuan exercises control over the operations of Beijing Zhuanzhuan and receives all its economic benefits and residual returns substantially. Through the exclusive business cooperation agreement between Tianjin Zhuanzhuan and Beijing Zhuanzhuan, Tianjin Zhuanzhuan agrees to provide certain technical and business support and related consulting services to Beijing Zhuanzhuan in exchange for service fees. In addition, pursuant to the exclusive option agreements, Beijing Zhuanzhuan is prohibited from declaring and paying any dividends without Tianjin Zhuanzhuan’s prior consent and Tianjin Zhuanzhuan enjoys an irrevocable and exclusive option to purchase Beijing Zhuanzhuan shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a purchase price of RMB10 Yuan. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. Through these arrangements, Zhuan Zhuan Holding can obtain all of the income and the residual interests of Beijing Zhuanzhuan, such as undistributed earnings, either through dividend distributions or purchase of equity interests of Beijing Zhuanzhuan from its existing shareholders. As a result of the contractual arrangements, the Group, through Zhuan Zhuan Holding, consolidates the financial results of Beijing Zhuanzhuan in the Group’s consolidated financial statements in accordance with U.S. GAAP.

F-11

Table of Contents

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

b.

Risks in Relation to the VIE Structure

It is possible that the Group’s operations of certain of its businesses through the VIEs could be found by the PRC authorities to be in violation of the PRC laws and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. While the Group’s management considers the possibility of such a finding by PRC regulatory authorities under current PRC law and regulations to be remote, on January 19, 2015, the Ministry of Commerce of the PRC (the “MOFCOM”) released on its Website for public comment a proposed PRC law (the “Draft FIE Law”) that appears to include VIEs within the scope of entities that could be considered to be foreign invested enterprises (or “FIEs”) that would be subject to restrictions under the existing PRC laws and regulations on foreign investments in certain categories of industries. Specifically, the Draft FIE Law introduces the concept of “actual control” for determining whether an entity is considered to be an FIE. In addition to control through direct or indirect ownership or equity, the Draft FIE Law includes control through contractual arrangements within the definition of “actual control.” If the Draft FIE Law is passed by the People’s Congress of the PRC and becomes effective in its current form, these provisions regarding control through contractual arrangements construed to apply to the Group’s VIE arrangements may cause the Group’s VIEs to become explicitly subject to the current restrictions on foreign investments in certain categories of industries. The Draft FIE Law includes provisions that would exempt from the definition of foreign invested enterprises entities where the ultimate controlling shareholders are either entities organized under the PRC laws or individuals who are PRC citizens. The Draft FIE Law is silent as to what type of enforcement actions might be taken against existing VIEs that operate in restricted or prohibited industries and are not controlled by entities organized under PRC law or individuals who are PRC citizens. If the PRC authorities find out that the Group’s operations of certain of its operations and businesses through the VIEs are prohibited under the existing laws and regulations or under the Draft FIE Law assuming it becomes effective, the regulatory authorities with jurisdiction over the licensing and operations of such operations and businesses may have broad discretion in dealing with such violations, including levying fines, confiscating the Group’s income, revoking the businesses or operating licenses of the affected businesses, requiring the Group to restructure its ownership structure or operations, or requiring the Group to discontinue any or all portion of its operations. For example, the National People’s Congress approved the Foreign Investment Law on March 15, 2019 and the State Council approved the Regulation on Implementing the Foreign Investment Law (the “Implementation Regulations") on December 12, 2019, effective from January 1, 2020. The Supreme People's Court of China issued a judicial interpretation on the Foreign Investment Law on December 27, 2019, effective from January 1, 2020. The Foreign Investment Law and the Implementation Regulations do not touch upon the relevant concepts and regulatory regimes that were historically suggested for the regulation of VIE structures, and thus this regulatory topic remains unclear under the Foreign Investment Law. Since the Foreign Investment Law and the Implementation Regulations are new, there are substantial uncertainties exist with respect to its implementation and interpretation and it is also possible that variable interest entities will be deemed as foreign invested enterprises and be subject to restrictions in the future. Such restrictions may cause interruptions to our operations, products and services and may incur additional compliance cost, which may in turn materially and adversely affect our business, financial condition and results of operations.

In addition, if the legal structure and contractual arrangements were found to be in violation of any other existing PRC laws and regulations, the PRC government could:

revoke the Group’s business and operating licenses;
require the Group to discontinue or restrict operations;
restrict the Group’s right to collect revenues;
block the Group’s platforms;
require the Group to restructure the operations in such a way as to compel the Group to establish a new enterprise, re-apply for the necessary licenses or relocate its businesses, staff and assets;
impose additional conditions or requirements with which the Group may not be able to comply; or
take other regulatory or enforcement actions against the Group that could be harmful to the Group’s businesses.

F-12

Table of Contents

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

The imposition of any of these penalties may result in a material and adverse effect on the Group’s ability to conduct the Group’s businesses. In addition, if the imposition of any of these penalties causes the Group to lose the right to direct the activities of any of the VIEs (through its equity interests in its subsidiaries) or the right to receive their economic benefits, the Group will no longer be able to consolidate the relevant VIE and its subsidiaries, if any. In the opinion of management, the likelihood of loss in respect of the Group’s current ownership structure or the contractual arrangements with its VIEs is remote.

There is no VIE for which the Company has variable interests but is not the primary beneficiary.

As of December 31, 2019, the aggregate accumulated losses of the Group’s VIEs and VIEs’ subsidiaries were approximately RMB2.6 billion, which has been included in the consolidated financial statements. The following financial statement amounts and balances of the Group’s VIEs and VIEs’ subsidiaries were included in the accompanying consolidated financial statements as of December 31, 2018 and 2019 and for the three years ended December 31, 2017, 2018 and 2019:

As of December 31,

2018

2019

    

RMB

    

RMB

Cash and cash equivalents

 

1,201,368

 

423,153

Short-term investments

 

1,162,694

 

3,282,743

Accounts receivable, net

 

437,985

 

466,317

Prepayments and other current assets

 

659,454

 

628,138

Property and equipment, net

 

140,600

 

169,242

Long-term investments

 

1,703,968

 

3,234,260

Intangible assets, net and goodwill

 

15,634,421

 

15,451,122

Right-of-use assets, net

223,578

Long-term prepayments and other non-current assets

 

52,364

 

139,064

Total assets

 

20,992,854

 

24,017,617

Accounts payable

 

297,774

 

383,504

Deferred revenues

 

803,140

 

595,045

Customer advances

 

239,622

 

337,952

Taxes payable

 

35,583

 

77,417

Salary and welfare payable

 

295,430

 

320,769

Inter-company payable

 

4,326,185

 

7,168,608

Accrued expenses and other current liabilities

 

312,681

 

535,823

Operating lease liabilities-current

108,211

Deferred tax liabilities

 

246,858

 

208,050

Operating lease liabilities-non-current

120,247

Total liabilities

 

6,557,273

 

9,855,626

For the year ended December 31,

2017

2018

2019

    

RMB

    

RMB

    

RMB

Revenue

 

4,086,645

 

4,244,322

 

4,480,963

Net (loss)/income

 

649,831

 

(603,099)

 

(835,874)

Net cash provided by operating activities

 

1,272,425

 

2,201,663

 

2,420,664

Net cash used in investing activities

 

(1,449,482)

 

(1,402,912)

 

(3,745,087)

Net cash provided by financing activities

 

3,485

 

80,000

 

545,841

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

Under the contractual arrangements with each of the VIEs and through their respective equity interests in their subsidiaries, the Group has the power to direct the activities of the VIEs and the VIEs’ subsidiaries and the transfer of assets out of the VIEs and the VIEs’ subsidiaries. Therefore, the Group considers that no asset of the VIEs and the VIEs’ subsidiaries can be used only to settle their obligations. As the consolidated VIEs and VIEs’ subsidiaries are incorporated as limited liability companies under the PRC Company Law, the creditors of the liabilities of the consolidated VIEs and the VIEs’ subsidiaries do not have recourse to the general credit of the Company.

The Group believes that the contractual arrangements among each of the VIEs, their respective shareholders and relevant WFOE are in compliance with the PRC laws and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements and if the shareholders of VIEs were to reduce their interests in the Company, their interests may diverge from that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms.

The Company’s ability to control the VIEs also depends on the power of attorney and that the WFOEs have to vote on all matters requiring shareholder approval in the VIEs. As noted above, the Company believes this power of attorney is legally enforceable but may not be as effective as direct equity ownership.

Currently there is no contractual arrangement that could require the Company to provide additional financial support to VIEs. As the Company is conducting its businesses mainly through VIEs, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.

c.

Liquidity

The Group’s principal sources of liquidity are cash and cash equivalents, short-term investments, term deposits and cash flows generated from its operations. Cash equivalents mainly consist of time deposits with original maturities of no more than three months, and highly liquid investments that are readily convertible to known amounts of cash. Short-term investments comprise investment instruments issued by commercial banks in mainland China, with variable interest rates indexed to the performances of underlying assets and maturity dates within one year.

As of December 31, 2019, the Group had cash and cash equivalents, short-term investments and term deposits of approximately RMB13.8 billion, and the Group’s working capital was RMB10.0 billion. Net cash provided by the Group’s operating activities were RMB2.8 billion, RMB3.8 billion and RMB4.4 billion, respectively, for the years ended December 31, 2017, 2018 and 2019.

The Group regularly monitors current and expected liquidity requirements to ensure that it maintains sufficient cash balances and adequate credit facilities to meet its liquidity requirements in the short and long term. The Group has adopted Accounting Standards Update (“ASU”) No.2014-15 “Presentation of Financial Statements – Going Concern” which addresses management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures if the substantial doubt exists. Based on the Group’s operating plan without considering any mitigating plan as discussed in ASU No. 2014-15, or any guarantee by related party, the management is of the opinion that, the Group’s current cash and cash equivalents and anticipated cash flow from operations provide sufficient funds to meet the working capital requirements to fund planned operations and other commitments for at least the next twelve months from the date the consolidated financial statements for the year ended December 31, 2019 are issued. As a result, the consolidated financial statements of the Group for the year ended December 31, 2019 have been prepared on a going concern basis.

2.

Principal accounting policies

(a)

Principles of consolidation

The consolidated financial statements of the Group have been prepared in accordance with U.S. GAAP. The consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries for which the Company is the ultimate primary beneficiary.

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.

A VIE is an entity in which the Company or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with, ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity.

All significant transactions and balances among the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries have been eliminated upon consolidation. The results of subsidiaries and VIEs acquired or disposed of during the year are recorded in the consolidated statement of comprehensive income from the effective dates of acquisition or up to the effective dates of disposal, as appropriate.

The Company deconsolidates its subsidiaries in accordance with ASC 810-10-40-4 as of the dates the Company ceases to have controlling financial interests in the subsidiaries.

The Company accounts for the deconsolidation of its subsidiaries by recognizing a gain or loss in net income attributable to the Company in accordance with ASC 810-10-40-5. This gain or loss is measured at the date the subsidiaries are deconsolidated as the difference between (a) the aggregate of the fair values of any consideration received, the fair values of any retained noncontrolling interests in the subsidiaries being deconsolidated, and the carrying amounts of any noncontrolling interests in the subsidiaries being deconsolidated, including any accumulated other comprehensive income attributable to the noncontrolling interests, and (b) the carrying amounts of the assets and liabilities of the subsidiaries being deconsolidated.

(b)

Use of estimates

The preparation of the Group’s consolidated financial statements in conformity with the U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ materially from those estimates. Significant accounting estimates reflected in the Group’s consolidated financial statements mainly include revenue recognition, the determination of the fair value of identifiable assets and liabilities acquired through business combination, the determination of the fair value of long-term investments, the determination of the fair value of mezzanine equity, the determination of fair value of noncontrolling interests, the valuation allowance of deferred tax assets, the determination of uncertain tax position, impairment of certain long-term investments, the valuation and recognition of share-based compensation, impairment of long-lived assets and the determination of the estimated useful lives of property and equipment and intangible assets.

(c)

Functional Currency and Foreign Currency Translation

The functional currency of the Company and its subsidiaries incorporated outside of the PRC is the United States dollar (“US$”), while the functional currency of the PRC entities in the Group is Chinese Renminbi (“RMB”) as determined based on ASC 830, “Foreign Currency Matters”. Effective December 31, 2016, the Group changed its reporting currency from US$ to RMB. Assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at historical exchange rates, and revenues, expenses, gains and losses are translated using the average rate for the periods. Translation adjustments arising from these are reported as foreign currency translation adjustments and are shown as a component of other comprehensive income/(loss) in the consolidated statement of changes in shareholders’ equity. For the years ended December 31, 2017, 2018 and 2019, foreign currency translation income, net of nil tax was RMB82.9 million, RMB15.5 million and RMB137.4 million respectively.

Foreign currency transactions denominated in currencies other than the functional currencies are translated into the functional currencies using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currencies using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are included in “foreign currency exchange (loss)/gain, net” in the consolidated statements of comprehensive income. Foreign currency exchange gain was RMB0.8 million and RMB0.6 million for the years ended December 31, 2017 and 2018, respectively. Foreign currency exchange loss was RMB17.6 million for the year ended December 31, 2019.

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

For the convenience of the reader, translations of amounts from RMB into US$ were calculated at the exchange rate of RMB6.9762 per US$1.00, the middle rate on December 31, 2019, the last business day in the year ended December 31, 2019, as published on the website of the State Administration of Foreign Exchange of the PRC. No representation is made that the RMB amounts could have been or could be converted into US$ at such rate.

(d)

Cash and cash equivalents

Cash and cash equivalents represent cash on hand, demand deposits and highly liquid investments placed with banks or other financial institutions, which are unrestricted as to withdrawal or use, and which have original maturities of three months or less and are readily convertible to known amounts of cash.

The following table sets forth a breakdown of the Group’s cash and cash equivalents by currency denomination, jurisdiction and geographical location as of December 31, 2018 and 2019:

RMB in 

US$ in thousands

RMB in thousands

    

thousands

    

    

    

    

    

    

    

    

    

    

    

    

    

Total

Hong

China-

China

Hong

China-

China

translated to

USA

Singapore

Kong

Non-VIE

VIE

Total

USA

Singapore

Kong

Non-VIE

VIE

Total

RMB

December 31, 2018

 

3

 

122,704

 

2,534

 

4

 

125,245

 

272

 

128

 

326,156

 

1,201,340

 

1,527,896

2,387,478

December 31, 2019

 

3

1

 

597,829

 

6,275

 

4

 

604,112

 

273

1,019

 

146

 

654,241

423,125

 

1,078,804

5,293,206

(e)

Restricted cash

Restricted cash, which consisted of the cash pledged for bank loans to the Group and a related party of the Group and the cash legally restricted from withdrawal, is reported separately on the face of the Group’s consolidated balance sheets and is included in the total cash, cash equivalents and restricted cash in the consolidated statements of cash flows.

Cash that is legally restricted from withdrawal amounted to RMB15.7 million and RMB60.1 million as of December 31, 2018 and 2019, respectively. Cash pledged with commercial banks for the Group’s bank loans amounted to RMB796.3 million as of December 31, 2018 and released in 2019. Cash pledged with commercial banks as guarantee for short-term bank borrowings by a related party of the Group amounted to RMB417.0 million as of December 31, 2019. All of the above restricted cash balances were included in the balance of restricted cash-current in the Group’s consolidated balance sheets as of December 31, 2018 and 2019, respectively.

(f)Term deposits

Term deposits represent time deposits placed with banks with original maturities of more than three months to up to one year. Interest earned is recorded as interest income in the consolidated statements of comprehensive income during the periods presented.

(g)

Short-term investments

Short-term investments include investments in variable rate financial instruments which primarily consists of wealth management products with variable interest rates or principal non-guaranteed which were purchased from commercial banks and other financial institutions.

The Group carries these investments at fair value. Changes in the fair value are reflected in the consolidated statements of comprehensive income as investment income, net. Fair value is estimated based on quoted prices of similar products provided by banks at the end of each period. The Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements. Please see Note 20 for additional information.

Variable-rate financial instruments are recorded at fair values based on the judgment that expected return will be obtained upon maturity. As of December 31, 2018 and 2019, the Group had short-term investments of RMB4.6 billion and RMB8.4 billion, respectively.

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

(h)

Accounts receivable, net

Accounts receivable, net mainly represent amounts due from customers and online payment channels and are recorded net of an allowance for doubtful accounts. The carrying values of accounts receivable are reduced by allowances that reflects the Group’s best estimate of the amounts that will not be collected. The Group makes estimations for the collectability of accounts receivable considering many factors including but not limited to reviewing accounts receivable balances, historical bad debt rates, accounts aging, repayment patterns, customer credit worthiness, financial conditions of the customers and industry trend analysis. An accounts receivable is written off after all collection effort has ceased. The Group recognized RMB4.9 million and RMB31.1 million allowance for doubtful accounts for the years ended December 31, 2018 and 2019, respectively.

(i)

Property and equipment, net

Property and equipment are stated at cost less accumulated depreciation and impairment. Property and equipment are depreciated over the estimated useful lives on a straight-line basis. The estimated useful lives are as follows:

Buildings

    

30-50 years

Computers and equipment

3-5 years

Motor vehicles

4-5 years

Furniture and fixtures

5 years

Software

3-5 years

Leasehold improvements

Over the shorter of lease terms or the estimated useful lives of assets

Expenditures for maintenance and repairs are expensed as incurred. The gains or losses on the disposal of property and equipment are the differences between the net sales proceeds and the carrying amounts of the relevant assets and are recognized in the consolidated statements of comprehensive income.

(j)

Intangible assets, net

Intangible assets acquired through business acquisitions are recognized as assets separated from goodwill if they satisfy either the "contractual-legal" or "separability" criterion. Intangible assets purchased are recognized and measured at fair value upon acquisition.

Intangible assets with finite lives are carried at cost less accumulated amortization. Separately identifiable intangible assets that have determinable lives continue to be amortized over their estimated useful lives using the straight-line method as follows:

Customer relationships

   

2-3 years

Domain names and trademarks

9-10 years

Technology

4-5 years

Licenses

10 years

Intangible assets with infinite lives are evaluated to determine the fair value annually. An impairment loss is recognized if the carrying amount exceeds the fair value. Separately identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for identifiable intangible assets is based on the amounts by which the carrying amounts of the assets exceed the fair values of the assets.

(k)

Land use rights, net

Land use rights are carried at cost less accumulated amortization. Amortization is provided to write off the cost of lease prepayments on a straight-line basis over the period of the shorter of estimated useful lives which are generally 50 years or the terms of the land use rights purchase agreements.

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

(l)

Goodwill

Goodwill represents the excess of the purchase price over fair value of the identifiable assets and liabilities acquired in a business combination.

Goodwill is not depreciated or amortized but is tested for impairment on an annual basis as of December 31 and in between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired. In accordance with the FASB guidance on Testing of Goodwill for Impairment, the Group first has the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Group decides, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss equal to the difference between the implied fair value of the reporting unit’s goodwill and the carrying amount of goodwill will be recorded. Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit. The Group performs goodwill impairment testing at the reporting unit level on December 31 annually. No impairment of goodwill was recognized for the years ended December 31, 2017, 2018 and 2019, respectively.

(m)

Long-term investments and investment in convertible notes

(i) Equity Investments Accounted for Using the Equity Method

In accordance with ASC 323 Investment-Equity Method and Joint Ventures, the Group applies the equity method of accounting to equity investments, in common stock or in-substance common stock, over which it has significant influence but does not own a majority equity interests or otherwise control. Under the equity method, the Group initially records its investment at cost. The difference between the cost of the equity investment and the amount of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill or as an intangible asset as appropriate. The Group subsequently adjusts the carrying amount of the investment to recognize the Group’s proportionate share of each equity investee’s net income or loss into consolidated statements of comprehensive income after the date of acquisition. The Group will discontinue applying equity method if the carrying amount of an investment (and additional financial supports to the investee, if any) has been reduced to zero.

When the Group’s investment in common stock has been reduced to zero and it has other investments in the investee, the Group continues to record its share of income or loss in the equity investees in its consolidated statements of comprehensive income, to the extent of and as an adjustment to the adjusted basis of the other investments in the investee. The order in which those equity method income or loss should be applied to the other investments shall follow the seniority of the other investments (that is, priority in liquidation). In such instances, the Group recognizes investee income or loss based on the ownership level of the particular investee security or loan/advance held by the Group.

An investment in in-substance common stock is an investment that has risk and reward characteristics that are substantially similar to that entity’s common stock. The Group considers subordination, risks and rewards of ownership and obligation to transfer value when determining whether an investment in an entity is substantially similar to one in that entity’s common stock.

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

The equity method investments are subject to periodic testing for other-than-temporary impairment, by considering factors including, but not limited to, stock prices of public companies in which the Group has an equity investment, current economic and market conditions, operating performance of the investees such as current earnings trends and undiscounted cash flows, and other company-specific information, such as recent financing rounds. The fair value determination, particularly for investments in privately-held companies whose revenue model is still evolving, requires significant judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investments and the determination of whether any identified impairment is other-than-temporary. If any impairment is considered other-than-temporary, the Group will write down the asset to its fair value and take the corresponding charge to the consolidated statements of comprehensive income. The Group recorded RMB nil, RMB nil and RMB2.6 million impairment charges for equity method investments for the years ended December 31, 2017, 2018 and 2019, respectively.

(ii) Equity Investment with Readily Determinable Fair Values

According  to ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through the consolidated statements of comprehensive income.

Equity investments with readily determinable fair values are valued using the market approach based on the quoted prices in active markets at the reporting dates. The Group classifies the valuation techniques that use these inputs as Level 1 of fair value measurements.

(iii) Equity Investments without Readily Determinable Fair Values

Based on ASU 2016-01, the Group will be able to elect to record equity investments without readily determinable fair values and not accounted for by the equity method either at fair value with changes in fair value recognized in net income or at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer (“measurement alternative”). An election to measure an equity security shall be made for each investment separately. If the Group elects to use this measurement alternative method, the Group should measure the equity security at fair value as of the date that observable transaction occurred and report changes in the carrying value of the equity investments in current earnings whenever there are observable price changes in orderly transactions for the identical or similar investment of the same issuer. The values were estimated based on valuation methods using the observable transaction price at the transaction date and other unobservable inputs including volatility, as well as rights and obligations of the securities that the Group holds.

For each reporting period, the Group would make a qualitative assessment considering impairment indicators to evaluate whether the equity investment without a readily determinable fair value is impaired. Impairment indicators that considered by the Group include, but are not limited to, 1) a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, 2) a significant adverse change in the regulatory, economic, or technological environment of the investee, 3) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates, 4) a bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment, and 5) factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants.

When indicators of impairment exist, the Group prepares quantitative assessments of the fair value of the equity investments. When the assessment indicates that an impairment exists, the Group will include an impairment loss in net income equal to the difference between the fair value of the investment and its carrying amount.

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

Because certain investees’ operation metrics and financial performance did not meet the expectations, the Group recorded RMB37.3 million impairment for the cost method investments for the years ended December 31, 2017. The Group recorded RMB40.0 million and RMB11.8 million impairments for investments accounted for under the measurement alternative method for the year ended December 31, 2018 and 2019, respectively. The impairment was recorded in “investment income, net” in the Group’s consolidated statements of comprehensive income.

(iv) Non-marketable equity security held by an investment company within the Group

In accordance with ASC 946-320 Financial Services—Investment Companies, Investments—Debt and Equity Securities, the Group accounts for long-term equity investments in unlisted companies held by consolidated investment companies at fair value. These investments were initially recorded at their transaction price net of transaction costs, if any. Fair value of these investments are re-measured periodically in accordance with ASC 820.

(v)Investments accounted for using the fair value option

In accordance with ASC 825 Financial Instruments, the Group applied the fair value option on an instrument-by-instrument basis. Such fair value option requires the irrevocable election on an instrument-by-instrument basis at initial recognition of an asset or upon an event that gives rise to a new basis of accounting for that instrument. The investments accounted for under the fair value option are carried at the fair value with realized or unrealized gains or losses recorded in the consolidated statements of comprehensive income. As of December 31, 2019, investments accounted for using fair value option amounted to RMB692.0 million, which mainly included investment in convertible notes of Uxin Limited ("Uxin"). Please see Note 15 for additional information.

(n)

Impairment of other long-lived assets

In accordance with ASC 360-10-35, the Group’s other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to future undiscounted net cash flows expected to be generated by the assets. Such assets are considered to be impaired if the sum of the expected undiscounted cash flow is less than the carrying amount of the assets. The impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There were no impairment charges of other long-lived assets recognized for the years ended December 31, 2017, 2018 and 2019, respectively.

(o)

Fair value

Accounting guidance defines fair value as 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 it considers assumptions that market participants would use when pricing the asset or liability.

Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value:

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets

Level 2 — Include other inputs that are directly or indirectly observable in the marketplace

Level 3 — Unobservable inputs which are supported by little or no market activity

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

The Group measures the fair value of assets and liabilities by two main approaches: (1) market approach and (2) income approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts.

The Group’s financial instruments mainly include cash and cash equivalents, restricted cash, term deposits, short-term investments, accounts receivable, certain long-term investments, investment in convertible notes, loans, accounts payable, lease liabilities and certain financial liabilities recorded as accrued expenses and other current liabilities. The carrying value of the Group's aforementioned financial instruments included in current assets and liabilities approximate their fair value because of their short maturities. All equity investments in unconsolidated entities (other than those accounted for using the equity method and measurement alternative method of accounting) and investment in convertible notes are generally measured at fair value through earnings. Investments under the measurement alternative method and equity method are reviewed periodically for impairment using fair value measurement which requires significant unobservable inputs (Level 3). Investments under the measurement alternative method are also remeasured using fair value measurement which requires significant unobservable inputs (Level 3) when observable price change event occurs. Intangible assets, goodwill and fixed assets are marked to fair value when an impairment charge is recognized. Please see Note 20 for additional information.

(p)          Guarantee liabilities

In accordance with ASC 460 Guarantees, the Group recognized the noncontingent component of the guarantees as guarantee liabilities at fair value at issuance. The noncontingent component of a guarantee represents the obligation to stand ready to perform in the event that a specified triggering event or condition occurs. The contingent component of a guarantee represents the obligation to make future payments if a triggering event or condition occurs. The guarantee liabilities were included in other current liabilities in the Group's consolidated balance sheets.

The guarantee liabilities are generally reduced by recording a credit to net income as the guarantor is released from the guaranteed risk. In addition to subsequently measuring and recognizing the noncontingent component of a guarantee, the Group continually assessed the contingent component of the guarantees. If recognition of a contingent component is required, the Group will record it at the amount required by ASC 450 Contingencies, less the current carrying amount of the noncontingent component recognized in accordance with ASC 460. The Group separately tracks these components and accounts for them in accordance with their respective subsequent accounting guidance.

(q)

Customer advances and deferred revenues

In most cases, our customers pay in advance to purchase membership services and online marketing services. The cash proceeds received from customers are initially recorded as customer advances. When a specific service is selected and activated, the amount related to the service is transferred to deferred revenues.

(r)

Revenue recognition

The Group adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”), from January 1, 2018, applying the modified retrospective method to those contracts which were not completed as of January 1, 2018. Accordingly, revenues for the years ended December 31, 2018 and 2019 were presented under ASC 606, while revenues for the year ended December 31, 2017 were not adjusted and continued to be reported under ASC 605. The adoption had no material impact on the Group’s accumulated deficit as of January 1, 2018 and the Group’s consolidated financial statements for the year ended December 31, 2018 and 2019.

The Group generates revenues primarily from membership and online marketing services. The Group sells its services through its direct sales teams, third party sales agencies and online self-serve channels. Under ASC 606, revenues are recognized when control of the promised goods or services is transferred to the Group’s customers, in an amount of consideration the Group expects to be entitled to in exchange for those goods or services.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

The Group determines revenue recognition through the following steps:

identification of the contract, or contracts, with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, we satisfy a performance obligation.

The Group’s revenues have been subject to value added tax (“VAT”). To record VAT payable, the Group uses the net presentation method, which presents the difference between the output VAT on goods sold or taxable services and the available input VAT amount (at the rate applicable to the supplier). Revenues are recorded net of VAT in accordance with the ASC 606. The recognition of revenues involves certain management judgments. The amount and timing of our revenues could be materially different for any period if management made different judgments or utilized different estimates.

(i)

Membership

A membership is a basic services package mainly consisting of the following services: customer certification, display of an online storefront on the Group’s platforms, preferential listing benefits such as limited daily priority listings and higher limit for free daily listings, access to the Group’s dedicated customer service support team and online account management system. As the receipt of membership fees is for services to be delivered over a period of time, the receipt is initially recorded as customer advances. When a specific subscription-based membership service is selected and activated, the amount related to the membership service is transferred to deferred revenues, and revenue is recognized ratably over the membership period as the service is rendered.

(ii)

Online marketing services

The Group’s online marketing services include time-based services and performance-based services. Revenues from time-based services are recognized ratably over the service period. Revenues from performance-based services are recognized when the agreed performance criteria are achieved. For service arrangements that include multiple performance obligations, revenues are allocated to each performance obligation. The Group allocates arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement to all deliverables based on the relative selling price method, generally based on the best estimate of selling price of the Group.

(iii)

E-commerce services

The Group’s e-commerce services refer to services provided to the real estate developers such as sale of discount coupons with which home buyers use to buy properties at a discounted price. It might also include tours to visit the properties, on site promotion activities and other services relating to property purchases. The coupon purchased by prospective home buyers is refundable before a purchase of the specified properties prior to the expiry date of the coupon. The Group recognizes revenues when home buyers apply the discount coupon to pay for the purchase price of the specified properties from real estate developers. Cash received in advance of the purchase of specified properties is recorded as customer advances, as a type of contract liability.

(iv)

Other revenues

Other revenues are primarily derived from selling used goods and providing services on Zhuan Zhuan, the Group’s online used goods trading and service platform and providing various online to offline recruitment services. The Group recognizes other revenues when the related services are rendered or goods are sold.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

For all other arrangements that include multiple performance obligations, the Group would evaluate all the performance obligations in the arrangement to determine whether each performance obligation is distinct. Consideration is allocated to each performance obligation based on its standalone selling price. If a promised good or service does not meet the criteria to be considered distinct, it is combined with other promised goods or services until a distinct bundle of goods or services exists.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. For certain services customers are required to pay before the services are delivered. The Group recognizes a contract asset or a contract liability in the consolidated balance sheet, depending on the relationship between the Group’s performance and the customer’s payment.

The Group will recognize an account receivable in its consolidated balance sheets when it performs a service or transfers a good in advance of receiving consideration and if it has the unconditional right to receive consideration. Accounts receivable is presented netting of the allowance for doubtful accounts (See Note 2 (h)). Accounts receivable as of December 31, 2018 and 2019 were RMB917.4 million and RMB1.2 billion, respectively.

Contract liabilities are recognized if the Group receives consideration in advance of performance. Customers pay in advance to purchase membership services and online marketing services. The cash proceeds received from customers are initially recorded as customer advances and then transferred to deferred revenues when they are used to purchase desired services. Customer advances and deferred revenues are considered as contract liability. The Group had customer advances and deferred revenues balances of RMB3.8 billion and RMB4.1 billion as of December 31, 2018 and December 31, 2019, respectively. The majority of the balances as of December 31, 2018 were recognized as revenue in the year ended December 31, 2019. Due to the generally short-term duration of the relevant contracts, a majority of the receipts in advance and deferred revenues are recognized in the following reporting period.

Practical Expedients

The Group generally expenses sales commissions for direct sales team when incurred for all contracts with contract terms of one year or less. These costs are recorded within sales and marketing expenses.

Payment terms and conditions vary by contract type, although terms generally include a requirement for prepayment or payment within one year or less. In instances where the timing of revenue recognition differs from the timing of invoicing, the Group has determined that its contracts generally do not include a significant financing component.

(s)

Cost of revenues

Cost of revenues mainly consists of (i) costs of goods sold and services rendered in various platforms of the Group, (ii) traffic acquisition cost paid to 58.com advertising union partner, and (iii) expenses associated with the operation of platforms, such as data center bandwidth fees, depreciation and maintenance expenses for computers, servers and other equipment, short message services (“SMS”) costs, salaries, bonuses, benefits and share-based compensation expense relating to web operation and information quality control personnel.

(t)

Advertising expenses

Advertising expenses are generally prepaid to third parties for online traffic acquisition and offline advertising services such as television, outdoor and inner-building channels. Advertising expenses are expensed as sales and marketing expenses when the services are received. For the years ended December 31, 2017, 2018 and 2019, advertising expenses recognized in the consolidated statements of comprehensive income were RMB2.1 billion, RMB3.3 billion and RMB3.7 billion, respectively. Of the total advertising expenses, RMB422.3 million, RMB621.6 million and RMB800.4 million were charged by the Group’s related party Tencent Holdings Ltd. and its subsidiaries and affiliated entities (collectively referred to as “Tencent”), for the year ended December 31, 2017, 2018 and 2019, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

(u)

Research and development expenses

Research and development expenses mainly consist of personnel, rent and depreciation expenses associated with the development of and enhancement to the Group’s platforms and expenses associated with research and development. The research and development expenses are expensed as incurred for all the periods presented.

Costs incurred for the preliminary project stage of internal use software are expensed when incurred in research and development expenses. Costs incurred during the application development stage are capitalized when certain criteria are met as stated in ASC 350-40. Costs incurred during the post-implementation-operation stage are also expensed as incurred. As the period qualified for capitalization has historically been very short and the development costs incurred during this period have been insignificant, development costs of internal use software to date have been expensed when incurred.

(v)

Leases

The Group is a lessee in a number of noncancelable operating leases, primarily for corporate offices and outdoor billboards. As of December 31, 2019, the Group did not have any finance leases.

Prior to the adoption of ASC 842, Lease ("ASC 842"), operating leases were not recognized on the balance sheet of the Group, but lease expenses were recognized in the consolidated statements of comprehensive income on a straight-line basis over the lease term.

From January 1, 2019, the Group accounted for leases in accordance with ASC Topic 842, Leases by using the modified retrospective basis and did not restate comparative periods. The Group has elected the package of practical expedients, which allows the Group not to reassess (1) whether any expired or existing contracts are or contain leases, (2) lease classification of any expired or existing leases as of the adoption date, and (3) initial direct costs for any existing leases as of the adoption date. The Company also elected the short-term lease exemption for all contracts with lease term of 12 months or less.

Upon the adoption of ASC 842, the Group recognized a right-of-use (“ROU”) asset and a lease liability at the lease commencement date. For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of the Group’s leases do not provide an implicit rate, the Group uses its incremental borrowing rate as the discount rate for the lease. The Group’s incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments. The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. The Group’s lease terms may include options to extend or terminate the lease. Renewal options are considered within the ROU assets and lease liability when it is reasonably certain that the Group will exercise that option.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

ROU assets are periodically reduced by impairment losses. The Group uses the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize. The Group monitors for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero.

As a result of the adoption, the Group recognized RMB317.4 million ROU assets in “right-of-use assets, net”, and the corresponding short-term lease liabilities and long-term leasing liabilities were recorded in “operating lease liabilities–current” and “operating lease liabilities–non–current”, respectively in the consolidated balance sheets as of January 1, 2019. The adoption had no material impact on the Group’s consolidated statements of comprehensive income for the year ended December 31, 2019 or the opening balances of retained earnings as of January 1, 2019.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

(w)

Share-based compensation

The Group has incentive plans for the granting of share-based awards, including share options, restricted share units (“RSUs”) and restricted shares (“RSs”), to its employees and directors. The Group accounts for share-based awards granted to employees in accordance with ASC 718 Compensation - Stock Compensation and share-based awards granted to nonemployees in accordance with ASC 505. On January 1, 2019, the Group adopted ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvement to Nonemployee Share-based Payment Accounting to amend the accounting for share-based payment awards issued to nonemployees. Under ASU 2018-07, the accounting for awards to non-employees are similar to the model for employee awards.

Share-based compensation expenses are recognized as costs and expenses on a straight-line basis over the vesting period in the consolidated statements of comprehensive income based on the fair value of the related share-based awards on their grant date, if no performance conditions are required. Under ASC 718, compensation cost should be accrued if it is probable that the performance condition will be achieved and should not be accrued if it is not probable that the performance condition will be achieved. As a result, the Group recognizes no compensation expense for share-based awards with performance conditions unless the performance conditions become probable of being achieved.

The Group uses the binominal option pricing model to determine the fair value of share options and account for share-based compensation expenses using an estimated forfeiture rate at the time of grant and revising the rate, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based compensation expenses are recorded net of estimated forfeitures such that expenses are recorded only for those share-based awards that are expected to vest.

See Note 23 for further information regarding share-based compensation assumptions and expenses.

(x)

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. Deferred income taxes are provided using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in the statement of comprehensive income in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.

Uncertain tax positions

The Group adopts ASC740 "Income taxes" that prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interests and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

In order to assess uncertain tax positions, the Group applies a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Significant judgment is required in evaluating the Group’s uncertain tax positions and determining its provision for income taxes. The Group recognizes interest and penalties, if any, under accrued expenses and other current liabilities on its balance sheet and under other expenses in its statement of comprehensive income. The Group did not have any significant interest or penalties associated with tax positions for the year ended December 31, 2017, 2018 and 2019. The Group did not have any significant unrecognized uncertain tax positions for the year ended December 31, 2017, 2018 and 2019.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

(y)

Employee benefits

Full-time employees of the Group in mainland China are entitled to staff welfare benefits including pension, work-related injury benefits, maternity insurances, medical insurances, unemployment benefits and housing fund plans through a PRC government-mandated defined contribution plan. Chinese labor regulation requires that the Group makes contributions to the government for these benefits based on certain percentage of the employees’ salaries, up to a maximum amount specified by the local government. The Group has no legal obligation for the benefits beyond the required contributions.

The Group recorded employee benefit expenses of RMB476.3 million, RMB626.4 million and RMB708.3 million for the years ended December 31, 2017, 2018 and 2019, respectively.

(z)

Government grants

Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received, and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognized in the consolidated statements of comprehensive income over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to the property, plant and equipment and other non-current assets are presented in the consolidated balance sheets by deducting the grants in arriving at the assets carrying amount and are credited to consolidated statements of comprehensive income on a straight-line basis over the expected lives of the related assets.

For the years ended December 31, 2017, 2018 and 2019, the Group recognized government grants of approximately RMB81.4 million, RMB59.9 million and RMB217.9 million, respectively, in others, net in the consolidated statements of comprehensive income.

(aa)

Ordinary shares

The Group accounts for repurchased ordinary shares under the cost method and includes such treasury stock as a component of the common shareholders’ equity. Cancellation of treasury stock is recorded as a reduction of ordinary shares, additional paid-in capital and retained earnings, as applicable. An excess of purchase price over par value is allocated to additional paid-in capital first with any remaining excess charged entirely to retained earnings.

(ab)

Business combination, noncontrolling interests and mezzanine classified noncontrolling interests

The Group accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805 “Business Combinations”. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities incurred by the Group to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interests in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference will be recognized directly in the consolidated statements of comprehensive income. During the measurement period, which can be up to one year from the acquisition date, the Group may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of comprehensive income.

In a business combination achieved in stages, the Group re-measures the previously held equity interests in the acquiree immediately before obtaining control at its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of comprehensive income.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

For the Company’s majority-owned subsidiaries and VIEs, a noncontrolling interest is recognized to reflect the portion of their equity which is not attributable, directly or indirectly, to the Company. When the noncontrolling interests are contingently redeemable upon the occurrence of a conditional event, which is not solely within the control of the Company, the noncontrolling interests are classified as mezzanine classified noncontrolling interests. Consolidated net income on the consolidated statements of comprehensive income includes the net income attributable to noncontrolling interests and mezzanine equity holders when applicable. The cumulative results of operations attributable to noncontrolling interests are also recorded as noncontrolling interests in the Group’s consolidated balance sheets. Cash flows related to transactions with noncontrolling interests are presented under financing activities in the consolidated statements of cash flows.

(ac)

Statutory reserves

The Group’s PRC subsidiaries, the VIEs and VIEs’ subsidiaries in the PRC are required to make appropriations to certain non-distributable reserve funds.

In accordance with China’s Company Laws, the Company’s PRC subsidiaries, the VIEs and VIEs’ subsidiaries that are Chinese companies, must make appropriations from their after-tax profit (as determined under the Accounting Standards for Business Enterprises as promulgated by the Ministry of Finance of the People’s Republic of China (“PRC GAAP”)) to non-distributable reserve funds including (i) statutory surplus fund and (ii) discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the respective company. Appropriation to the discretionary surplus fund is made at the discretion of the respective company.

Pursuant to the laws applicable to China’s Foreign Investment Enterprises, the Company’s subsidiaries that are foreign investment enterprises in China have to make appropriations from their after-tax profit (as determined under PRC GAAP) to reserve funds including (i) general reserve fund, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of the respective company. Appropriations to the other two reserve funds are at the respective company’s discretion. The use of the general reserve fund, statutory surplus fund and discretionary surplus fund are restricted to offsetting of losses or increasing the registered capital of the respective company. These reserves are not allowed to be transferred out as cash dividends, loans or advances, nor can they be distributed except under liquidation.

As of December 31, 2018 and 2019, the Group had statutory reserves amounted to RMB527.6 million and RMB609.0 million, respectively.

(ad)

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence of the same party, such as family member or relative, shareholder, or a related corporation.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

(ae)

Earnings per share

The Group uses the two-class method to calculate net income per share though both classes share the same rights in dividends. Therefore, basic and diluted earnings per share are the same for both classes of ordinary shares. Basic earnings per share is computed by dividing net income attributable to 58.com Inc. ordinary shareholders by the weighted average number of ordinary shares outstanding during the period using the two-class method. Under the two-class method, net income is allocated between ordinary shares and other participating securities based on their participating rights. Net loss is not allocated to other participating securities if based on their contractual terms they are not obligated to share the losses. Diluted earnings per share is calculated by dividing net income attributable to 58.com Inc. ordinary shareholders, as adjusted for the accretions and allocation of net income related to the preference shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of shares issuable upon the conversion of the preference shares using the if-converted method and shares issuable upon the exercise of share options using the treasury stock method. Ordinary equivalent shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive.

(af)

Comprehensive income

Comprehensive income is defined as the change in equity of the Group during a period arising from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Comprehensive income or loss is reported in the consolidated statements of comprehensive income. Accumulated other comprehensive income, as presented on the accompanying consolidated balance sheets, mainly consists of accumulated foreign currency translation adjustment.

(ag)

Segment reporting

Based on the criteria established by ASC 280 “Segment Reporting”, the Group’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group. The Group has internal reporting of revenue by products but has internal reporting of cost and expenses that do not distinguish between segments, and costs and expenses of the Group is reported by nature as a whole. The Group does not distinguish between markets or segments for the purpose of internal reporting. Hence, the Group has only one operating and reportable segment. As the Group’s long-lived assets and revenue are substantially located in and derived from the PRC, no geographical segments are presented.

(ah)

Recently issued accounting pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost and off-balance sheets credit exposures within the scope of ASU 2016-13. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. The Group does not expect the adoption to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement " ("ASU 2018-13"), which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Group does not expect a significant impact on its consolidated financial statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles — Goodwill and Other—Internal-Used Software (Subtopic 350-40)” (“ASU 2018-15”). The guidance intended to align the requirements for capitalization of implementation costs incurred in a cloud computing arrangement that is a service contract with the existing guidance for internal-use software. Capitalized implementation costs should be amortized over the term of the hosting arrangement and recorded in the same financial statement line items as amounts for the hosting arrangement. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The guidance provides flexibility in adoption, allowing for either retrospective adjustment or prospective adjustment for all implementation costs incurred after the date of adoption. The Group does not expect the adoption to have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"). This ASU removes certain exceptions for recognizing deferred taxes for investments, performing intra period allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. The Group is currently in the process of evaluating the impact of the adoption of ASU 2019- 12 will have on its consolidated financial statements.

In January 2020, the FASB issued ASU No. 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815" ("ASU 2020-01"). ASU 2020-01 clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives, and is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. The amendments in ASU 2020-01 are effective for fiscal years beginning after December 15, 2020, including interim periods. The Group is currently in the process of evaluating the impact of the adoption of ASU 2020-01 will have on its consolidated financial statements.

3.

Credit risks and concentration

(a)

Credit risk

The Group’s credit risk arises from cash and cash equivalents, restricted cash, term deposits, short-term investments, as well as credit exposures to receivables due from its customers, related parties and other parties.

The Group believes that there is no significant credit risk associated with cash and cash equivalents, term deposits, restricted cash and short-term investments, which were held by reputable financial institutions in the jurisdictions where the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries are located.

The Group has no significant concentrations of credit risk with respect to its customers and related parties and other parties. The Group assesses the credit quality of and sets credit limits on its customers by taking into account their financial position, the availability of guarantees from third parties, their credit history and other factors such as current market conditions.

(b)

Major customers

There was no customer whose revenue represented over 10% of total revenues in the years ended December 31, 2017, 2018 and 2019.

There was no accounts receivable from any customer that represented over 10% of total accounts receivable as of December 31, 2018 and 2019.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

(c)

Foreign currency risk

The Group’s operating transactions are mainly denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by laws to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (the “PBOC”). Remittances in currencies other than RMB by the Group in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to effect the remittance. The value of the RMB is subject to changes by the central government policies and to international economic and political developments. In July 2005, the PRC government changed its decades-old policy of pegging the value of RMB to US$ and RMB appreciated more than 20% against US$ over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between RMB and US$ remained within a narrow band. Since June 2010, RMB has fluctuated against US$, at times significantly and unpredictably, and in recent years RMB has depreciated significantly against US$. 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 US$ in the future.

4.

Business acquisitions

For the years ended December 31, 2017, 2018 and 2019, cash paid for acquisitions of subsidiaries net of the cash obtained from these acquired subsidiaries were RMB3.1 million, RMB9.8 million and RMB38.4 million, respectively.

5.

Deconsolidation of 58 Home

58 Home has been the holding company of the 58 Home business and a majority owned entity of the Company since its establishment in late 2014.

On November 27, 2015, 58 Home completed its series A preference share equity financing ("58 Home Series A Preference Shares"). As certain approval rights were granted to a noncontrolling preference shareholder of 58 Home in relation to (i) annual budget and (ii) employment of certain key management members of 58 Home, these approval rights granted to the noncontrolling preference shareholders of 58 Home were considered as substantive participating rights in accordance with ASC 810-10. As a result, the Group has deconsolidated 58 Home since the completion of the transaction on November 27, 2015.

Subsequent to the completion of the above transaction, the Group continued to retain equity interests in 58 Home through its ownership of 58 Home ordinary shares ("58 Home Ordinary Shares"), representing 87.9% ordinary share equity interests in 58 Home, and certain number of 58 Home Series A Preference Shares, representing 3.3% preference share equity interests in 58 Home. The Company’s investment in 58 Home Ordinary Shares was accounted for as equity method investment in accordance with ASC 323. The Company’s investment in the 58 Home Series A Preference Shares was accounted for under cost method, and measurement alternative after the Company adopted ASU 2016-01 from January 1, 2018 because the preference shares were not considered as in-substance common stock and the shares did not have readily determinable fair value or quoted market price.

The Company shared 87.9% of the net loss of 58 Home according to the 58 Home Ordinary Shares equity ownership since November 27, 2015. Since January 2018, the carrying amount of the Group’s investment in 58 Home Ordinary Shares has been reduced to zero due to the accumulated losses picked up from 58 Home. The Group has continued to record its share of losses in 58 Home in its consolidated statements of comprehensive income to the extent of the Group’s investment in 58 Home’s Series A Preference Shares at 3.3% from January to July in 2018. In August 2018, 58 Freight Inc., a subsidiary of 58 Home, completed a round of financing from outside investors. Taobao China Holdings Limited, the original shareholders of 58 Home, also pushed down certain 58 Home Series A Preference Shares from 58 Daojia Inc. level to 58 Freight Inc. level. Following the closing of this round of financing, the Group’s shareholding of 58 Home Series A Preference Shares increased from 3.3% to 5.0%. The Group then started to share net loss of 58 Home at 5.0% since August 2018.

As of December 31, 2018 and 2019, the Company held 68.8%of equity interests in 58 Home on an as converted basis, including 87.9% of the total outstanding 58 Home Ordinary Shares and 5.0% of the total outstanding 58 Home Series A Preference Shares.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

For the year ended December 31, 2017, 2018 and 2019, the Group recorded investment losses of RMB663.2 million, RMB79.6 million and RMB17.7 million, respectively, in share of results of equity investees in the consolidated statements of comprehensive income. As of December 31, 2019, the carrying amount of the Group's investment in 58 Home Series A Preference Shares were reduced to zero due to the accumulated losses picked up.

6.

Disposal of Guazi (subsequently renamed to Che Hao Duo) and conversion of a convertible note issued by Guazi

From 2015 to 2017, the Group acquired Ganji business through a number of acquisitions and Ganji became a wholly owned subsidiary of the Group since September 2017. As part of the acquired Ganji business, Guazi was engaged in the business of operating an online consumer to consumer (“C2C”) platform for trading used cars and providing relevant services. In 2017, Guazi was renamed to Che Hao Duo. On December 31, 2015, the Company transferred 54.4% ownership interests in Guazi to Mr. Haoyong Yang, ex-founder and ex-chief executive officer of Ganji (the “Guazi Purchaser") in return for cash proceeds of RMB324.7 million (US$50.0 million). The Company concurrently used the proceeds of RMB324.7 million (US$50.0 million) to invest in a RMB324.7 million (US$50.0 million) non-interest-bearing convertible note issued by Guazi ("Guazi Convertible Note"). The Guazi Convertible Note is convertible into preference shares of Guazi to be issued in Guazi’s subsequent round of financing at the same price paid by other investors. The Company retained 45.6% ownership interest in Guazi by purchasing 38.8 million series A convertible and redeemable preference shares of Guazi (the “Series A Guazi Shares”) at the par value of the shares.

The Company lost control over Guazi on December 31, 2015, and derecognized the assets and liabilities, including allocated goodwill attributable to Guazi, which amounted to RMB180.4 million. Subsequently, the investment in Series A Guazi Shares was accounted for under cost method, and measurement alternative after the Group adopted ASU 2016-01 since January 1, 2018, as the shares held by the Company were not considered in-substance common stock and the shares do not have readily determinable fair value. The Company also determined that the host contract of Series A Guazi Shares is equity in nature and there was no embedded derivative that needs to be separately accounted for in accordance with ASC 815-15-25-1.

In March 2016, the Company converted the entire amount of Guazi Convertible Note into 62.5 million Guazi Series B1 preference shares (“Series B1 Guazi Shares”) based on a conversion price of US$0.80 per share.

The Series B1 Guazi Shares was measured at fair value of RMB239.5 million on the date of conversion with the assistance of a third-party independent valuation specialist. The investment in Series B1 Guazi Shares was accounted for under cost method, and measurement alternative after the Group adopted ASU 2016-01 since January 1, 2018, as the shares invested by the Group were not considered as in-substance common stock and the shares did not have readily determinable fair value or quoted market price. In 2017, the Group sold certain number of Series A Guazi Shares and recognized the difference between the cash proceeds received and the carrying value of the Series A Guazi Shares disposed of as investment income amounted to RMB300.1 million.

In 2019, the Group sold a portion of Series A Guazi Shares to a third-party investor for a total price of RMB4,978.2 million (US$713.6 million) in cash. The Group recognized the difference between the cash consideration for and the carrying value of the Series A Guazi Shares disposed of as investment income amounting to RMB4,760.5 million. In addition, the Group identified an observable price change in the disposal of Series A Guazi Shares, which was considered an orderly transaction, for the identical equity securities (i.e. Series A Guazi Shares) and similar equity securities (i.e. the Series B1 Guazi Shares). In accordance with ASC 321-10-35-2, the remaining Series A Guazi Shares and Series B1 Guazi Shares held by the Group should be re-measured at fair value as of the date that the observable transaction occurred. The Group recognized RMB1,381.1 million unrealized gains as a result of re-measuring the fair value of the remaining Series A Guazi Shares and Series B1 Guazi Shares held by the Group for the year ended December 31, 2019. The Group determined the fair values of the Series A Guazi Shares and Series B1 Guazi Shares by using a market approach and equity allocation model, which was based on significant inputs not observable in the market, including risk-free rate, lack of marketability discount and expected volatility.

As of December 31, 2018 and 2019, the Group held 19.1% and 8.0% equity interests in Che Hao Duo on fully diluted basis, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

7.

Preference share /warrant financing of Zhuan Zhuan

Zhuan Spirit Holding Limited (“Zhuan Zhuan Holding”) is a subsidiary of the Group incorporated in the Cayman Islands. Zhuan Zhuan Holding and its subsidiaries and consolidated VIEs (collectively "Zhuan Zhuan") are principally engaged in operating an online used goods trading and service platform in the PRC. On April 28, 2017, Zhuan Zhuan Holding completed a series A preference share financing by issuing series A preference shares ("Zhuan Zhuan Series A Shares") to Tencent for a combination of US$200 million in cash and additional business resources to be provided by Tencent. The Group is considered as the primary beneficiary of Zhuan Zhuan Holding subsequent to the Series A preference share financing in accordance with ASC 810-10-25-44.

On September 9, 2019 (the "Zhuan Zhuan Series B Financing Closing Date"), Zhuan Zhuan Holding entered into definitive agreements for a series B preference share financing with Tencent, the Company and certain new investors (the "Zhuan Zhuan New Investors") for a combination of cash and additional business resources totaled approximately US$300 million. Pursuant to the agreements, Zhuan Zhuan Holding issued series B preference shares ("Zhuan Zhuan Series B Shares") to Tencent for a combination of cash and additional business resources amounted to approximately US$150 million, and issued series B warrants with onshore loans ("Zhuan Zhuan Series B Warrants") or Zhuan Zhuan Series B Shares to the Company and Zhuan Zhuan New Investors for total cash considerations of US$150 million. As of December 31, 2019, Zhuan Zhuan has received cash consideration of US$170 million from Tencent, the Company and Zhuan Zhuan New Investors.

The Group is considered as the primary beneficiary of Zhuan Zhuan Holding and continues to consolidate Zhuan Zhuan Holding subsequent to the series B preference share financing in accordance with ASC 810-10-25-44. Pursuant to the memorandum and articles of association of Zhuan Zhuan Holding, the holders of Zhuan Zhuan Series A Shares, Zhuan Zhuan Series B Shares and Zhuan Zhuan Series B Warrants have the right to require Zhuan Zhuan Holding to redeem the preference shares or warrants that they held at their original issuance price plus 8% simple interest per annum if Zhuan Zhuan Holding does not complete a qualified initial public offering ("IPO") on or before the sixth year anniversary from the Zhuan Zhuan Series B Financing Closing Date.

Accordingly, the Group accounted for Zhuan Zhuan Series A Shares, Zhuan Zhuan Series B Shares and Zhuan Zhuan Series B Warrants issued by Zhuan Zhuan Holding as a mezzanine classified noncontrolling interests because the noncontrolling interests can be contingently redeemed by Tencent and Zhuan Zhuan New Investors at a pre-determined value upon the resolution of the contingent event. The carrying amount of the mezzanine classified noncontrolling interests initially recognized was subsequently accreted using effective interest method to the accreted value pursuant to the share subscription agreement in accordance with ASR 268 Presentation in Financial Statements of "Redeemable Preferred Stocks".

The Group accounted for the issuance of Zhuan Zhuan Series A Shares and Zhuan Zhuan Series B Shares in exchange for the business resources from Tencent as stock-based compensation with non-employee in accordance with ASC 718-10. Tencent’s business resources represent services to be provided over a period of time. Zhuan Zhuan Series A Shares and Zhuan Zhuan Series B Shares granted to Tencent were fully vested and nonforfeitable on their respective closing dates. Accordingly, the Group recognized a prepaid expense based on the fair value of corresponding portion of Zhuan Zhuan Series A Shares and Zhuan Zhuan Series B Shares on the respective closing dates. The prepaid expense was subsequently amortized over the period during which services were rendered by Tencent on a straight-line basis to reflect the same manner as if the Group paid cash to Tencent in exchange for these services over the contractual period of time. For the year ended December 31, 2017, 2018 and 2019, the Group recognized RMB42.0 million, RMB181.1 million and RMB317.9 million expenses, respectively, for the use of the business resources provided by Tencent. As of December 31, 2018 and 2019, the Group held 72.2% and 63.5% of equity interests in Zhuan Zhuan Holding on issued and outstanding basis, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

8.

Disposal of finance business

In September 2017, the Group entered into a framework agreement with Mr. Jinbo Yao, the chief executive officer and a principal shareholder of the Company to dispose its financial services and other finance related business (the “Finance Business”). Tianjin Wuba Financial Service Co., Ltd. ("58 Finance ") is the holding company of the Finance Business, which is majority-owned by Mr. Jinbo Yao, who contributed RMB150 million in cash to 58 Finance. After completion of the disposal of the Finance Business, the Group holds neither legal ownership nor effective control over 58 Finance, but is entitled to a profit participation right, with fair value of approximately RMB151 million based on a discounted cash flow model, for a portion of the future pre-tax profit of 58 Finance when 58 Finance has a positive pre-tax income on a cumulative basis. Moreover, the total profit participation rights do not have an expiration date and the Group would be able to convert its profit participation rights with respect to 58 Finance into the same percentage of 58 Finance's equity interests, subject to applicable regulatory approvals.

In addition to the profit participation right, as part of the disposal, (i) the Group’s original capital contribution to the Finance Business of approximately RMB286 million would be repaid to the Group by 58 Finance in installments, plus interest to be determined based on the market interest rate, over a 3-year term subsequent to the disposal date; and (ii) repayments from borrowers for automobile financing receivables that were outstanding as of the disposal date ("Automobile Financing Receivables"), amounting to RMB132 million, would be repaid to the Group no later than 3 years after the disposal date.

Upon the completion of the transaction in October 2017, 58 Finance were assessed as VIEs and Mr. Yao was considered to be the primary beneficiary of 58 Finance because Mr. Yao held a majority equity stake in 58 Finance, and hence obtained majority voting rights in 58 Finance through his equity stake, possessed the power to direct the activities of 58 Finance that would most significantly impact its economic performance, and also was exposed to the benefits and losses of 58 Finance. Accordingly, 58 Finance was deconsolidated from the Group. As a result of the disposal, the Group recognized a gain amounted to RMB87.8 million in the consolidated statements of changes in equity as the difference between the net carrying amount of the derecognized assets and liabilities of the Finance Business and the profit participation right and the other receivables due from 58 Finance, and derecognized allocated goodwill amounting to RMB39.0 million attributable to Finance Business. Although the disposal of the Finance Business is not considered as a common control transaction because Mr. Yao has a controlling interest in 58 Finance but not in the Group, given he is a principal shareholder of the Group, the Group recorded the gain in equity as additional paid-in capital by Mr. Yao. The profit participation right is treated as contingent consideration received upon the disposal of the Finance Business and is recorded as a long-term asset carried at amortized cost less impairment.

The Group has provided certain services to 58 Finance in exchange for further profit participation rights. The Group will recognize revenue for these services when all of the revenue recognition criteria are met. There was no revenue recognized under this arrangement for the years ended December 31, 2017, 2018 and 2019.

The following is a summary of profit participation right, consideration and other receivables from 58 Finance.

As of December 31,

    

2018

    

2019

RMB

RMB

Current:

 

  

 

  

- Consideration receivable for original capital contribution to the Finance Business

 

57,000

 

171,000

- Automobile Financing Receivables

 

 

132,000

- Guarantee fees receivable

 

 

15,638

- Others

 

25,725

 

14,924

Total

 

82,725

 

333,562

Non-current:

 

  

 

  

- Consideration receivable for original capital contribution to the Finance Business

 

171,000

 

- Automobile Financing Receivables

 

132,000

 

- Profit participation right

 

150,908

 

150,908

- Others

 

37,748

 

40,147

Total

 

491,656

 

191,055

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

In accordance with the agreed repayment schedule for the disposal of the Finance Business, 58 Finance repaid RMB57.0 million consideration along with RMB3.2 million interest to the Group in 2018 and repaid RMB57.0 million consideration along with RMB5.8 million interest in 2019. In addition, RMB171.0 million of consideration receivable for original capital contribution to  the Finance Business and RMB132.0 million of automobile financing receivables as of December 31, 2018 were reclassified to “Prepayment and other current assets” as of December 31, 2019 since they will be due during the next twelve months. See Note 10 and Note 16 for more detail.

In 2019, Golden Pacer, newly established in Cayman Islands, became the ultimate holding company of 58 Finance.

9.

Accounts receivable, net

Accounts receivable, net, consists of the following:

As of December 31,

2018

2019

    

RMB

    

RMB

Accounts receivable

 

983,063

 

1,305,016

Allowance for doubtful accounts

 

(65,620)

 

(95,765)

Accounts receivable, net

 

917,443

 

1,209,251

Movement of allowance for doubtful accounts is as follows:

For the years ended December 31,

2017

2018

2019

    

RMB

    

RMB

    

RMB

Balance at beginning of year

 

51,719

 

62,736

 

65,620

Provisions

 

16,450

 

8,380

 

32,050

Reversals

 

(4,896)

 

(3,447)

 

(979)

Write-offs

 

(537)

 

(2,049)

 

(926)

Balance at end of year

 

62,736

 

65,620

 

95,765

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

10.

Prepayments and other current assets

The following is a summary of prepayments and other current assets:

As of December 31,

2018

2019

    

RMB

    

RMB

Consideration receivable for disposal of Guazi preference shares

497,837

Prepaid advertising fee

 

227,057

 

445,415

Consideration and other receivables from 58 Finance (due from a related party (Note 8))

82,725

333,562

Receivables on behalf of third parties

51,712

295,480

Distributor commission

 

 

192,248

Input VAT

 

74,193

 

139,187

Prepayment for physical goods

11,172

101,352

Rental, advertising and other deposits

 

100,214

 

97,765

Employee advance

 

100,063

 

91,671

Prepayment for film investment

 

75,029

 

56,069

Prepaid rental fees

 

19,365

 

17,236

Prepayment for service fees

 

28,052

 

16,040

Interest receivable

 

38,296

 

9,581

Others

 

5,525

 

33,477

Total

 

813,403

2,326,920

The prepaid advertising fees consist of (i) prepayments to third parties for advertising services, mainly through television, internet and outdoor media; and (ii) unamortized business resources contributed by Tencent to Zhuan Zhuan amounting to RMB122.2 million and RMB348.5 million, respectively, as of December 31, 2018 and 2019. See Note 7 for more details. The advertising expenses and the amortization of business resources are recognized in sales and marketing expenses subsequently, when the services are received.

Consideration and other receivables from 58 Finance represents consideration receivable from the disposal of the Finance Business completed in October 2017 and other receivables related to ordinary business operations. See Note 8 for more details.

11.

Property and equipment, net

The following is a summary of property and equipment, net:

As of December 31,

2018

2019

    

RMB

    

RMB

Buildings

 

1,172,239

 

1,172,239

Computers and equipment

 

571,654

 

659,382

Leasehold improvements

 

155,801

 

151,760

Software

 

49,146

 

63,460

Furniture and fixtures

 

21,054

 

21,369

Motor vehicles

 

5,383

 

6,050

Total

 

1,975,277

 

2,074,260

Less: Accumulated depreciation

 

(645,525)

 

(768,467)

Net book value

 

1,329,752

 

1,305,793

Depreciation expenses for the years ended December 31, 2017, 2018 and 2019 were RMB211.2 million, RMB190.6 million and RMB176.8 million, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

12.

Intangible assets, net

The following is a summary of intangible assets, net:

As of December 31,

2018

2019

    

RMB

    

RMB

Cost

Domain names and trademarks

 

1,643,080

 

1,651,421

Technology

 

215,064

 

215,064

Customer relationship

 

26,586

 

26,586

Licenses

 

12,793

 

12,793

Total

 

1,897,523

 

1,905,864

Accumulated amortization

 

  

 

Domain names and trademarks

 

(605,014)

 

(778,424)

Technology

 

(165,982)

 

(212,690)

Customer relationship

 

(26,263)

 

(26,586)

Licenses

 

(319)

 

(1,599)

Total

 

(797,578)

 

(1,019,299)

Net book value

 

1,099,945

 

886,565

Amortization expenses for the years ended December 31, 2017, 2018 and 2019 were RMB224.4 million, RMB222.5 million and RMB222.8 million, respectively. During the corresponding periods, no impairment was recognized in the consolidated statements of comprehensive income.

The estimated aggregate amortization expenses for each of the five succeeding fiscal years and thereafter are as follows:

    

Amounts

RMB

For the year ended December 31,

 

  

2020

 

177,111

2021

 

174,736

2022

 

174,736

2023

 

174,736

2024

 

173,660

Thereafter

 

11,586

Total

 

886,565

13.

Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2019 were as follows:

    

Amounts

RMB

Balance as of December 31, 2017

 

15,864,655

Addition

 

9,565

Balance as of December 31, 2018 and 2019

15,874,220

As of December 31, 2017, the goodwill balance arose from the acquisition of Ganji and Anjuke, less the goodwill allocated to 58 Home, Guazi and Finance Business.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

All goodwill arising from business acquisitions completed was attributable to the Group. Goodwill was allocated to the disposed businesses such as 58 Home, Guazi and Finance Business according to the relative fair values of the businesses being disposed of and the portion of the Group that was retained as of the dates the businesses were disposed.

In the annual impairment assessment of goodwill, the Company concluded that there was no impairment charge for the year ended December 31, 2017, 2018 and 2019.

14.

Long-term investments

The following is a summary of long-term investments:

As of December 31,

2018

2019

    

RMB

    

RMB

Measurement alternative investments:

Investment in Guazi (a)

 

583,284

 

1,897,877

Investment in Tujia (b)

 

273,568

 

278,071

Investment in investee A (c)

298,850

303,771

Investment in investee B (d)

300,000

300,000

Investment in investee C

 

231,442

 

235,253

Investment in investee D

 

137,264

 

139,524

Investment in investee E (e)

 

 

150,000

Investment in Sweetome (f)

 

10,057

 

82,026

Investment in 58 Home Series A Preference Shares (g)

 

18,525

 

Others (l)

 

297,270

 

486,051

Total measurement alternative investments

 

2,150,260

 

3,872,573

Equity method investments:

Investment in investee F (h)

 

 

704,806

Investment in investee G (i)

75,941

324,383

Investment in investee Ai Fang (j)

 

 

120,025

Investment in investee Sweetome (f)

 

 

102,954

Others

 

46,455

 

29,865

Total equity method investments

 

122,396

 

1,282,033

Fair value method investments:

    

    

Investment in 5I5J (k)

 

910,650

 

840,450

Others

 

182,600

 

91,455

Total fair value method investments

 

1,093,250

 

931,905

Total long-term investments

 

3,365,906

 

6,086,511

(a) The investment in Guazi consists of investments in Series A Guazi Shares and Series B1 Guazi Shares, which are measured under measurement alternative, because the shares invested by the Group were not considered as in-substance common stock and the shares did not have readily determinable fair value or quoted market price.

As disclosed in Note 6, the Company sold a portion of Series A Guazi Shares to a third-party investor in 2019. The Company recognized RMB4,760.5 million realized gains for the portion sold and recognized RMB1,381.1 million unrealized gains as a result of remeasuring the fair value of the remaining Series A Guazi Shares and Series B1 Guazi Shares held by the Group.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

(b) The Group invested in ordinary shares and series D preference shares of Tujia.com International (“Tujia”) in 2016. The investment in Tujia ordinary shares and series D preference shares was measured at fair value of RMB276.5 million (US$39.9 million) on the date of investment and was subsequently accounted for under cost method, and measurement alternative after the Group adopted ASU 2016-01 since January 1, 2018 because the preference shares were not considered as in-substance common stock, the ordinary shares could not exert significant influence over the investee, and neither the preference shares nor the ordinary shares  have readily determinable fair value or quoted market price. For the year ended December 31, 2018 and 2019, the Group did not identify any observable price change in this investment, which refer to the price changes in orderly transactions for an identical or similar investment in the investee.
(c) In 2017, the Group acquired shares of investee A for cash consideration of RMB284.5 million (US$43.5 million). Investee A is mainly engaged in the business of property management. The investment was accounted for under cost method, and measurement alternative after the Group adopted ASU 2016-01 since January 1, 2018 as the shares invested by the Group were not considered as in-substance common stock and the shares did not have readily determinable fair value. For the year ended December 31, 2018 and 2019, the Group did not identify any observable price change in this investment, which refer to the price changes in orderly transactions for an identical or similar investment in the investee.
(d) In 2018, the Group invested RMB300.0 million in a third-party company or Investee B. The Group’s shares invested in Investee B were not considered as in-substance common stock, and did not have readily determinable fair value or quoted market price, therefore, the investment was accounted for under measurement alternative according to ASC 323 and ASU 2016-01. For the year ended December 31, 2018 and 2019, the Group did not identify any observable price change in this investment, which refer to the price changes in orderly transactions for an identical or similar investment in the investee.
(e) In 2019, the Group invested RMB150.0 million in a third-party company or Investee E. The Group’s shares invested in Investee E were not considered as in-substance common stock and had no readily determinable fair value or quoted market price, therefore, the investment was accounted for under measurement alternative according to ASC 323 and ASU 2016-01. For the year ended December 31, 2019, the Group did not identify any observable price change in this investment, which refer to the price changes in orderly transactions for an identical or similar investment in the investee.
(f) In 2017, the Group acquired preference shares and ordinary shares of Sweetome for cash consideration of RMB2.0 million and RMB8.0 million, respectively. Sweetome is mainly engaged in providing short-term leasing services and homestay hotels services. The investment in ordinary shares of Sweetome was accounted for under cost method, and measurement alternative after the Group adopted ASU 2016-01 since January 1, 2018 because the ordinary shares could not exert significant influence over the investee, and the ordinary shares did not have readily determinable fair value or quoted market price. The investment in preference shares of Sweetome was accounted for under cost method, and measurement alternative after the Group adopted ASU 2016-01 since January 1, 2018 because the preference shares were not considered as in-substance common stock and did not have readily determinable fair value or quoted market price.

In 2019, the Group entered into a series of agreements to acquire additional preference shares and ordinary shares of Sweetome. Pursuant to the agreements, the Group would (i) pay cash consideration of RMB160.0 million in exchange for preference shares of Sweetome, (ii) provide business resources valued at RMB94.9 million on the transaction date over a four-year period in exchange for ordinary shares of Sweetome. As of December 31, 2019, the Group partially completed the transaction and obtained half of the agreed number of preference shares by paying cash consideration of RMB80.0 million and acquired ordinary shares by providing business resources valued at RMB94.9 million over a four-year period from January 2020. Following the completed part of the transaction, (i) the Group accounted for the preference shares in Sweetome under the measurement alternative according to ASC 321 because they were not considered as in-substance common stock and they have no readily determinable fair value or quoted market price; (ii) the Group accounted for the ordinary shares using equity method according to ASC 323 since the Group obtained significant influence over Sweetome. For the year ended December 31, 2018 and 2019, the Group did not identify any observable price change in this investment, which refer to the price changes in orderly transactions for an identical or similar investment in the investee. For the year ended December 31, 2019, the Group did not record any gain or loss under equity method since the amount was immaterial.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

(g) As a result of the deconsolidation of 58 Home on November 27, 2015, the Group continues to retain equity interests in 58 Home through its ownership of certain 58 Home Ordinary Shares and 58 Home Series A Preference Shares. The Group’s investment in 58 Home Ordinary Shares was accounted for as an equity method investment in accordance with ASC 323. The Group’s investment in 58 Home Series A Preference Shares was accounted for under the cost method, and measurement alternative after the Group adopted ASU 2016-01 from January 1, 2018 as 58 Home Series A Preference Shares were not considered as in-substance common stock and the shares did not have readily determinable fair value or quoted market price.  Since January 2018, the carrying amount of the Group’s investment in 58 Home Ordinary Shares has been reduced to zero due to the accumulated losses picked up from 58 Home. The Group has continued to record its share of losses in 58 Home in its consolidated statements of comprehensive income to the extent of its investment in 58 Home Series A Preference Shares. For the year ended December 31, 2017, 2018 and 2019, the Group recorded investment losses of RMB663.2 million, RMB79.6 million and RMB17.7 million, respectively, in share of results of equity investees in the consolidated statements of comprehensive income relating to the investments in 58 Home. In 2019, the carrying amount of the Group’s investment in 58 Home Series A Preference Shares was reduced to zero.
(h) In 2019, the Group invested in common shares of Investee F, for cash consideration of RMB700.0 million. The investment is accounted for under equity method as the Group can exert significant influence over the investee. For the year ended December 31, 2019, the Group recorded RMB4.8 million gain in share of results of equity investees in the consolidated statements of comprehensive income.
(i) In 2017 and 2019, the Group invested in common shares of Investee G for cash consideration of RMB99.0 million and RMB198.0 million, respectively. Investee G is mainly engaged in the consumer finance business. The investment is accounted for under equity method as the Group can exert significant influence over the investee. The Group recorded RMB24.0 million loss, RMB0.9 million gain and RMB50.4 million gain in share of results of equity investees in the consolidated statements of comprehensive income, for the year ended December 31, 2017, 2018 and 2019, respectively.
(j) In 2019, the Group invested in common shares of Shanghai Gengying Information Technology Co., Ltd. ("Ai Fang") for cash consideration of RMB153.0 million and held 30% of the equity interests in Ai Fang as of December 31, 2019. Ai Fang is mainly engaged in real estate related business. The investment is accounted for under equity method as the Group can exert significant influence over the investee. For the year ended December 31, 2019, the Group recorded RMB33.0 million loss in share of results of equity investees in the consolidated statements of comprehensive income.
(k) In 2018, the Group acquired a minority stake of approximately 8.3% in 5I5J Holding Group Co., Ltd., or 5I5J, a major secondary and rental brokerage company listed on the Shanghai Stock Exchange in mainland China, for a consideration of approximately RMB1.1 billion in cash. The Group classified this investment as equity investments with readily determinable fair values under long-term investments and reported the investment at fair value using a market approach based on the investee’s quoted market price. As of December 31, 2018 and 2019, the fair value of the investment held by the Group was RMB910.7 million and RMB840.5 million, respectively, and the Group recognized an unrealized loss in fair value of RMB157.4 million and RMB70.2 million, respectively, for the year ended December 31, 2018 and 2019 in investment income, net in the Group’s consolidated statements of comprehensive income.
(l) As of December 31, 2019, the increase in “Others” under measurement alternative mainly included newly acquired shares of other companies for an aggregate cash consideration of RMB199.9 million which were elected to be accounted for under measurement alternative because such investments were 1) not considered as in-substance common stock and did not have readily determinable fair values or quoted market price; or 2) the investments did not have readily determinable fair values or quoted market price and the Group did not have the ability to exercise significant influences over the investees. During the year ended December 31, 2019, a measurement alternative investment amounted to RMB11.8 million was fully impaired (see Note 2 (m)).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

For the years ended December 31, 2019, equity method investments held by the Group in aggregate have met the significance criteria as defined under Rule 4-08 (g) of Regulation S-X. As such, the Group is required to present summarized financial information for all of its equity method investments as a group as follows:

For the year ended

For the year ended

For the year ended

December 31, 2017

December 31, 2018

December 31, 2019

    

RMB

    

RMB

    

RMB

Operating result data:

 

  

 

  

 

  

Total revenues

 

519,121

 

1,178,231

 

2,355,714

Gross profit

 

339,358

 

628,160

 

1,489,798

Loss from operations

 

(836,811)

 

(1,469,574)

 

(1,120,644)

Net loss

 

(840,385)

 

(1,478,234)

 

(983,780)

As of December 31,

2018

2019

    

RMB

    

RMB

Balance sheets data:

Current assets

 

910,462

 

3,627,152

Non-current assets

 

4,345,855

 

11,694,180

Current liabilities

 

4,140,812

11,648,260

Non-current liabilities

 

193,534

 

658,950

Noncontrolling interests and mezzanine equity

 

2,755,258

 

3,647,147

15.Investment in convertible notes

In May 2019, the Group paid RMB689.3 million (US$100.0 million) to invest in convertible notes issued by Uxin. The convertible notes bear an annual interest rate of 3.75% and will mature in five years from the date of issuance. The Group has the right but not the obligation to convert the convertible notes into Class A ordinary shares of Uxin at a conversion price of US$1.03 per share after a 180-day period from the date when all closing conditions were met. The convertible notes will automatically terminate if the Group choses to convert it into Uxin’s Class A ordinary shares. The Group elected the fair value option in accordance with ASC 825 to account for the investment in convertible notes and recognized the fair value change in its consolidated statements of comprehensive income. For the year ended December 31, 2019, the Group recognized a fair value loss of RMB28.7 million and presented the loss as part of the “investment income, net” in the consolidated statement of the comprehensive income.

16.

Long-term prepayments and other non-current assets

The following is a summary of long-term prepayments and other non-current assets:

As of December 31,

2018

2019

    

RMB

    

RMB

Profit participation right, consideration and other receivables from 58 Finance (due from a related party (Note 8))

 

491,656

 

191,055

Long-term prepaid advertising fee

 

 

153,287

Deferred tax assets, net

 

42,953

 

85,023

Rental deposits

 

17,537

 

19,744

Prepayment for purchase of property and equipment

 

10,764

 

6,341

Prepayment for investments

 

75,000

 

Others

 

1,568

 

14,142

Total

 

639,478

 

469,592

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

17.

Short-term loans

In December 2016, the Group obtained a three-year interest-bearing bank loan of RMB150.0 million from Shanghai Pudong Development Bank Co., Ltd. (“Pudong Bank”), which was secured by an office building of the Group as collateral. The Group repaid RMB75.0 million of the loan pursuant to the payment schedule in 2018 and 2019, respectively. The loan was fully repaid in January 2019.

In April 2017, the Group obtained a two-year interest-bearing US$ denominated loan (“CMB loan”) of US$107.5 million from China Merchant Bank Co., Ltd., (“CMB Bank”), which was due in April 2019. The CMB loan was secured by a two-year term deposit amounted to RMB792.0 million, which represents the loan-to-value ratio of no more than 94% and was classified as non-current restricted cash in the Group’s consolidated balance sheets. The Group would need to provide more term deposits or equivalent amount of cash to CMB Bank as a security when the loan-to-value ratio exceeds 98% due to appreciation of U.S. dollar against RMB. The CMB loan was fully repaid in April 2019.

As of December 31, 2018, CMB loan amounted to RMB737.8 million (US$107.5 million) and RMB75.0 million loan from Pudong Bank were outstanding and recorded in short-term loans in the Group’s consolidated balance sheets.  

As of December 31, 2019, no short-term bank loan was outstanding.

18.

Accounts payable

The following is a summary of accounts payable:

As of December 31,

2018

2019

    

RMB

    

RMB

Payable for advertisement fees

 

701,629

 

791,705

Rebate payable to sales agents

 

142,663

 

137,982

Payable related to purchases of property and equipment

 

4,434

 

40,319

Others

 

38,832

 

72,691

Total

 

887,558

 

1,042,697

19.

Accrued expenses and other current liabilities

The following is a summary of accrued expenses and other current liabilities:

As of December 31,

2018

2019

    

RMB

    

RMB

Deposits from sales agents and others

 

202,265

 

302,727

Accrued office expenses

 

207,146

 

205,538

Other payable to platform users and merchants

 

43,413

 

118,840

Acquisition consideration payable

 

105,620

 

107,359

Payable to employees related to share-based awards

 

43,558

 

92,290

Accrued professional fees

 

78,315

 

88,198

Accrued telecom and bandwidth fees

40,078

31,841

Government subsidy

 

9,146

 

21,716

Cash received on behalf of a related party

 

82,358

 

Others

 

66,469

 

84,498

Total

 

878,368

 

1,053,007

Acquisition consideration payable consists of consideration payable related to acquisitions of Ganji.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

The amount of cash received on behalf of a related party was settled in March 2019.

20.

Fair value measurements

Measured on recurring basis

The Group measured its financial assets including cash equivalents, term deposits, short-term investments, certain long-term investments and investment in convertible notes at fair value on a recurring basis as of December 31, 2018 and 2019. The following table sets forth the financial instruments, measured at fair value at recurring basis, by level within the fair value hierarchy:

    

As of December 31,

Financial instruments

Fair value hierarchy

2018

2019

    

    

RMB

    

RMB

Cash equivalents

 

Significant other observable inputs (Level 2)

 

1,069,646

 

2,302,860

Term deposits

Significant other observable inputs (Level 2)

70,000

Short-term investments:

 

  

- Variable-rate financial instruments

 

Significant other observable inputs (Level 2)

 

4,587,610

 

8,414,348

Long-term investments:

 

  

- Equity investments with readily determinable fair value

 

Quoted prices in active markets for identical assets (Level 1)

 

910,650

 

841,754

- Non-marketable investments held by an investment company within the Group or accounted for using fair value option

 

Significant unobservable inputs (Level 3)

 

182,600

 

90,151

Investment in convertible notes

Significant unobservable inputs (Level 3)

669,715

Cash equivalents and term deposits

The Group measures cash equivalents and term deposits at fair value based on the pervasive interest rates in the market, which are also the interest rates as stated in the contracts with the banks. The Group classifies the valuation techniques that use the pervasive interest rates input as Level 2 of fair value measurements. Generally, there are no quoted prices in active markets for identical time deposits at the reporting date. In order to determine the fair value, the Group must use the discounted cash flow method and observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Short-term investments: Variable-rate financial instruments

The Group measures variable-rate financial instruments at fair value. As the variable-rate financial instruments represent investments in wealth management products with variable interest rates and principal non-guaranteed which were purchased from commercial banks and other financial institutions. To estimate the fair value of investments in variable-rate financial instruments, the Group refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The Group classifies the valuation techniques as Level 2 of fair value measurement.

Long-term investments and investment in convertible notes

Effective as of January 1, 2018, all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through the consolidated statements of comprehensive income. There will no longer be an available-for-sale classification (changes in fair value previously reported in other comprehensive income) for equity securities.

Equity investments with readily determinable fair values are valued using the market approach based on the quoted prices in active markets at the reporting date. The Group classifies the valuation techniques that use these inputs as Level 1 of fair value measurements. The change in fair value losses of this type of investment for the years ended December 31, 2018 and 2019 were RMB157.4 million and RMB75.8 million, which were recorded in “investment income, net” in the Group’s consolidated statements of comprehensive income.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

The Group estimated the fair value of non-marketable investments held by subsidiaries of the Group with the assistance from an independent third-party valuation firm. Based on the market approach, the Group determined the estimate of the fair value of non-marketable investments by using information including but not limited to liquidity factors and selection of the comparable companies. The Group classified the valuation techniques that use these significant unobservable inputs as Level 3 of fair value measurements. The Group recorded RMB18.1 million fair value gain and RMB136.7 million net fair value loss for the years ended December 31, 2018 and 2019 respectively, which were included in “investment income, net” in the Group’s consolidated statements of comprehensive income.

The Group accounted for the investment in convertible notes using the fair value option. The fair value measurements of convertible notes are based on significant inputs not observable in the market, and thus represent Level 3 measurement. See Note 15 for further information on the convertible notes.

The following are other financial instruments not measured at fair value in the consolidated balance sheets but for which the fair value is estimated for disclosure purposes.

Measured on non-recurring basis

The Group’s financial assets that are measured at fair value on a nonrecurring basis include equity investments under measurement alternative when observable price changes are identified, long-term investments, intangible assets and goodwill when they were determined to be impaired.

Long-term investments

The investments in Guazi were accounted for using measurement alternative after the Group adopted ASU 2016-01 from January 1, 2018. In 2019, the fair value measurements of the investments are based on significant inputs not observable in the market, and thus represent Level 3 measurement. See Note 14 for further information regarding the investments in Guazi.

Intangible assets and goodwill

The inputs used to measure the estimated fair value of goodwill are classified as Level 3 fair value measurement due to the significance of unobservable inputs used such as historical financial information and assumptions about future growth rates and discount rates, which require significant judgment and company-specific information.

Financial instruments not measured at fair value

Short-term receivables and payables

Accounts receivable and other current assets are financial assets with carrying values that approximate fair value due to their short-term nature. Accounts payable and other current liabilities are financial liabilities with carrying values that approximate fair value due to their short-term nature.

Non-current assets and non-current liabilities

Non-current assets of receivables for rental deposits is a financial asset with carrying value that approximate fair value due to the impact of discounting is immaterial. Other liabilities, non-current portion is a financial liability with carrying value that approximate fair value due to the impact of discounting is immaterial.

21.

Income taxes

The Company is registered in the Cayman Islands. The Company generated substantially all of its income from its PRC operations for the years ended December 31, 2017, 2018 and 2019.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

Cayman Islands

Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.

British Virgin Islands (“BVI”)

The Group is exempted from income tax in the BVI on its foreign-derived income. There are no withholding taxes in the BVI.

Hong Kong

The Group's subsidiaries incorporated in Hong Kong are subject to 16.5% Hong Kong profit tax on their taxable income generated from operations in Hong Kong for the years of assessment 2015/2016, 2016/2017 and 2017/2018. Commencing from the year of assessment 2018/2019, the first Hong Kong dollars 2 million of profits earned by the Group's subsidiaries incorporated in Hong Kong will be taxed at half the current tax rate (i.e., 8.25)% while the remaining profits will continue to be taxed at the existing 16.5% tax rate. Under the Hong Kong tax laws, the Group is exempted from the Hong Kong income tax on its foreign-derived income. In addition, payments of dividends from the Group's incorporations in Hong Kong to 58.com Inc. are not subject to any Hong Kong withholding tax. The operations in Hong Kong have incurred net accumulated operating losses for income tax purposes.

PRC

On March 16, 2007, the National People’s Congress of PRC enacted an Enterprise Income Tax Law (“EIT Law”), under which FIEs and domestic companies would be subject to EIT at a uniform rate of 25%. The EIT law became effective on January 1, 2008.

The Enterprise Income Tax Law and its implementation rules permit certain “high and new technology enterprises strongly supported by the state” that hold independent ownership of core intellectual property and simultaneously meet a list of other criteria, financial or non-financial, as stipulated in the implementation rules and other regulations, to enjoy a preferential enterprise income tax rate of 15% subject to certain new qualification criteria. The State Administration of Taxation, the Ministry of Science and Technology and the Ministry of Finance jointly issued the Administrative Rules for the Certification of High and New Technology Enterprises delineating the specific criteria and procedures for the “high and new technology enterprises” certification in April 2008. Enterprises recognized as “high and new technology enterprises” (“HNTE”) will enjoy a preferential enterprise income tax rate of 15%  after they go through tax reduction application formalities with relevant tax authorities. Beijing 58, Wanglin, Shanghai Ruiting, 58 Technology, 58 Co., Ltd. and Shanghai Ruijia Information Technology Co., Ltd have all obtained the “high and new technology enterprise” certificate and maintained the “high and new technology enterprise” status and will be eligible for a preferential tax rate of 15% when they have taxable income under the Enterprise Income Tax Law, as long as they maintain the “high and new technology enterprise” status.

In addition, qualified software enterprises are exempt from the enterprise income tax for two years beginning from their first profitable year and are entitled to a 50% tax rate reduction for the subsequent three years. The software enterprise qualification is subject to an annual assessment. Wanglin obtained its software enterprise qualification in 2014 and is entitled to a two-year exemption from 2014 to 2015 and enjoys a preferential tax rate of 12.5% from 2016 to 2018 as long as it is able to pass the annual assessment for software enterprise qualification for each of the respective years. 58 Technology qualified as a software enterprise in 2014 and was granted a two-year exemption from 2015 to 2016 and enjoyed a 12.5% preferential tax rate from 2017 to 2019 for so long as it maintains this qualification.

According to a policy promulgated by the State Tax Bureau of the PRC and effective from 2008 onwards, enterprises engaging in research and development activities are entitled to claim 150% of the research and development expenses so incurred in a year as tax deductible expenses in determining its tax assessable profits for that year (“Super Deduction”). From January 1, 2018 to December 31, 2020, all Chinese resident enterprises will enjoy the Super Deduction of 175% in accordance with the updated policy promulgated by the Stated Tax Bureau of the PRC. Wanglin, Beijing 58, 58 Technology and Shanghai Ruiting claimed such Super Deduction in ascertaining its tax assessable profits for the years ended December 31, 2017, 2018 and 2019, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

Pursuant to the “Circular on Enterprise Income Tax Policy concerning Deductions for Equipment and Appliances” (Cai Shui [2018] 54) issued by the State Administration of Taxation, during the period from January 1, 2018 to December 31, 2020, the cost of newly purchased equipment with the original cost less than RMB5 million can be fully deducted against taxable profit in the next month after the asset is put into use, instead of being depreciated annually for tax filing (the “Fixed Assets One-time Expense”).

The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The Implementing Rules of the EIT Law merely define the location of the “de facto management body” as “the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties, etc., of a non-PRC company is located.” Based on a review of surrounding facts and circumstances, the Company does not believe that it is likely that its operations outside of the PRC should be considered a resident enterprise for PRC tax purposes.

The EIT Law also imposes a withholding income tax of 10% on dividends distributed by an FIE to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where the Company was incorporated, does not have such tax treaty with China. According to the arrangement between Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by an FIE in China to its immediate holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5% (if the foreign investor owns directly at least 25% of the shares of the FIE). The Group’s subsidiaries and VIEs had neither declared any dividend to their respective parent companies nor planned to declare or pay any dividends to the parent companies out of the accumulated undistributed earnings as of December 31, 2019 in the foreseeable future, and accordingly no withholding tax was accrued. As of December 31, 2019, the total amount of undistributed profits from the PRC subsidiaries and VIEs for which no withholding tax had been accrued was RMB8.7 billion, and the unrecognized tax liabilities were RMB865.9 million.

The provisions for income tax expenses are summarized as follows:

For the Year ended December 31,

2017

2018

2019

    

RMB

    

RMB

    

RMB

Current tax expenses

 

(212,528)

 

(370,149)

 

(784,274)

Deferred tax (expenses)/benefit

 

65,839

 

70,444

 

(50,060)

Income tax expenses

 

(146,689)

 

(299,705)

 

(834,334)

The following table sets forth reconciliation between the statutory EIT rate and the Group’s effective tax rate:

For the Year ended December 31,

 

    

2017

    

2018

    

2019

 

Statutory income tax rates:

 

25.0

%  

25.0

%  

25.0

%

Change in valuation allowance

 

(7.5)

%  

10.1

%  

3.8

%

Permanent book-tax differences (a)

 

9.4

%  

(7.6)

%  

(12.4)

%

Effect of preferential tax treatment and tax holiday

 

(13.7)

%  

(13.6)

%  

(8.4)

%

Others (b)

 

(3.6)

%  

(1.6)

%  

1.0

%

Effective tax rate

 

9.6

%  

12.3

%  

9.0

%

(a) The permanent differences mainly consisted of additional deduction for research and development expenditures, effect on tax rates in different tax jurisdiction and other non-deductible expenses.
(b) Others mainly consisted of fair value change, Fixed Assets One-time Expense and amortization of acquired intangible assets.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

The per share effect of the tax holidays  mostly enjoyed by Shanghai Ruiting, Wangling and 58 Technology are as follows:

For the Year ended December 31,

2017

2018

2019

    

RMB

    

RMB

    

RMB

Net earnings per ordinary share attributable to ordinary shareholders effect – basic

 

0.45

 

1.01

 

0.93

Net earnings per ordinary share attributable to ordinary shareholders effect – diluted

 

0.45

 

0.99

 

0.92

The following table sets forth the significant components of the aggregate deferred tax assets and liabilities:

As of December 31,

2018

2019

    

RMB

    

RMB

Deferred tax assets

 

  

 

  

Provision for doubtful receivables

 

11,622

 

19,459

Net operating loss carry forwards

 

290,164

 

499,091

Advertising expenses in excess of deduction limit

 

306,510

 

466,090

Others

 

23,603

 

37,420

Total deferred tax assets

 

631,899

 

1,022,060

Less: Valuation allowance

 

(588,946)

 

(937,037)

Total deferred tax assets, net

 

42,953

 

85,023

Deferred tax liabilities

 

  

 

  

Acquired intangible assets

 

268,171

 

214,388

Fair value change

152,223

Fixed Assets One-time Expense

 

14,941

 

23,108

Total deferred tax liabilities

 

283,112

 

389,719

Deferred tax assets of RMB43.0 million and RMB85.0 million were included in the long-term prepayments and other non-current assets of the Group’s consolidated balance sheets as of December 31, 2018 and 2019.

Deferred tax liabilities of RMB268.2 million and RMB214.4 million as of December 31, 2018 and 2019 were mainly related to the intangible assets acquired during business acquisitions of Anjuke and Ganji in 2015. Deferred tax liabilities of RMB152.2 million as of December 31, 2019 were related to the fair value change of investment. Deferred tax liabilities of RMB14.9 million and RMB23.1 million as of December 31, 2018 and 2019 were related to the Fixed Assets One-time Expense.

As of December 31, 2019, the Group had net operating loss carry forwards of approximately RMB2.3 billion, which will expire during the period between January 1, 2021 and December 31, 2028. There is no expiration for the advertising expenses that were in excess of annual deduction limit and carried forward.

A valuation allowance is provided against deferred tax assets when the Group determines that it is more likely than not that some portion of or all of the deferred tax assets will not be utilized in the future. In making such determination, the Group evaluates a variety of factors including the Group’s operating history, accumulated deficit, existence of taxable temporary differences and reversal periods.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

The Group has recoverable accumulated operating losses for income tax purposes since its inception. The Group believes that it is more likely than not that most of these recoverable operating losses and other deferred tax assets will not be utilized in the future except for RMB85.0 million deferred tax assets recognized as of December 31, 2019. Therefore, the Group had valuation allowances of RMB343.6 million, RMB588.9 million and RMB937.0 million for the deferred tax assets as of December 31, 2017, 2018 and 2019, respectively.

Movement of valuation allowance

For the years ended December 31,

2017

2018

2019

    

RMB

    

RMB

    

RMB

Balance at beginning of the period

 

458,433

 

343,590

 

588,946

Provision

 

81,904

 

308,811

 

349,781

Current period reversal

 

(196,747)

 

(63,455)

 

(1,690)

Balance at the end of the period

 

343,590

 

588,946

 

937,037

The provision of valuation allowance against the deferred tax assets as of December 31, 2019 was primarily associated with operating loss carry forwards of Beijing Zhuanzhuan and Tianjin Zhuanzhuan, and the advertising expenses in excess of deduction limit of Yangguang Gudi and Shanjing Kechuang, which may not be realized as a tax benefit.

The current period reversal of valuation allowance is primarily attributed to the utilization of net operating losses and deductible advertising expenses carried forward from prior years of certain entities that started to make profits in the year ended December 31, 2019.

As of December 31, 2019, the tax years ended December 31, 2015 through 2019 of the Company’s PRC subsidiaries and the variable interest entities are subjected to examination by the PRC tax authorities.

22.

Ordinary shares

The Company was incorporated in the Cayman Islands in May 2011.

On August 30, 2013, the Group’s Board of Directors approved that the Group redesigned the share capital and adopted a dual class ordinary share structure immediately upon the completion of IPO. Upon completion of the Group’s IPO on November 5, 2013, the Company’s shares were divided into Class A ordinary shares and Class B ordinary shares, at par value of US $0.00001. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share, voting together as one class on all matters subject to a shareholders’ vote. 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 circumstance.

On April 20, 2015, the Group acquired certain number of ordinary and preference shares of Ganji from Ganji's shareholders, after  which the Group held less than 50% equity stake in Gangi. On August 6, 2015, the Company committed RMB2.5 billion (US$406.7 million) cash and 46.5 million newly issued ordinary shares of the Company to several private equity funds, of which RMB1.7 billion (US$272.4 million) cash and 46.5 million ordinary shares were contributed to the funds in August 2015. These funds, together with Tencent, acquired the remaining equity interest in Ganji on August 6, 2015.

On December 11, 2015, the Company issued 4.3 million Class A ordinary shares to Tencent to early repay RMB806.0 million (US$125.0 million) principal amount and settle the accrued interest payable of RMB47.0 million (US$7.3 million) of the convertible note to Tencent.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

As of December 31, 2018, 4,800,000,000 Class A ordinary shares and 200,000,000 Class B ordinary shares were authorized, 296,444,579 ordinary shares were issued and outstanding, of which 250,858,415 were Class A ordinary shares and 45,586,164 were Class B ordinary shares.

As of December 31, 2019, 4,800,000,000 Class A ordinary shares and 200,000,000 Class B ordinary shares were authorized, 299,277,413 ordinary shares were issued and outstanding, of which 254,045,293 were Class A ordinary shares and 45,232,120 were Class B ordinary shares.

23.

Share-based compensation

58.com Share-based Awards

In March 2010, the Group authorized an employment-related stock incentive plan (the “2010 Plan”). The 2010 Plan will terminate automatically 10 years after its adoption, unless terminated earlier at the Group’s shareholders’ approval. According to the resolutions of the Board of Directors of the Group in April, November 2011 and January 2013, the number of ordinary shares available for issuance under the 2010 Plan was increased to 20,173,225. The majority of options granted under 2010 plan were to be vested over three or four years, one fourth (1/4) of which shall vest and become exercisable upon the first anniversary of the date of grant and the remaining shall vest monthly thereafter in 24 or 36 equal monthly installments.

The Group adopted a share incentive plan (the “2013 Plan”) on September 26, 2013. The 2013 Plan will terminate automatically 10 years after its adoption, unless terminated earlier at the Group’s shareholders’ approval. The maximum aggregate number of shares which may be issued pursuant to all awards under the 2013 Plan is 2,800,000 shares as of the date of its adoption. The number of shares reserved for future issuances under the 2013 Plan will be increased by a number equal to 1.5% of the total number of outstanding shares on the last day of the immediately preceding calendar year, on the first day of each calendar year during the term of the 2013 Plan beginning in 2015, or such lesser number of ordinary shares as determined by the Board of Directors. According to the resolutions of the Board of Directors of the Group in 2015 through 2019, the number of ordinary shares available for issuance under the 2013 Plan was increased to 31,133,369 as of January 1, 2019. The options and RSUs granted under the 2013 Plan were generally to be vested over three to five years, the majority of which shall have one fourth (1/4) vested and exercisable upon the first anniversary of the date of grant and the remaining shall vest every six months thereafter in equal installments, or subject to vesting in four equal installments over a period of four years.

As of December 31, 2019, the Group has reserved approximately 7,420,000 ordinary shares available to be granted as share-based awards.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

A summary of the Group’s share option activities under the 2010 and 2013 Plan for the years ended December 31, 2017, 2018 and 2019 is presented below:

Weighted

Weighted

Average

Average

Remaining

Aggregate

Number of

Exercise

Contractual

Intrinsic

Options

Price

Life

Value

    

    

US$

    

In years

    

US$

Outstanding as of December 31, 2016

 

5,447,800

 

7.78

 

6.39

 

43,531

Granted

 

Forfeited and expired

 

(99,344)

 

15.36

Exercised

 

(2,403,566)

 

6.29

 

45,141

Outstanding as of December 31, 2017

 

2,944,890

 

8.74

 

5.31

 

79,662

Granted

 

17,328

0.01

Forfeited and expired

 

(31,044)

 

7.03

Exercised

 

(395,590)

 

5.28

 

12,293

Outstanding as of December 31, 2018

 

2,535,584

 

9.24

 

4.42

 

45,620

Granted

 

 

Forfeited and expired

 

(2)

 

2.50

Exercised

 

(134,456)

 

4.51

 

3,411

Outstanding as of December 31, 2019

 

2,401,126

 

9.50

 

3.39

 

48,927

Exercisable as of December 31, 2019

 

2,197,930

 

8.53

 

3.17

 

46,910

Fully vested and expected to vest as of December 31, 2019

 

11,685,220

The weighted average grant date fair value of options granted for the year ended December 31, 2018 was US$37.86 per share. There were no options granted in 2017 and 2019.

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

The following table sets forth the summary of RSUs activities for the years ended December 31, 2017, 2018 and 2019:

Weighted

Average

Weighted

Remaining

Average

Number of

Contractual

Grant Date

    

RSUs

    

Life

    

Fair Value

In years

US$

Unvested as of December 31, 2016

 

7,050,138

 

9.09

 

  

Granted

 

4,381,182

 

23.53

Forfeited

 

(2,104,716)

 

  

 

  

Vested

 

(1,890,568)

 

  

 

  

Unvested as of December 31, 2017

 

7,436,036

 

8.85

 

  

Granted

 

3,166,236

 

33.15

Forfeited

 

(813,520)

 

  

 

  

Vested

 

(2,083,858)

 

  

 

  

Unvested as of December 31, 2018

 

7,704,894

 

8.60

 

  

Granted

 

4,894,310

 

  

 

25.41

Forfeited

 

(545,618)

 

Vested

 

(2,698,378)

 

  

 

  

Unvested as of December 31, 2019

 

9,355,208

 

8.77

 

  

Fully vested and expected to vest as of December 31, 2019

 

22,234,204

 

 

  

As of December 31, 2019, there were a total of RMB1.5 billion unrecognized compensation expenses, adjusted for estimated forfeitures, related to non-vested share-based compensation arrangement under the 2013 Plan. The expense is expected to be recognized over a weighted average period of 3.09 years. Total unrecognized compensation expenses may be adjusted for future changes in estimated forfeitures.

Zhuan Zhuan Share-based Awards

In September 2017, Zhuan Zhuan Holding, a subsidiary of the Group, adopted a share incentive plan, or the Zhuan Zhuan 2017 Plan. The Zhuan Zhuan 2017 Plan permits the awards of options, restricted share units and restricted shares. Awards of share rights may be granted under Zhuan Zhuan 2017 Plan to employees and management of Zhuan Zhuan Holding and of any present or future parents or subsidiaries or VIEs of Zhuan Zhuan Holding. The maximum term of any share right granted under the plan is ten years from the grant date. The Zhuan Zhuan 2017 Plan will expire on September 30, 2027.

In October 2019, Zhuan Zhuan Holding adopted a share incentive plan, or the Zhuan Zhuan 2019 Plan. The Zhuan Zhuan 2019 Plan permits the awards of options. Awards of share rights may be granted under Zhuan Zhuan 2019 Plan to employees, consultants and directors of Zhuan Zhuan Holding and of any present or future parents or subsidiaries or variable interest entities of Zhuan Zhuan Holding. The maximum term of any share right granted under the plan is ten years from the grant date. The Zhuan Zhuan 2019 Plan will expire on October 1, 2029.

Share Option awards of Zhuan Zhuan

As of December 31, 2019, Zhuan Zhuan Holding had granted options for the purchase of certain ordinary shares to its employees and management. The options granted to the employees were to be vested over four years, one fourth (1/4) of which shall vest upon the first anniversary of the commencement date and the remaining shall vest every six months thereafter in equal installments. The options granted to management were to be vested over six years, 12.5% of which shall vest upon the second anniversary of the commencement date, 25% each shall vest on the third, fourth and fifth anniversary, respectively and the remaining 12.5% shall vest on the sixth anniversary.

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

For the options awarded to the employees, the vested options will not be exercisable prior to Zhuan Zhuan Holding’s completion of a qualified IPO, therefore the completion of a qualified IPO is considered to be a performance condition and no compensation expense should be recognized until it becomes probable that the performance condition can be achieved. The options granted to management are exercisable once vested. As a result, the Group had only recognized the compensation expense for the options granted to the management for the years ended December 31, 2017, 2018 and 2019 and recognized no compensation expenses for the options granted to employees.

Restricted Share Units (“RSUs”) awards of Zhuan Zhuan

As of December 31, 2019, Zhuan Zhuan Holding had granted certain RSUs to the employees, for which one fourth (1/4) will become vested upon the first anniversary of the commencement date, and the remaining shall vest every six months thereafter in equal installments. The granted RSUs cannot be settled prior to Zhuan Zhuan Holding’s completion of a qualified IPO. The employees can keep holding the vested RSUs until Zhuan Zhuan Holding completes a qualified IPO or request Zhuan Zhuan Holding to redeem the vested RSUs upon the termination of their employment before they are able to be settled.

Therefore, the award is akin to a tandem award with two components: (i) a cash settled feature at the redemption value; (ii) an equity settled feature as a call option on the vested RSUs. The Group recognized component (i) of this award over the requisite service period as a liability and did not recognize the compensation for component (ii) considering it is subject to the performance condition.

Restricted Share (“RS”) Awards of Zhuan Zhuan

As of December 31, 2019, Zhuan Zhuan Holding had granted certain restricted shares to management of Zhuan Zhuan Holding. The granted restricted shares are to be vested and settled over four years in equal installments. The management has the right to request Zhuan Zhuan Holding to redeem the vested RSs or to keep holding these vested RSs upon the termination of the employment, therefore this award is akin to a tandem award with two components: (i) a cash settled feature at the redemption value; (ii) an equity settled feature as a call option on the vested RSs. The Group recognized component (i) of this award over the requisite service period as liabilities and component (ii) as equities.

For the years ended December 31, 2017, 2018 and 2019, the Group recognized RMB15.7 million, RMB32.0 million and RMB33.9 million share-based compensation expenses for Zhuan Zhuan 2017 Plan. As of December 31, 2019, there were a total of RMB168.5 million unrecognized compensation expenses, adjusted for estimated forfeitures, related to non-vested share-based compensation arrangement and arrangements that are subject to performance condition. The expense is expected to be recognized over a weighted average period of 1.95 years. Total unrecognized compensation expenses may be adjusted for future changes in estimated forfeitures and probability of achieving the performance condition.

The Group recognized share-based compensation expenses under 58.com Share-based Awards, and Zhuan Zhuan Holding Share-based awards in total of RMB350.6 million, RMB462.9 million and RMB544.7 million for the years ended December 31, 2017, 2018 and 2019, respectively.

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

24.

Earnings per share

The following table sets forth the computation of basic and diluted net earnings per share for the periods indicated:

As of December 31,

2017

2018

2019

    

RMB

    

RMB

    

RMB

Numerator:

Net income

 

1,389,242

 

2,129,058

 

8,445,226

Net (income)/loss attributable to noncontrolling interests

 

(4,667)

 

139

 

8,033

Deemed dividend to mezzanine classified noncontrolling interests

 

(99,507)

 

(132,202)

 

(175,045)

Numerator for basic and diluted net earnings per share

 

1,285,068

 

1,996,995

 

8,278,214

Denominator:

Weighted average number of ordinary shares used in computing net earnings per share—basic

 

291,475,725

 

294,902,518

 

297,836,268

Weighted average number of ordinary shares used in computing net earnings per share—diluted

 

295,304,995

 

299,711,258

 

301,449,100

Net earnings per ordinary share attributable to ordinary shareholders - basic

 

4.41

 

6.77

 

27.79

Net earnings per ordinary share attributable to ordinary shareholders - diluted

 

4.35

 

6.66

 

27.46

Net earnings per ADS attributable to ordinary shareholders-basic

 

8.82

 

13.54

 

55.59

Net earnings per ADS attributable to ordinary shareholders - diluted

 

8.70

 

13.33

 

54.92

Basic net earnings per share is computed using the weighted average number of the ordinary shares outstanding during the period. Diluted net earnings per share is computed using the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. Class A and Class B ordinary shares are considered the same for the purposes of EPS calculation as they have identical earnings rights and preferences. For the years ended December 31, 2017, 2018 and 2019, options to purchase ordinary shares included in the calculation of diluted net income per share totaled 3,829,270, 4,808,740 and 3,612,832, respectively. For the years ended December 31, 2017, 2018 and 2019, the impact of share options granted under Zhuan Zhuan 2017 Plan was not dilutive, as Zhuan Zhuan has been in loss position.

25.Leases

Leases are classified as operating leases or finance leases in accordance with ASC 842. The Group’s leases are all operating leases mainly relating to corporate offices and outdoor billboards. For leases with terms greater than 12 months, the Group records the related asset and lease liability at the present value of lease payments over the term. The remaining lease terms for these operating leases are generally from 2 months to 8 years. Future lease payments under operating leases as of December 31, 2019 were as follows:

    

As of December 31, 2019

 

RMB

2020

 

152,716

2021

 

68,812

2022

 

22,974

2023

 

16,104

2024

 

12,060

Thereafter

 

24,048

Total minimum lease payments

 

296,714

Less: imputed interest

 

(20,850)

Total lease liability balance

 

275,864

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

Rental expense under operating leases was RMB143.5 million and RMB177.1 million for the years ended December 31, 2017 and 2018, respectively. Operating lease expense for the year ended December 31, 2019 was RMB158.8 million, which excluded cost of short-term contracts. Short-term lease cost for the year ended December 31, 2019 was RMB35.9 million.

    

For the Year ended 

 

December 31, 2019

 

RMB

 

Cash paid for amounts included in the measurement of lease liabilities:

 

  

Operating cash flows from operating leases

 

152,156

Right-of-use assets obtained in exchange for new operating lease liabilities:

 

  

Operating leases

 

120,271

Weighted-average remaining lease term-operating leases

 

3.51 years

Weighted-average discount rate-operating

 

4.75

%

As of December 31, 2018, the future minimum lease payments under the Group’s non-cancelable operating lease agreements based on ASC 840 are as follows:

    

Operating leases

RMB

2019

 

187,581

2020

 

103,807

2021

 

66,499

2022

 

15,243

Beyond 2022

 

65,142

26.

Commitments and contingencies

(a)

Commitments

The Group engaged third parties for promoting its brand image through various advertising channels, including advertising on internet search engines, platforms and other traditional off-line media. The amount of advertising commitments relates to the committed advertising services that have not been delivered and paid. As of December 31, 2019, future minimum advertising commitments under non-cancelable agreements are RMB73.8 million.

The Group’s investment commitments primarily relate to capital contributions obligation under certain arrangements. The total investment commitments contracted but not yet reflected in the financial statements amounted to RMB80 million.

Other than those shown above, the Group did not have any significant capital or other commitments, or long-term obligations as of December 31, 2019.

(b)

Contingencies

From time to time, the Group is involved in claims and legal proceedings that arise in the ordinary course of business. Based on currently available information, management does not believe that the ultimate outcome of the unresolved matters, individually and in the aggregate, are likely to have a material adverse effect on the Group’s financial position, results of operations or cash flows. However, litigations are subject to inherent uncertainties and the Group’s view of these matters may change in the future. When an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Group’s financial position and results of operations for the periods in which the unfavorable outcome occurs, and potentially in future periods.

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

27.

Related party transactions

Related party transactions primarily related to the transactions with 58 Finance and Tencent, the natures and amounts of which have been disclosed in Note 7, Note 8 and Note 2(t), respectively. Other related party transactions, which were primarily with the Group’s investees, were insignificant for all periods presented.

As of December 31, 2018 and 2019, amounts due from/to related parties are summarized as below:

As of December 31,

2018

2019

    

RMB

    

RMB

Amounts due from related parties, current

Tencent

 

167,963

 

133,201

58 Finance

 

82,725

 

339,415

Others

 

7,866

 

17,485

Total

 

258,554

 

490,101

Amounts due from related parties, non-current

58 Finance

 

491,656

 

191,055

Others

13,500

Total

 

491,656

 

204,555

Amounts due to related parties, current

Tencent

 

45,854

 

65,153

Others

 

10,758

 

33,655

Total

 

56,612

 

98,808

As of December 31, 2018 and 2019, the balances due from Tencent primarily included accounts receivables from Tenpay, which is a payment platform of Tencent. As of December 31, 2018 and 2019, the balances due to Tencent mainly related to payables for SMS cost and advertisement fees.

In 2019, 58 Finance (the “Borrower”) borrowed RMB400 million with an interest rate of 4.25% per annum and one-year maturity from a third party Chinese local commercial bank. The Group has provided guarantees for the RMB400 million loan and deposited and pledged a total amount of RMB417 million to that bank as collateral against the loan. The Borrower shall pay the Group RMB16 million guarantee service fees and reimburse the Group for any payment to the bank in case of its default on the loan.

According to ASC 460, the Group recognized guarantee liabilities amounting to RMB16 million which equals to the fair values of the guarantees at their inception. The guarantee liabilities were recorded as other current liabilities in the Group’s consolidated balance sheets. The Group adopted a rational amortization method over the life of the guarantee in the subsequent measurement and reduced the guarantee liability by recording a credit to net income. The Group recorded the RMB16 million guarantee service fees receivable as other current assets and the RMB417 million cash deposited and pledged to the bank as restricted cash-current, respectively in its consolidated balance sheets as of December 31, 2019. Net income for these guarantees for the year ended December 31, 2019 was immaterial to the consolidated financial statements.

As of December 31, 2018 and 2019, the balances due from the disposal of Finance Business have been disclosed in Note 8 and Note 10.

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

28.

Subsequent events

In January 2020, pursuant to the arrangement in the framework agreement as discussed in Note 8, the Group contributed US$71.4 million as registered capital and helped Golden Pacer set up a financial guarantee company, and Golden Pacer will repay the amount of contribution in installments, plus interest to be determined based on the market interest rate, over the subsequent three-year period.

In February 2020, the Company lent RMB104.7 million to 58 Home, which will be due within one-year from the date of lending. Meanwhile, 58 Daojia Limited, the majority owned subsidiary of 58 Home, also executed the transaction documents for its series B round of equity financing, which amounted to US$100 million, with external investors in the first quarter of 2020.

On March 24, 2020, the Company entered into definitive agreements with Uxin to purchase certain assets and liabilities related to Uxin’s B2B online used car auction business for a total cash consideration of US$105 million. The transaction is expected to be closed in the first half of 2020. The Group is evaluating the accounting impact of this transaction.

As disclosed in Note 14(j), the Company invested RMB153 million in cash and held 30% of the equity interests in Ai Fang as of December 31, 2019. In March 2020, the Company invested additional RMB139.1 million in Ai Fang's equity and RMB370.9 million in Ai Fang’s convertible notes, after that the Company’s equity interest in Ai Fang was increased to 45%. The Group is in the process of evaluating the accounting impact of this transaction.

In September 2019, in order to provide the Finance Business with more flexibility in future fund raising and acquisitions, the Company entered into definitive agreements to convert its profit participation rights in Golden Pacer to certain number of shares of Golden Pacer. In parallel, Golden Pacer entered into definitive agreements with Uxin, pursuant to which Golden Pacer will acquire the loan facilitation related business from Uxin. In April 2020, the abovementioned transactions were completed when Golden Pacer and Uxin entered into supplementary agreements to modify their transactions in light of the changes in the regulatory environment and the impact of COVID-19 outbreak. The Company has converted the abovementioned profit participation rights into equity of Golden Pacer, and as of the date of this report, the Company holds 40% of the share capital of Golden Pacer on a fully diluted basis. The Group is in the process of evaluating the accounting impact of these transactions.

The outbreak of COVID-19 began in January 2020 and was quickly declared as a Public Health Emergency of International Concern and subsequently a pandemic by the World Health Organization. To control the spread of COVID-19, PRC government has implemented a series of strict measures, including travel restrictions, quarantines, and a temporary shutdown of businesses which resulted in a decrease in activity level among our paying business users. In particular, paying business users that require in-person meetings to conduct their business, including those in the secondary housing and rental real estate sector, used auto dealers, local service providers, and recruiters, have been adversely and materially affected by these interruptions and delayed business resumption. As the Group’s revenues are generated primarily from these paying business users, most of whom are small and medium-sized local businesses, the outbreak of COVID-19 and subsequent prevention and control measures have adversely affected the Group’s business operations and financial conditions in the first quarter of 2020. For instance, the Group’s revenues for the first quarter of 2020 were estimated to decline significantly compared to the same period in 2019. The Group also scaled back certain expenses, particularly some discretionary advertising expenses to mitigate the adverse impact on its profit. During February 2020, a majority of the Group’s employees worked from home. As the Group’s customers, many of whom are migrant workers, took longer to resume normal businesses due to these quarantine measures, the Group also delayed hiring for its sales and customer services teams. The outbreak of COVID-19 also adversely affected the business operations of the Group’s investees, which will likely result in downward adjustments to the Group’s long-term investment, and if the impacts of the COVID-19 pandemic become other than temporary, impairment losses will be recognized for the Group’s long-term investments. Since the end of February 2020, the number of daily new cases of COVID-19 in China have been contained at a relatively low level, the quarantine measures have been gradually relaxed or lifted. Offline business activities have been recovering and the Group’s employees are going back to offices. Despite the recovering trend the Group has observed till the date of this report, there is still high uncertainty as to how the ongoing pandemic will develop and its impact on the Group’s business going forward. If the pandemic continues to impact economic activity subsequent to the date of this report, the uncertainty may continue to have adverse impact on the Group’s business, financial condition and results of operations for the remainder of the fiscal year ending December 31, 2020, which cannot be reasonably estimated at the current stage. The Group will regularly assess and adopt measures to offset any challenges created by the ongoing pandemic.

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58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share, per share and per ADS data, unless otherwise noted)

29.

Restricted net assets

PRC laws and regulations permit payments of dividends by the Company’s subsidiaries, the VIEs and VIEs’ subsidiaries incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the Company’s subsidiaries, the VIEs and VIEs’ subsidiaries incorporated in the PRC are required to annually appropriate 10% of their net after-tax income to the statutory general reserve fund prior to payment of any dividends, unless such reserve funds have reached 50% of their respective registered capital. As a result of these and other restrictions under PRC laws and regulations, the Company’s subsidiaries, the VIEs and VIEs’ subsidiaries incorporated in the PRC are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends, loans or advances, which restricted portion amounted to RMB2.1 billion and RMB2.7 billion as of December 31, 2018 and 2019, respectively. Even though the Company currently does not require any such dividends, loans or advances from the PRC entities for working capital and other funding purposes, the Company may in the future require additional cash resources from them due to changes in business conditions, to fund future acquisitions and development, or merely to declare and pay dividends or distributions to its shareholders. Except for the above, there is no other restriction on the use of proceeds generated by the Company’s subsidiaries, the VIEs and VIEs’ subsidiaries to satisfy any obligations of the Company. The Group performed a test on the restricted net assets of its consolidated subsidiaries, the VIEs and VIEs’ subsidiaries (the "restricted net assets") in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3), "General Notes to Financial Statements" and concluded that the restricted net assets did not exceed 25% of the consolidated net assets of the Group as of December 31, 2019.

F-56

Exhibit 2.4

Description of rights of each class of securities
registered under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”)

American Depositary Shares (“ADSs”) each representing two Class A ordinary shares of 58.com Inc., (the “we,”  “our,”  “our company,” or “us”) are listed and traded on the New York Stock Exchange and, in connection with this listing (but not for trading), the Class A ordinary shares are registered under Section 12(b) of the Exchange Act. This exhibit contains a description of the rights of (i) the holders of Class A ordinary shares and (ii) the holders of ADSs.  Class A ordinary shares underlying the ADSs are held by Citibank, N.A., as depositary, and holders of ADSs will not be treated as holders of the Class A ordinary shares.

Description of Class A Ordinary Shares

The following is a summary of material provisions of our currently effective third amended and restated memorandum (the “Memorandum”) and articles of association (the “Articles of Association”), as well as the Companies Law (as amended) of the Cayman Islands (the "Companies Law") insofar as they relate to the material terms of our ordinary shares. Notwithstanding this, because it is a summary, it may not contain all the information that you may otherwise deem important. For more complete information, you should read the entire Memorandum and Articles of Association, which has been filed with the SEC as an exhibit to our Registration Statement on Form F-1 (File No. 333-191424).

Type and Class of Securities (Item 9.A.5 of Form 20-F)

Each Class A ordinary share has US$0.00001 par value. The number of Class A ordinary shares that have been issued as of the last day of the financial year ended December 31, 2019 is provided on the cover of the annual report on Form 20-F filed on April 29, 2020 (the “2019 Form 20-F”). Certificates representing the ordinary shares are issued in registered form. Our shareholders who are non-residents of the Cayman Islands may freely hold and transfer their ordinary shares.

Preemptive Rights (Item 9.A.3 of Form 20-F)

Our shareholders do not have preemptive rights.

Limitations or Qualifications (Item 9.A.6 of Form 20-F)

We have a dual-class voting structure such that our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. In respect of all matters subject to a shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes, voting together as one class. Due to the super voting power of Class B ordinary share holder, the voting power of the Class A ordinary shares may be materially limited.

1

Rights of Other Types of Securities (Item 9.A.7 of Form 20-F)

Not applicable.

Rights of Class A Ordinary Shares (Item 10.B.3 of Form 20-F)

Classes of Ordinary Shares

Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Except for voting and conversion rights, the Class A ordinary shares and Class B ordinary shares shall carry equal rights and rank pari passu with one another.

Dividends

The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Our Articles of Association provides  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 determines 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. Holders of Class A ordinary shares and Class B ordinary shares will be entitled to the same amount of dividends, if declared.

Voting Rights

In respect of all matters subject to a shareholders' vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes, voting together as one class. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one or more shareholders who together hold not less than 10% of the nominal value of the total issued voting shares of our company present in person or by proxy.

A quorum required for a meeting of shareholders consists of one or more shareholders who hold at least one-third of all voting power of our share capital in issue at the meeting present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. Shareholders' meetings may be held annually. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting. Extraordinary general meetings may be called by a majority of our board of directors or our chairman or upon a requisition of shareholders holding at the date of deposit of the requisition not less than one-third of the aggregate voting power of our company. Advance notice of at least ten clear days is required for the convening of our annual general meeting and other general meetings.

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 at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the ordinary shares at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our Memorandum and Articles of Association.

2

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 transfer of Class B ordinary shares by a holder to any person or entity which is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into the equivalent number of Class A ordinary shares. In addition, if at any time, Mr. Jinbo Yao and his affiliates collectively own less than 5% of the total number of the issued and outstanding Class B ordinary shares, each issued and outstanding Class B ordinary share will be automatically and immediately converted into one Class A ordinary share, and we will not issue any Class B ordinary shares thereafter.

Transfer of Ordinary Shares

Subject to the restrictions set out below and the provisions above in respect of Class B ordinary shares, 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 our company has a lien. Our board of directors may also decline to register any transfer of any ordinary share or recognize any instrument of transfer unless:

·

the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;

·

the instrument of transfer is in respect of only one class of ordinary shares;

·

the instrument of transfer is properly stamped, if required;

·

in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and

·

a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within three 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 NYSE, 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 days in any year as our board may determine.

3

Liquidation

On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares), assets available for distribution among the holders of ordinary shares shall be distributed among the holders of the ordinary shares on a pro rata basis. 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 proportionately. Any distribution of assets or capital to a holder of a Class A ordinary share and a holder of a Class B ordinary share will be the same in any liquidation event.

Calls on Ordinary Shares and Forfeiture of Ordinary Shares

Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 clear days prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.

Redemption of Ordinary Shares

The Companies Law and our Articles of Association permit us to purchase our own shares. In accordance with our Articles of Association and provided the necessary shareholders or board approval have been obtained, we may issue shares on terms that are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner, including out of capital, as may be determined by our board of directors.

Requirements to Change the Rights of Holders of Class A Ordinary Shares (Item 10.B.4 of Form 20-F)

Variations of Rights of Shares

All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied 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. 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.

Limitations on the Rights to Own Class A Ordinary Shares (Item 10.B.6 of Form 20-F)

There are no limitations under the laws of the Cayman Islands or under the Memorandum and Articles of Association that limit the right of non-resident or foreign owners to hold or vote Class A ordinary shares, other than anti-takeover provisions contained in the Memorandum and Articles of Association to limit the ability of others to acquire control of our company or cause our company to engage in change-of-control transactions.

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Provisions Affecting Any Change of Control (Item 10.B.7 of Form 20-F)

Anti-Takeover Provisions. Some provisions of our 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 authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders.

However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our Memorandum and Articles of Association, as amended and restated from time to time, for a proper purpose and for what they consider in good faith to be in the best interests of our company.

Ownership Threshold (Item 10.B.8 of Form 20-F)

There are no provisions under the laws of the Cayman Islands or under the Memorandum and Articles of Association that govern the ownership threshold above which shareholder ownership must be disclosed.

Differences Between the Law of Different Jurisdictions (Item 10.B.9 of Form 20-F)

The Companies Law is modeled after that of English law but does not follow many recent English law statutory enactments. In addition, the Companies Law differs from laws applicable to United States 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 State of Delaware.

Mergers and Similar Arrangements. A merger of two or more constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approved by the directors of each constituent company and authorization by (a) a special resolution of the shareholders and (b) such other authorization, if any, as may be specified in such constituent company's articles of association.

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 subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are owned by the parent company.

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 circumstances, a dissentient shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upon dissenting from a merger or consolidation. The exercise of such right of the dissenters will preclude the exercise of any other rights save for the right to seek relief on the ground that the merger or consolidation is void or unlawful.

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In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, 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 seventy-five percent (75%) 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 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:

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the statutory provisions as to the required majority vote have been met;

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the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class;

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the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and

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the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.

When a takeover offer is made and accepted by holders of 90.0% of the shares within four months, the offeror may, within a two-month period commencing on the expiration of such four-month period, by notice in the prescribed manner require the holders of the remaining shares to transfer such shares 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, the dissenting shareholder would have no rights comparable to appraisal rights, 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:

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a company acts or proposes to act illegally or ultra vires;

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the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and

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those who control the company are perpetrating a “fraud on the minority.”

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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 Memorandum and Articles of Association permit indemnification of officers and directors for losses, 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 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 acts 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 or she 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 or her position as director (unless the company permits him or her to do so) and a duty not to put himself or herself in a position where the interests of the company conflict with his or her personal interest or his or her 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 or her duties a greater degree of skill than may reasonably be expected from a person of his or her 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.

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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 Memorandum and 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.

Cayman Islands law does not provide shareholders any right to put proposal before a meeting or requisition a general meeting. However, these rights may be provided in articles of association. Our Memorandum and Articles of Association allow our shareholders holding not less than one-third of all voting power of our share capital in issue to requisition a shareholder's meeting. Other than this right to requisition a shareholders' meeting, our Memorandum and Articles of Association do not provide our shareholders other right to put proposal before a meeting. As an exempted Cayman Islands company, we are not obliged by law to hold 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 Memorandum and 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 Memorandum and 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

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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 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 Memorandum and 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 Memorandum and Articles of Association, if at any time 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 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 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 Memorandum and Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.

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Issuance of Additional Shares. Our Articles 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 Articles of Association also authorizes our board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:

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the designation of the series;

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the number of shares of the series;

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the dividend rights, dividend rates, conversion rights, voting rights; and

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the rights and terms of redemption and liquidation preferences.

Our board of directors may issue preferred 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.

Exempted Company. We are 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 registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered 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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does not have to file an annual return of its shareholders with the Registrar of Companies;

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is not required to open its register of members for inspection;

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does not have to hold an annual general meeting;

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may issue shares with no par value;

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may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);

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may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;

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may register as a limited duration company; and

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may register as a segregated portfolio company.

“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company.

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Changes in Capital (Item 10.B.10 of Form 20-F)

Our shareholders may from time to time by ordinary resolution in accordance with the Companies Law alter the conditions of our Memorandum of Association to:

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increase our share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe;

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consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;

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without prejudice to the powers of the board of directors, divide our shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares attach thereto respectively any preferential, deferred, qualified or special rights, privileges, conditions or such restrictions which in the absence of any such determination by the Company in general meeting, as the board of directors may determine provided always that, for the avoidance of doubt, where a class of shares has been authorized by the shareholders no resolution of the shareholders in general meeting is required for the issuance of shares of that class and the board of directors may issue shares of that class and determine such rights, privileges, conditions or restrictions attaching thereto as aforesaid, and further provided that where the Company issues shares which do not carry voting rights, the words “non-voting” shall appear in the designation of such shares and where the equity capital includes shares with different voting rights, the designation of each class of shares, other than those with the most favourable voting rights, must include the words “restricted voting” or “limited voting”;

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sub-divide our existing shares, or any of them, into shares of smaller amount than is fixed by the Memorandum of Association (subject, nevertheless, to the Companies Law), and may by such resolution determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred, deferred or other rights or be subject to any such restrictions as compared with the other or others as the Company has power to attach to unissued or new shares; or

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cancel any shares which, 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 our capital by the amount of the shares so cancelled or, in the case of shares, without par value, diminish the number of shares into which our capital is divided.

Our shareholders may from time to time by special resolution, subject to any confirmation or consent required by the Law, reduce our share capital or any capital redemption reserve in any manner permitted by the Companies Law.

Debt Securities (Item 12.A of Form 20-F)

Not applicable.

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Warrants and Rights (Item 12.B of Form 20-F)

Not applicable.

Other Securities (Item 12.C of Form 20-F)

Not applicable.

Description of American Depositary Shares (Items 12.D.1 and 12.D.2 of Form 20-F)

Citibank, N.A, as depositary, issues the ADSs. Each ADS represents an ownership interest of two Class A ordinary shares, deposited with the custodian, as agent of the depositary, under the deposit agreement among our company,  the depositary, and the holders of the American Depositary Receipts (“ADRs”) thereunder. Each ADS also represents ownership of any securities, cash or other property deposited with by the depositary but which they have not been distributed directly to you. Unless certificated ADSs are specifically requested by you, all ADSs will be issued on the books of the depositary in book-entry form and periodic statements will be mailed to you which reflect your ownership interest in such ADSs. In our description, references to American depositary receipts or ADRs shall include the statements you will receive which reflect your ownership of ADSs.

The depositary’s office is located at 388 Greenwich Street, New York, New York 10005. The depositary has appointed Citibank, N.A.—Hong Kong branch as custodian of the securities, cash and other property represented by the ADSs.

You may hold ADSs either directly or indirectly through your broker or other financial institution. If you hold ADSs directly, by having an ADS registered in your name on the books of the depositary, you are an ADR holder. This description assumes you hold your ADSs directly. If you hold the ADSs through your broker or financial institution nominee, you must rely on the procedures of such broker or financial institution to assert the rights of an ADR holder described in this section. You should consult with your broker or financial institution to find out what those procedures are.

As an ADS holder, we will not treat you as a shareholder of ours and you will not have any shareholder rights. Cayman Islands law governs shareholder rights. Because the depositary or its nominee will be the shareholder of record for the shares represented by all outstanding ADSs, shareholder rights rest with such record holder. Your rights are those of an ADS holder. Such rights derive from the terms of the deposit agreement entered into among us, the depositary and all registered holders from time to time of ADSs issued under the deposit agreement. The obligations of the depositary and its agents are also set out in the deposit agreement. Because the depositary or its nominee will actually be the registered owner of the shares, you must rely on it to exercise the rights of a shareholder on your behalf. The deposit agreement and the ADSs are governed by New York law. Under the deposit agreement, as an ADS holder, you agree that any legal suit, action or proceeding against or involving us or the depositary, arising out of or based upon the deposit agreement or the transactions contemplated thereby, may only be instituted in a state or federal court in New York, New York, and you irrevocably waive any objection which you may have to the laying of venue of any such proceeding and irrevocably submit to the exclusive jurisdiction of such courts in any such suit, action or proceeding.

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The following is a summary of what we believe to be the material terms of the deposit agreement. Notwithstanding this, because it is a summary, it may not contain all the information that you may otherwise deem important. For more complete information, you should read the entire deposit agreement and the form of ADR which contains the terms of your ADSs.  The deposit agreement has been filed with the SEC as an exhibit to a Registration Statement on Form F-6 (File No. 333-191776) for our company.  The form of ADR is on file with the SEC (as a prospectus) and was filed on October 31, 2013.

Share Dividends and Other Distributions

How will you receive dividends and other distributions on the shares underlying your ADSs?

We may make various types of distributions with respect to our securities. The depositary has agreed that, to the extent practicable, it will pay to you the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after converting any cash received into U.S. dollars (if it determines such conversion may be made on a practicable basis) and, in all cases, making any necessary deductions provided for in the deposit agreement. The depositary may utilize a division, branch or affiliate of Citibank, N.A. to direct, manage and/or execute any public and/or private sale of securities under the deposit agreement. Such division, branch and/or affiliate may charge the depositary a fee in connection with such sales, which fee is considered an expense of the depositary. You will receive these distributions in proportion to the number of underlying securities that your ADSs represent.

Except as stated below, the depositary will deliver such distributions to ADS holders in proportion to their interests in the following manner:

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Cash. The depositary will distribute any U.S. dollars available to it resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or portion thereof (to the extent applicable), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being impermissible or impracticable with respect to certain registered ADS holders, and (iii) deduction of the depositary’s and/or its agents’ expenses in (1) converting any foreign currency to U.S. dollars to the extent that it determines that such conversion may be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reasonable cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner. If exchange rates fluctuate during a time when the depositary cannot convert a foreign currency, you may lose some or all of the value of the distribution.

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Shares. In the case of a distribution in shares, the depositary will issue additional ADSs representing such shares. Only whole ADSs will be issued. Any shares which would result in fractional ADSs will be sold and the net proceeds will be distributed in the same manner as cash to the ADS holders entitled thereto.

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·

Rights to receive additional shares. In the case of a distribution of rights to subscribe for additional shares or other rights, if we timely provide evidence satisfactory to the depositary that it may lawfully distribute such rights, the depositary will distribute warrants or other instruments in the discretion of the depositary representing such rights. However, if we do not timely furnish such evidence, the depositary may:

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sell such rights if practicable and distribute the net proceeds in the same manner as cash to the ADS holders entitled thereto; or

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if it is not practicable to sell such rights by reason of the non-transferability of the rights, limited markets therefor, their short duration or otherwise, do nothing and allow such rights to lapse, in which case ADS holders will receive nothing and the rights may lapse.

We have no obligation to file a registration statement under the Securities Act in order to make any rights available to ADS holders.

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Other Distributions. In the case of a distribution of securities or property other than those described above, the depositary may either (i) distribute such securities or property in any manner it deems practicable or (ii) to the extent the depositary deems distribution of such securities or property not to be practicable, sell such securities or property and distribute any net proceeds in the same way it distributes cash.

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Elective Distributions. In the case of a dividend payable at the election of our shareholders in cash or in additional shares, we will notify the depositary at least 30 days prior to the proposed distribution stating whether or not we wish such elective distribution to be made available to ADS holders. The depositary shall make such elective distribution available to ADS holders only if (i) we shall have timely requested that the elective distribution is available to ADS holders, (ii) the depositary shall have determined that such distribution is reasonably practicable and (iii) the depositary shall have received satisfactory documentation within the terms of the deposit agreement including any legal opinions of counsel that the depositary in its reasonable discretion may request. If the above conditions are not satisfied, the depositary shall, to the extent permitted by law, distribute to the ADS holders, on the basis of the same determination as is made in the local market in respect of the shares for which no election is made, either (x) cash or (y) additional ADSs representing such additional shares. If the above conditions are satisfied, the depositary shall establish procedures to enable ADS holders to elect the receipt of the proposed dividend in cash or in additional ADSs. There can be no assurance that ADS holders generally, or any ADR holder in particular, will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of shares.

If the depositary determines in its discretion that any distribution described above is not practicable with respect to any specific registered ADS holder, the depositary may choose any method of distribution that it deems practicable for such ADS holder, including the distribution of foreign currency, securities or property, or it may retain such items, without paying interest on or

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investing them, on behalf of the ADS holder as deposited securities, in which case the ADSs will also represent the retained items.

Any U.S. dollars will be distributed by checks drawn on a bank in the United States for whole dollars and cents. Fractional cents will be withheld without liability and dealt with by the depositary in accordance with its then current practices.

The depositary is not responsible if it decides that it is unlawful or not reasonably practicable to make a distribution available to any ADR holders.

There can be no assurance that the depositary will be able to convert any currency at a specified exchange rate or sell any property, rights, shares or other securities at a specified price, nor that any of such transactions can be completed within a specified time period.

Deposit, Withdrawal and Cancellation

How does the depositary issue ADSs?

The depositary will issue ADSs if you or your broker deposit shares or evidence of rights to receive shares with the custodian and pay the fees and expenses owing to the depositary in connection with such issuance. Shares deposited with the custodian must be accompanied by certain delivery documentation and shall, at the time of such deposit, be registered in the name of Citibank, N.A., as depositary for the benefit of holders of ADSs or in such other name as the depositary shall direct.

The custodian will hold all deposited shares for the account of the depositary. ADS holders thus have no direct ownership interest in the shares and only have such rights as are contained in the deposit agreement. The custodian will also hold any additional securities, property and cash received on or in substitution for the deposited shares. The deposited shares and any such additional items are referred to as “deposited securities.”

Upon each deposit of shares, receipt of related delivery documentation and compliance with the other provisions of the deposit agreement, including the payment of the fees and charges of the depositary and any taxes or other fees or charges owing, the depositary will issue ADSs in the name or upon the order of the person entitled thereto. All of the ADSs issued will, unless specifically requested to the contrary, be part of the depositary’s direct registration system, and a registered holder will receive periodic statements from the depositary which will show the number of ADSs registered in such holder’s name. An ADS holder can request that the ADSs not be held through the depositary’s direct registration system and that a certificated ADR be issued.

How do ADS holders cancel an ADS and obtain deposited securities?

When you turn in your ADR certificate at the depositary’s office, or when you provide proper instructions and documentation in the case of direct registration ADSs, the depositary will, upon payment of certain applicable fees, charges and taxes, deliver the underlying shares to you or upon your written order. Delivery of deposited securities in certificated form will be made at the custodian’s office. At your risk, expense and request, the depositary may deliver deposited securities at such other place as you may request.

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The depositary may only restrict the withdrawal of deposited securities in connection with:

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temporary delays caused by closing our transfer books or those of the depositary or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of dividends;

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the payment of fees, taxes and similar charges; or

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compliance with any U.S. or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of deposited securities.

This right of withdrawal may not be limited by any other provision of the deposit agreement.

Record Dates

The depositary may, after consultation with us if practicable, fix record dates for the determination of the registered ADS holders who will be entitled (or obligated, as the case may be):

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to receive any distribution on or in respect of shares,

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to give instructions for the exercise of voting rights at a meeting of holders of shares,

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to pay the fee assessed by the depositary for administration of the ADR program and for any expenses as provided for in the ADR, or

·

to receive any notice or to act in respect of other matters

all subject to the provisions of the deposit agreement.

Voting Rights

How do you vote?

If you are an ADS holder and the depositary asks you to provide it with voting instructions, you may instruct the depositary how to exercise the voting rights for the shares which underlie your ADSs. As soon as practicable after receiving notice of any meeting or solicitation of consents or proxies from us, the depositary will distribute to the registered ADS holders a notice stating such information as is contained in the voting materials received by the depositary and describing how you may instruct the depositary to exercise the voting rights for the shares which underlie your ADSs, including instructions for giving a discretionary proxy to a person designated by us. For instructions to be valid, the depositary must receive them in the manner and on or before the date specified. The depositary will try, as far as is practical, subject to the provisions of and governing the underlying shares or other deposited securities, to vote or to have its agents vote the shares or other deposited securities as you instruct. Under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders' meetings unless:

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·

we have instructed the depositary that we do not wish a discretionary proxy to be given;

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we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;

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a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

·

the voting at the meeting is to be made on a show of hands.

Holders are strongly encouraged to forward their voting instructions to the depositary as soon as possible. Voting instructions will not be deemed to be received until such time as the ADR department responsible for proxies and voting has received such instructions notwithstanding that such instructions may have been physically received by the depositary prior to such time. The depositary will not itself exercise any voting discretion. Furthermore, neither the depositary nor its agents are responsible for any failure to carry out any voting instructions, for the manner in which any vote is cast or for the effect of any vote. Notwithstanding anything contained in the deposit agreement or any ADR, the depositary may, to the extent not prohibited by law or regulations, or by the requirements of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to the depositary in connection with any meeting of, or solicitation of consents or proxies from, holders of deposited securities, distribute to the registered holders of ADSs a notice that provides such holders with, or otherwise publicizes to such holders, instructions on how to retrieve such materials or receive such materials upon request (i.e., by reference to a website containing the materials for retrieval or a contact for requesting copies of the materials).

We have advised the depositary that under the Cayman Islands law and our constituent documents, each as in effect as of the date of the deposit agreement, voting at any meeting of shareholders is by show of hands unless a poll is (before or on the declaration of the results of the show of hands) demanded. In the event that voting on any resolution or matter is conducted on a show of hands basis in accordance with our constituent documents, the depositary will instruct the custodian to vote all deposited securities in accordance with the voting instructions received from a majority of holders of ADSs who provided voting instructions. The depositary will not demand a poll or join in demanding a poll, whether or not requested to do so by holders of ADSs. There is no guarantee that you will receive voting materials in time to instruct the depositary to vote and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.

Reports and Other Communications

Will ADS holders be able to view our reports?

The depositary will make available for inspection by ADS holders at the offices of the depositary and the custodian the deposit agreement, the provisions of or governing deposited securities, and any written communications from us which are both received by the custodian or its nominee as a holder of deposited securities and made generally available to the holders of deposited securities.

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Additionally, if we make any written communications generally available to holders of our shares, and we furnish copies thereof (or English translations or summaries) to the depositary, it will distribute the same to registered ADR holders.

Further,  we are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers and, accordingly, file certain reports with the SEC. All information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov.

Reclassifications, Recapitalizations and Mergers

If we take certain actions that affect the deposited securities, including (i) any change in par value, split-up, consolidation, cancellation or other reclassification of deposited securities or (ii) any distributions of shares or other property not made to holders of ADSs or (iii) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all of our assets, then the depositary may choose to, and shall if reasonably requested by us  among other steps:

·

amend the form of ADR;

·

distribute additional or amended ADSs;

·

distribute cash, securities or other property it has received in connection with such actions;

·

sell any securities or property received and distribute the proceeds as cash; or

·

none of the above.

If the depositary does not choose any of the above options, any of the cash, securities or other property it receives will constitute part of the deposited securities and each ADS will then represent a proportionate interest in such property.

Amendment and Termination

How may the deposit agreement be amended?

We may agree with the depositary to amend the deposit agreement and the ADRs without your consent for any reason. ADS holders must be given at least 30 days notice of any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or otherwise prejudices any substantial existing right of ADS holders. Such notice need not describe in detail the specific amendments effectuated thereby, but must identify to ADS holders a means to access the text of such amendment. If an ADS holder continues to hold an ADS after being so notified, such ADS holder is deemed to agree to such amendment and to be bound by the deposit agreement as so amended. Notwithstanding the foregoing, if any governmental body or regulatory body should adopt new laws, rules or regulations which would require amendment or supplement of the deposit agreement or the ADRs

18

to ensure compliance therewith, we and the depositary may amend or supplement the deposit agreement and the ADR at any time in accordance with such changed laws, rules or regulations, which amendment or supplement may take effect before a notice is given or within any other period of time as required for compliance. No amendment, however, will impair your right to surrender your ADSs and receive the underlying securities, except in order to comply with mandatory provisions of applicable law.

How may the deposit agreement be terminated?

The depositary may, and shall at our written direction, terminate the deposit agreement and the ADRs by mailing notice of such termination to the registered holders of ADSs at least 30 days prior to the date fixed in such notice for such termination; provided, however, if the depositary shall have (i) resigned as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered holders unless a successor depositary shall not be operating under the deposit agreement within 60 days of the date of such resignation, and (ii) been removed as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered holders of ADRs unless a successor depositary shall not be operating under the deposit agreement on the 120th day after our notice of removal was first provided to the depositary.

On and after the date of termination of the deposit agreement, the holder will, upon surrender of an ADR at the principal office of the depositary, upon the payment of the charges of the depositary for the surrender of ADRs, subject to the conditions and restrictions of the deposit agreement, and upon payment of any applicable taxes or governmental charges, be entitled to delivery, to him or upon his order, of the amount of deposited securities represented by such ADR. If any ADRs shall remain outstanding after the date of termination of the deposit agreement, the registrar thereafter shall discontinue the registration of transfers of ADRs, and the depositary shall suspend the distribution of dividends to the holders thereof, and shall not give any further notices or perform any further acts under the deposit agreement, except that the depositary shall continue to collect dividends and other distributions pertaining to deposited securities, shall sell rights as provided in the deposit agreement, and shall continue to deliver deposited securities, subject to the conditions and restrictions set forth in the deposit agreement, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any rights or other property, in exchange for ADRs surrendered to the depositary (after deducting, or charging, as the case may be, in each case, the charges of the depositary for the surrender of an ADR, any expenses for the account of the holder in accordance with the terms and conditions of the deposit agreement and any applicable taxes or governmental charges or assessments). At any time after the date of termination of the deposit agreement, the depositary may sell the deposited securities and thereafter hold uninvested the net proceeds, together with any other cash then held by it without liability for interest for the pro rata benefit of the holders of ADRs not theretofore surrendered. Thereafter, the depositary shall be discharged from all obligations under the deposit agreement with respect to the ADRs, the shares, the deposited securities and the ADSs, except to account for such net proceeds and other cash (after deducting, or charging, as the case may be, in each case, the charges of the depositary for the surrender of an ADR, any expenses for the account of the holder in accordance with the terms and conditions of the deposit agreement and any applicable taxes or governmental charges or assessments). Upon the termination of the deposit agreement, we will be discharged from all obligations under the deposit agreement as to the ADRs, the Shares,

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the deposited securities and the ADSs except for certain specified obligations to the depositary under the terms of the deposit agreement.

Limitations on Obligations and Liability to ADS Holders

Limits on our obligations and the obligations of the depositary; limits on liability to ADS holders and holders of ADSs

Prior to the issue, registration, registration of transfer, split-up, combination, or cancellation of any ADSs, or the delivery of any distribution in respect thereof, and from time to time in the case of the production of proofs as described below, we or the depositary or its custodian may require:

·

payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the registration of transfers of shares or other deposited securities upon any applicable register and (iii) any applicable fees and expenses described in the deposit agreement;

·

the production of proof satisfactory to it of (i) the identity of any signatory and genuineness of any signature and (ii) such other information, including without limitation, information as to citizenship, residence, exchange control approval, beneficial ownership of any securities, compliance with applicable law, regulations, provisions of or governing deposited securities and terms of the deposit agreement and the ADRs, as it may deem necessary or proper; and

·

compliance with such regulations as the depositary may establish consistent with the deposit agreement.

The issuance of ADSs, the acceptance of deposits of shares, the registration, registration of transfer, split-up or combination of ADSs or the withdrawal of shares, may be suspended, generally or in particular instances, when the ADS register or any register for deposited securities is closed or when any such action is deemed advisable by the depositary; provided that the ability to withdraw shares may only be limited under the following circumstances: (i) temporary delays caused by closing transfer books of the depositary or our transfer books or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of dividends, (ii) the payment of fees, taxes, and similar charges, and (iii) compliance with any laws or governmental regulations relating to ADSs or to the withdrawal of deposited securities.

The deposit agreement expressly limits the obligations and liability of the depositary, ourselves and our respective agents, provided, however, that no such disclaimer of liability under the Securities Act of 1933 is intended by any of the limitations of liabilities provisions of the deposit agreement. In the deposit agreement it provides that neither we nor the depositary nor any such agent will be liable if:

·

any present or future law, rule, regulation, fiat, order or decree of the United States, the Cayman Islands, the People’s Republic of China or any other country, or of any governmental or regulatory authority or securities exchange or market or automated

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quotation system, the provisions of or governing any deposited securities, any present or future provision of our charter, any act of God, war, terrorism, nationalization or other circumstance beyond our, the depositary’s or our respective agents’ control shall prevent or delay, or shall cause any of them to be subject to any civil or criminal penalty in connection with, any act which the deposit agreement or the ADRs provide shall be done or performed by us, the depositary or our respective agents (including, without limitation, voting);

·

the depositary exercises or fails to exercise discretion under the deposit agreement or the ADR including, without limitation, any failure to determine that any distribution or action may be lawful or reasonably practicable;

·

the depositary performs its obligations under the deposit agreement and ADRs without gross negligence or willful misconduct;

·

the depositary takes any action or refrains from taking any action in reliance upon the advice of or information from legal counsel, accountants, any person presenting shares for deposit, any registered holder of ADRs, or any other person believed by it to be competent to give such advice or information; or

·

the depositary relies upon any written notice, request, direction, instruction or document believed by it to be genuine and to have been signed, presented or given by the proper party or parties.

Neither the depositary nor its agents have any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADSs. We and our agents shall only be obligated to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADSs, which in our opinion may involve us in expense or liability, if indemnity satisfactory to us against all expense (including fees and disbursements of counsel) and liability is furnished as often as may be required. The depositary and its agents may fully respond to any and all demands or requests for information maintained by or on its behalf in connection with the deposit agreement, any registered holder or holders of ADSs, any ADSs or otherwise related to the deposit agreement or ADRs to the extent such information is requested or required by or pursuant to any lawful authority, including without limitation laws, rules, regulations, administrative or judicial process, banking, securities or other regulators. The depositary shall not be liable for the acts or omissions made by, or the insolvency of, any securities depository, clearing agency or settlement system. Furthermore, the depositary shall not be responsible for, and shall incur no liability in connection with or arising from, the insolvency of any custodian that is not a branch or affiliate of Citibank, N.A. The depositary and the custodian(s) may use third party delivery services and providers of information regarding matters such as pricing, proxy voting, corporate actions, class action litigation and other services in connection with the ADRs and the deposit agreement, and use local agents to provide extraordinary services such as attendance at annual meetings of issuers of securities. Although the depositary and the custodian will use reasonable care (and cause their agents to use reasonable care) in the selection and retention of such third party providers and local agents, they will not be responsible for any errors or omissions made by them in providing the relevant information or services. The depositary shall not have any liability for the price received in connection with any sale of securities, the

21

timing thereof or any delay in action or omission to act nor shall it be responsible for any error or delay in action, omission to act, default or negligence on the part of the party so retained in connection with any such sale or proposed sale.

The depositary has no obligation to inform ADS holders or other holders of an interest in an ADS about the requirements of Cayman Islands or People's Republic of China law, rules or regulations or any changes therein or thereto.

Additionally, none of us, the depositary or the custodian shall be liable for the failure by any registered holder of ADSs or beneficial owner therein to obtain the benefits of credits on the basis of non-U.S. tax paid against such holder's or beneficial owner's income tax liability. Neither we nor the depositary shall incur any liability for any tax consequences that may be incurred by holders or beneficial owners on account of their ownership of ADSs.

Neither the depositary nor its agents will be responsible for any failure to carry out any instructions to vote any of the deposited securities, for the manner in which any such vote is cast or for the effect of any such vote. The depositary may rely upon instructions from us or our counsel in respect of any approval or license required for any currency conversion, transfer or distribution. The depositary shall not incur any liability for the content of any information submitted to it by us or on our behalf for distribution to ADS holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the deposited securities, for the validity or worth of the deposited securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the deposit agreement or for the failure or timeliness of any notice from us. The depositary shall not be liable 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 negligence while it acted as depositary. Neither the depositary nor any of its agents shall be liable to registered holders of ADSs or beneficial owners of interests in ADSs for any indirect, special, punitive or consequential damages (including, without limitation, lost profits) of any form incurred by any person or entity, whether or not foreseeable and regardless of the type of action in which such a claim may be brought.

In the deposit agreement each party thereto (including, for avoidance of doubt, each holder and beneficial owner of ADSs) irrevocably waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in any suit, action or proceeding against the depositary and/or us directly or indirectly arising out of or relating to the shares or other deposited securities, the ADSs or the ADRs, the deposit agreement or any transaction contemplated therein, or the breach thereof (whether based on contract, tort, common law or any other theory).

The depositary and its agents may own and deal in any class of our securities and in ADSs.

Disclosure of Interest in ADSs

To the extent that the provisions of or governing any deposited securities may require disclosure of or impose limits on beneficial or other ownership of deposited securities, other shares and other securities and may provide for blocking transfer, voting or other rights to enforce such

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disclosure or limits, you agree to comply with all such disclosure requirements and ownership limitations and to comply with any reasonable instructions we may provide in respect thereof. We reserve the right to instruct you to deliver your ADSs for cancellation and withdrawal of the deposited securities so as to permit us to deal with you directly as a holder of shares and, by holding an ADS or an interest therein, you will be agreeing to comply with such instructions.

Books of Depositary

The depositary or its agent will maintain a register for the registration, registration of transfer, combination and split-up of ADRs, which register shall include the depositary's direct registration system. Registered holders of ADSs may inspect such records at the depositary's office at all reasonable times, but solely for the purpose of communicating with other holders in the interest of the business of our company or a matter relating to the deposit agreement. Such register may be closed from time to time, when deemed expedient by the depositary.

The depositary will maintain facilities for the delivery and receipt of ADSs.

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Exhibit 4.24

SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT

by and among

ZHUAN SPIRIT HOLDINGS LIMITED

MAGIC HEART INC.

CIVILIZATION AND TIME LTD

TENCENT MOBILITY LIMITED

58 Co., Ltd. (五八有限公司)

Qingdao Caigao Group Co., Ltd. (青岛才高集团有限公司)

TOPLAND GLOBAL HOLDINGS LIMITED

Shanghai Yuya Enterprise Management Partnership (Limited Partnership) (上海彧雅企业管理合伙企业(有限合伙))

Qingdao Panshi Kaiyuan Trade Co., Ltd. (青岛磐石开源贸易有限公司)

Qingdao Lida Shopping Center Co., Ltd. (青岛丽达购物中心有限公司)

 Lemi (Tianjin) Architectural Engineering Programming and Design Co., Ltd. (乐米(天津)建筑工程规划设计有限公司)

and

Certain other parties

Dated as of September 9, 2019

 

1

TABLE OF CONTENTS

 

 

 

 

Page

 

 

ARTICLE I

 

 

INTERPRETATION

 

 

Section 1.1    Definitions

5

Section 1.2    Interpretation

16

 

 

ARTICLE II

 

 

SALE AND PURCHASE OF SERIES B PREFERRED SHARES AND SERIES B WARRANTS

 

 

Section 2.1    Sale and Purchase of Series B Preferred Shares and Series B Warrants

17

Section 2.2    Closing

21

Section 2.3    Conditions

22

 

 

ARTICLE III

 

 

REPRESENTATIONS AND WARRANTIES

 

 

Section 3.1    Representations and Warranties of the Group Companies

25

Section 3.2    Representations and Warranties of the Series B Investors

42

Section 3.3    Representations and Warranties of Magic Heart

44

 

 

ARTICLE IV

 

 

COVENANTS

 

 

Section 4.1    Conduct of Business of the Company

44

Section 4.2    Operation of the Principal Business

45

Section 4.3    Regulatory Compliance

46

Section 4.4    Negative Covenants

46

Section 4.5    Affirmative Covenants

46

Section 4.6    Further Assurances

47

Section 4.7    Use of Proceeds

47

Section 4.8    Cooperation

47

Section 4.9    Permits

47

Section 4.10  Access

48

Section 4.11  ESOP Increase

48

Section 4.12  Other Covenants

48

Section 4.13  Most Favored Nation

50

 

2

 

 

 

ARTICLE V

 

 

INDEMNIFICATION

 

 

Section 5.1    Survival of the Representations and Warranties

50

Section 5.2    Indemnification

51

Section 5.3    Third Party Claims

51

Section 5.4    Other Claims

52

Section 5.5    Limitations on Liability

52

 

 

ARTICLE VI

 

 

 

MISCELLANEOUS

 

 

 

Section 6.1    Disclosure Schedule References

53

Section 6.2    Governing Law; Arbitration

54

Section 6.3    Amendment

54

Section 6.4    Binding Effect

54

Section 6.5    Assignment

54

Section 6.6    Notices

54

Section 6.7    Entire Agreement

56

Section 6.8    Severability

56

Section 6.9    Fees and Expenses

57

Section 6.10  Confidentiality

57

Section 6.11  Specific Performance

58

Section 6.12  Termination

58

Section 6.13  Third Party Rights

59

Section 6.14  Headings

59

Section 6.15  Execution in Counterparts

59

Section 6.16  Waiver

59

 

 

 

Schedules

 

 

 

Schedule 1

 

Schedule 2

 

 

 

Exhibits

 

 

 

Exhibit A

Form of Articles

Exhibit B

Form of Shareholders Agreement

Exhibit C

Capitalization Table

Exhibit D

Series B Warrants

Exhibit E

ODI Loan Agreements & Non-ODI Loan Agreements

Exhibit F

Business Cooperation Agreement

 

3

SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT

This Series B Preferred Share and Warrant Purchase Agreement (this “Agreement”) is made as of September 9, 2019, by and among:

(1)        CIVILIZATION AND TIME LTD, a company incorporated in the British Virgin Islands (the “Management Team Holdco”);

(2)        Magic Heart Inc., a company incorporated in the British Virgin Islands (“Magic Heart”);

(3)        Tencent Mobility Limited, a company incorporated in Hong Kong (“Tencent”);

(4)        58 Co., Ltd. (五八有限公司), a company incorporated in the PRC (“58 Limited”);

(5)        Qingdao Caigao Group Co., Ltd. (青岛才高集团有限公司), a company incorporated in the PRC (“Qingdao Caigao”);

(6)        TOPLAND GLOBAL HOLDINGS LIMITED, a company incorporated in British Virgin Islands (“TOPLAND GLOBAL”);

(7)        Shanghai Yuya Enterprise Management Partnership (Limited Partnership) (上海彧雅企业管理合伙企业  (有限合伙)), a limited partnership incorporated in the PRC (“Shanghai Yuya”);

(8)        Qingdao Lida Shopping Center Co., Ltd. (青岛丽达购物中心有限公司), a company incorporated in the PRC (“Qingdao Lida”);

(9)        Qingdao Panshi Kaiyuan Trade Co., Ltd. (青岛磐石开源贸易有限公司), a company incorporated in the PRC (“Qingdao Panshi”);

(10)      Lemi (Tianjin) Architectural Engineering Programming and Design Co., Ltd. (乐米(天津)建筑工程规划设计有限公司), a company incorporated in the PRC (“Lemi Tianjin”, together with Tencent, 58 Limited, Qingdao Caigao, TOPLAND GLOBAL, Shanghai Yuya, Qingdao Lida and Qingdao Panshi, collectively the “Series B  Investors” and each a “Series B Investor”; for the avoidance of doubt, Tencent shall be referred to as a Series B Investor only in the capacity of the Series B Preferred Shares it holds);

(11)      Zhuan Spirit Holdings Limited, a company incorporated in the Cayman Islands (the “Company”);

(12)      Zhuan Vision Holdings Limited, a company incorporated in the Hong Kong (the “HK Company”);

(13)      Shanghai Winder Bear Information Technology Co., Ltd. (上海发条熊信息技术有限责任公司), a company incorporated in the PRC (the “Shanghai WFOE”);

4

(14)      Tianjin Zhuanzhuan World Technology Co., Ltd. (天津转转世界科技有限责任公司), a company incorporated in the PRC (the “Tianjin WFOE”);

(15)      Beijing Zhuanzhuan Spirit Technology Co., Ltd. (北京转转精神科技有限责任公司), a company incorporated in the PRC (the “VIE Entity”);

(16)      Beijing Zhuanzhuan Youpin Auction Co., Ltd. (北京转转优品拍卖有限责任公司), a company incorporated in the PRC (“Zhuanzhuan Youpin”); and

(17)      Tianjin Fatiao Time Information Technology Co., Ltd. (天津发条时光信息技术有限责任公司), a company incorporated in the PRC (“Fatiao Time”, together with VIE Entity and Zhuanzhuan Youpin, the “Domestic Companies” and each a “Domestic Company”).

The Management Team Holdco, Magic Heart, the Company, the HK Company, the Shanghai WFOE, the Tianjin WFOE, the Domestic Companies and the Series B Investors are each referred to herein as a “Party” and collectively as the “Parties.”

W I T N E S S E T H:

WHEREAS, subject to the terms and conditions herein, the Series B Investors desire to purchase certain Series B Preferred Shares or certain Series B Warrants (as the case may be), and the Company desires to issue and sell the Series B Preferred Shares or the Series B Warrants pursuant to the terms of this Agreement.

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the Parties agree as follows:

ARTICLE I

 

INTERPRETATION

Section 1.1      Definitions. As used in this Agreement, the following terms shall have the following respective meanings:

58 Limited” shall have the meaning set forth in the preamble.

58 Limited Loan Agreement” shall have the meaning set forth in Section 2.1(b).

58 Limited Series B Warrant” shall have the meaning set forth in Section 2.1(b).

58 Limited Warrant Purchase Price” shall have the meaning set forth in Section 2.1(b).

Act” shall have the meaning set forth in Section 2.3(c).

Actions” shall mean actions, causes of action (whether at law or in equity), claims, demands, investigations, examinations, indictments, litigations, arbitrations, suits or other criminal, civil or administrative or investigative or similar proceedings (whether public or private).

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Affiliate” of a Person (the “Subject Person”) shall mean (a) in the case of a Person other than a natural person, any other Person that directly or indirectly Controls, is Controlled by or is under common Control with the Subject Person and (b) in the case of a natural person, any other Person that is directly or indirectly Controlled by the Subject Person or is a Relative of the Subject Person; provided, that none of the Group Companies, and the Management Team Holdco shall be deemed to be an Affiliate of any Series B Investor (except for Magic Heart).

Agreement” shall have the meaning set forth in the Preamble.

Articles” shall mean the Third Amended and Restated Memorandum and Articles of Association of the Company, in the form attached hereto as Exhibit A.

Authorization” shall mean any consent, approval, order, license or authorization of, registration, certificate, declaration or filing with or notice to any Governmental Authority or other third party.

Balance Sheet Date” shall have the meaning set forth in Section 6.3(r)(i).

Board” shall mean the board of directors of the Company.

Business Day” shall mean any day other than Saturday, Sunday or other day on which commercial banks located in the Cayman Islands, New York, the PRC or Hong Kong are authorized or required by law or executive order to be closed and on which no tropical cyclone warning No. 8 or above and no “black” rainstorm warning signal is hoisted in Hong Kong at any time between 8:00 a.m. and 6:00 p.m. Hong Kong time.

Business Cooperation Agreement” shall mean the business cooperation agreement to be entered into by and among certain Group Companies and certain Affiliates of Tencent, in the form attached hereto as Exhibit F.

CAC” shall mean the Cyberspace Administration of the PRC or, with respect to any matter to be submitted for examination and approval by the Cyberspace Administration, any Governmental Authority which is similarly competent to examine and approve such matter under the Laws of the PRC

Capitalization Table” shall mean the capitalization table setting out the capitalization of the Company, as attached hereto as Exhibit C.

Circular 37” shall mean the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents to Engage in Overseas Investment, Financing and Round Trip Investment via Overseas Special Purpose Companies (关于境内居民通过特殊目的公司境外投融资及返程投资外汇管理有关问题的通知》) issued by SAFE on July 4, 2014, and its amendment and interpretation promulgated by SAFE from time to time.

Claim Notice” shall have the meaning set forth in Section 5.3(a).

Closing” shall have the meaning set forth in Section 2.2.

6

Closing Date” shall have the meaning set forth in Section 2.2.

Company” shall have the meaning set forth in the Preamble.

Company Intellectual Property” shall have the meaning set forth in Section 6.3(t)(iii).

Company Real Properties” shall have the meaning set forth in Section 6.3(t)(ii).

Competitive Business” shall mean any business which is in competition with the Principal Business.

Competitor” shall mean any Person whose primary business is in competition with the Principal Business, which shall include Alibaba Group Holding Limited and AiHuiShou International Company Limited, or any Affiliate of such Person.

Confidential Information” shall have the meaning set forth in Section 6.10(a).

Contemplated Transactions” shall mean the transactions contemplated by the Transaction Documents.

Contract” shall mean, as to any Person, a contract, agreement, indenture, note, bond, loan, instrument, lease, mortgage, franchise, license, commitment, purchase order, and other legally binding arrangement, whether written or oral.

Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management of a Person, whether through the ownership of voting securities, by contract, credit arrangement or proxy, as trustee, executor or agent or otherwise. For purposes of this definition, a Person shall be deemed to Control another Person if such first Person, directly or indirectly, owns or holds more than 50% of the voting Equity Securities in such other Person. The terms “Controlled”, and “Controls” shall have meanings correlative to the foregoing.

Control Documents” shall mean, collectively, the agreements made from time to time, which enable the Company to exclusively Control, and consolidate in its financial statements the results of, the VIE Entity, namely the Exclusive Business Cooperation Agreement (独家业务合作协议) by and among the WFOE and the VIE Entity dated as of June 22, 2017, the Exclusive Option Agreement (独家购买权合同) by and among the WFOE, the VIE Entity and the shareholders of the VIE Entity dated as of February 11, 2018, the Equity Pledge Agreement (股权质押合同) by and among the WFOE, the VIE Entity and the shareholders of the VIE Entity dated as of February 11, 2018 and the Power of Attorney (授权委托书) issued by each shareholder of the VIE Entity dated as of February 11, 2018.

Disclosure Schedule” shall mean the disclosure schedule dated the date hereof in respect of this Agreement which has been provided by the Company to the Series B Investors.

Domestic Company” or “Domestic Companies” shall have the meaning set forth in the preamble.

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Encumbrance” shall mean (a) any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, deed of trust, title retention, security interest or other encumbrance of any kind securing, or conferring any priority of payment in respect of, any obligation of any Person, including any right granted by a transaction which, in legal terms, is not the granting of security but which has an economic or financial effect similar to the granting of security under applicable Law, (b) any proxy, power of attorney, voting trust agreement, interest, option, right of first offer, negotiation or refusal or transfer restriction in favor of any Person and (c) any adverse claim as to title, possession or use.

Equity Securities” shall mean, with respect to any Person, such Person’s capital stock, membership interests, partnership interests, registered capital, joint venture or other ownership interests (including, in the case of the Company, Ordinary Shares) or any options, warrants or other securities that are directly or indirectly convertible into, or exercisable or exchangeable for, such capital stock, membership interests, partnership interests, registered capital, joint venture or other ownership interests (whether or not such derivative securities are issued by such Person).

ESOP” shall mean the employee equity incentive plan adopted by the Company as of September 8, 2017.

ESOP Increase” shall have the meaning set forth in Section 4.11.

ESOP Increase Shares” shall have the meaning set forth in Section 4.11.

Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

Fatiao Time” shall have the meaning set forth in the preamble.

FCPA” shall mean the Foreign Corrupt Practices Act of 1977 of the United States of America.

Financial Statements” shall have the meaning set forth in Section 6.3(r)(i).

On a “fully diluted basis” shall mean, for the purpose of calculating share numbers, that the calculation is to be made assuming that all outstanding options, warrants and other Equity Securities directly or indirectly convertible into or exercisable or exchangeable for Ordinary Shares (whether or not by their terms then currently convertible, exercisable or exchangeable) and Equity Securities which have been reserved for issuance pursuant to the ESOP have been so converted, exercised, exchanged or issued.

Framework Restructuring Agreement” shall mean the framework restructuring agreement (重组框架协议) dated April 28, 2017 by and among Beijing 58 Information Technology Co., Ltd. (北京五八信息技术有限公司), Beijing Chengshi Wanglin Information Technology Co., Ltd. (北京城市网邻信息技术有限公司), the VIE Entity and 58.com Inc.

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Fundamental Representations” shall mean the representations and warranties made by the Company to the Series B Investors contained in Section 3.1(a), Section 3.1(b), Section 3.1(c), Section 3.1(e), Section 3.1(f), Section 3.1(h) and Section 3.1(l).

Government Official” shall mean any officer, employee or representative of any Government Authority.

Governmental Authority” shall mean any government or political subdivision thereof, whether on a federal, central, state, provincial, municipal or local level and whether executive, legislative or judicial in nature, including any agency, authority, board, bureau, commission, court, department or other instrumentality thereof and any governing body of any securities exchange.

Group” or “Group Companies” shall mean, collectively, the Company and its Subsidiaries (including but not limited to, for the avoidance of doubt, the HK Company, the WFOEs and the Domestic Companies), and a “Group Company” shall mean any of them.

HKIAC” shall have the meaning set forth in Section 6.2.

HK Company” shall have the meaning set forth in the Preamble.

Hong Kong” means the Hong Kong Special Administrative Region of the People’s Republic of China.

Indebtedness” shall mean, as of any time with respect to any Person, without duplication, (a) all Liabilities for borrowed money, whether current or funded, secured or unsecured, all obligations evidenced by bonds, debentures, notes or similar instruments, (b) all Liabilities for the deferred purchase price of property, other than trade payables in the ordinary course outstanding for 90 days or less, (c) all Liabilities in respect of any lease of, or other arrangement conveying the right to use, real or personal property, or a combination thereof, which Liabilities are required to be classified and accounted for under US GAAP as capital leases, (d) all Liabilities for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction securing obligations of a type described in clauses (a), (b) or (c) above to the extent of the obligation secured, and all Liabilities as obligor, guarantor, or otherwise, to the extent of the obligation secured, (e) all guarantees of obligations of any other Person with respect to any of the foregoing and (f) any accrued and unpaid interest on any of the foregoing.

Indemnified Parties” shall have the meaning set forth in Section 5.2(a). “Indemnifying Party” shall have the meaning set forth in Section 5.2(a).

Indemnity Notice” shall have the meaning set forth in Section 5.4.

Intellectual Property” shall mean any and all (a) patents (including all reissues, divisionals,  provisionals, continuations, continuations in part, re-examinations, renewals and extensions thereof), patent applications, and other patent rights, (b) trademarks, service marks, tradenames, brand names, logos, slogans, trade dress, design rights, and other similar designations of source or origin, together with all goodwill associated with any of the foregoing and applications, registrations and renewals in connection therewith, (c) copyrights, mask works, and copyrightable

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works, and all applications, registrations for and renewals in connection therewith, (d) internet domain names, web addresses, web pages, websites and related content, accounts with Twitter, Facebook, Instagram, and other social media companies and the content found thereon and related thereto, and uniform resource locators, (e) proprietary computer software, including source code, object code and supporting documentation for such computer software, (f) trade secrets and proprietary information, including confidential business information, technical data, customer lists, data collections, methods and inventions (whether or not patentable and where or not reduced to practice), (g) copies and tangible embodiments of any of the foregoing and (h) all other intellectual property, whether or not registrable, in each case, under any Law or statutory provision or common law doctrine in any country.

Key Employees” shall mean the Persons specified in Schedule 2.

Key Holder” shall mean 58.com Inc.

Key Holder Nominee” shall mean 北京云企互联投资有限公司, a company incorporated in the PRC.

Knowledge” of any Person shall mean the actual knowledge of such Person (and in the case of any Person which is not an individual, such Person’s directors or officers) and that knowledge which should have been acquired by such Person or its directors or officers 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 business affairs.

Law” or “Laws” shall mean all applicable laws, regulations, rules and Orders of any Governmental Authority, securities exchange or other self-regulating body, including any common or customary law, constitution, code, ordinance, statute or other legislative measure and any regulation, rule, treaty, order, decree or judgment. The term “lawful” shall be construed accordingly.

Lemi Tianjin” shall have the meaning set forth in the preamble.

Lemi Tianjin Loan Agreement” shall have the meaning set forth in Section 2.1(g).

Lemi Tianjin Series B Warrant” shall have the meaning set forth in Section 2.1(g).

Lemi Tianjin Warrant Purchase Price” shall have the meaning set forth in Section 2.1(g).

Liabilities” shall mean any and all debts, liabilities, commitments and obligations of any kind, whether fixed, contingent or absolute, matured or unmatured, liquidated or unliquidated, accrued or not accrued, asserted or not asserted, known or unknown, determined, determinable or otherwise, whenever or however arising (including whether arising out of any contract or tort based on negligence or strict liability) and whether or not the same would be required by US GAAP or PRC GAAP to be reflected in financial statements or disclosed in the notes thereto.

Losses” shall have the meaning set forth in Section 5.2(a).

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Magic Heart” shall have the meaning set forth in the preamble.

Management Team Holdco” shall have the meaning set forth in the preamble.

Material Adverse Effect” shall mean any event, fact, circumstance or occurrence that, individually or in the aggregate with any other events, facts, circumstances or occurrences, results in or would reasonably be expected to result in a material adverse change in or a material adverse effect on (a) the condition, assets, liabilities, results of operations or business of the Principal Business and the Group taken as a whole or (b) the ability of the Company or its Affiliates to consummate the Contemplated Transactions; provided, that in determining whether a Material Adverse Effect has occurred, there shall be excluded any effect on the Principal Business or the Group to the extent relating to or arising in connection with (i) any action required to be taken pursuant to the terms and conditions of this Agreement or any other Transaction Documents or taken at the written direction of the Series B Investors, (ii) changes affecting the industry in which the Principal Business or the Group operates or the economy or financial, credit or securities markets or political conditions generally in the PRC; provided, that in each case such changes do not have a unique or disproportionate impact on the Principal Business or the Group; (iii) effects resulting from any breach of this Agreement or any other Transaction Documents by any Series B Investor or its Affiliate(s); or (iv) the announcement or consummation of the Contemplated Transactions.

Material Contract” shall have the meaning set forth in Section 6.3(r)(i).

MIIT” shall mean the Ministry of Industry and Information of the PRC or, with respect to any matter to be submitted for examination and approval by the Ministry of Industry and Information, any Governmental Authority which is similarly competent to examine and approve such matter under the Laws of the PRC.

MCT” shall mean the Ministry of Culture and Tourism of the PRC or, with respect to any matter to be submitted for examination and approval by the Ministry of Culture and Tourism, any Governmental Authority which is similarly competent to examine and approve such matter under the Laws of the PRC.

MOFCOM” shall mean the Ministry of Commerce of the PRC or, with respect to any matter to be submitted for examination and approval by the Ministry of Commerce, any Governmental Authority which is similarly competent to examine and approve such matter under the Laws of the PRC.

Non-ODI Loan Agreement” shall mean the Qingdao Caigao Loan Agreement and the Qingdao Panshi Loan Agreement.

Non-ODI Warrant” shall mean the Qingdao Caigao Series B Warrant and the Qingdao Panshi Series B Warrant.

ODI Loan Agreements” shall mean the 58 Limited Loan Agreement, the Shanghai Yuya Loan Agreement, the Qiangdao Lida Loan Agreement and the Lemi Tianjin Loan Agreement.

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ODI Warrants” shall mean the 58 Limited Series B Warrant, the Shanghai Yuya Series B Warrant, the Qiangdao Lida Series B Warrant and the Lemi Series B Warrant.

Order” shall mean any order, ruling, decision, verdict, decree, writ, subpoena, mandate, command, directive, consent, approval, award, judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.

Ordinary Shares” shall mean the ordinary shares of par value US$0.000008 each in the share capital of the Company.

Outbound Approvals” shall have the meaning set forth in Section 2.1(b).

Parties” shall have the meaning set forth in the Preamble.

Party” shall have the meaning set forth in the Preamble.

Permits” shall have the meaning set forth in Section 6.3(p)(ii).

Person” shall mean any natural person, firm, partnership, association, corporation, company, trust, public body or government or other entity of any kind or nature.

PRC” shall mean the People’s Republic of China, but for purposes of this Agreement, excluding Hong Kong, the Macau Special Administrative Region and Taiwan.

PRC Companies” shall mean collectively the Group Companies that are established in the PRC (including the WFOEs and the Domestic Companies) and a “PRC Company” shall mean any of them.

PRC GAAP” means the Generally Accepted Accounting Principles of the PRC.

Preferred Shares” means the Series A Preferred Shares and the Series B Preferred Shares.

Principal Business” shall mean online used goods trading platform and related business and such other business as approved in accordance with the Transaction Documents.

Purchase Price” shall mean, with respect to a Series B Investor, the aggregate purchase price set forth in the column “Purchase Price” opposite to the name of such Series B Investor in Schedule 1.

Qingdao” shall have the meaning set forth in the Preamble.

Qingdao Caigao Loan Agreement” shall have the meaning set forth in Section 2.1(c).

Qingdao Caigao Series B Warrant” shall have the meaning set forth in Section 2.1(c).

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Qingdao Caigao Warrant Purchase Price” shall have the meaning set forth in Section 2.1(c).

Qingdao Lida” shall have the meaning set forth in the Preamble.

Qingdao Lida Loan Agreement” shall have the meaning set forth in Section 2.1(f).

Qingdao Lida Series B Warrant” shall have the meaning set forth in Section 2.1(f).

Qingdao Lida Warrant Purchase Price” shall have the meaning set forth in Section 2.1(f).

Qingdao Panshi” shall have the meaning set forth in the preamble.

Qingdao Panshi Loan Agreement” shall have the meaning set forth in Section 2.1(h).

Qingdao Panshi Series B Warrant” shall have the meaning set forth in Section 2.1(h).

Qingdao Panshi Warrant Purchase Price” shall have the meaning set forth in Section 2.1(h).

Related Party” shall have the meaning as ascribed under the Shareholders Agreement.

Relative” of a natural person means such Person’s spouse, parents, children and siblings, whether by blood, marriage or adoption.

Restructuring” shall mean the contribution of the Principal Business to the Group by the Key Holder and its Affiliates pursuant to or in connection with the Restructuring Framework Agreement and other transactions contemplated thereunder.

SAFE” shall mean the State Administration of Foreign Exchange of the PRC or, with respect to any matter to be submitted for examination and approval by the State Administration of Foreign Exchange, any Governmental Authority which is similarly competent to examine and approve such matter under the Laws of the PRC.

SAFE Rules and Regulations” shall mean collectively, the Circular 37 and any other applicable SAFE Regulations rules and regulations, as amended.

SAIC” shall mean the State Administration for Market Regulation of the PRC or, with respect to the issuance of any business license or filing or registration to be effected by or with the State Administration for Market Regulation, any Governmental Authority which is similarly competent to issue such business license or accept such filing or registration under the Laws of the PRC.

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SAPPRFT” shall mean the State Administration of Press Publication, Radio, Film and Television of the PRC or, with respect to any matter to be submitted for examination and approval by the State Administration of Press Publication, Radio, Film and Television, any Governmental Authority which is similarly competent to examine and approve such matter under the Laws of the PRC.

SEC” shall mean the Securities and Exchange Commission of the United States of America or any other federal agency at the time administering the Securities Act.

Securities Act” shall mean 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 SEC thereunder, all as the same shall be in effect at the time.

Securities Laws” shall mean the Securities Act, the Exchange Act, the listing rules of or any listing agreement with the applicable stock exchange and any other applicable law regulating securities or takeover matters.

Series A Preferred Shares” shall mean the Series A preferred shares of par value US$0.000008 each in the share capital of the Company.

Series B Investor” or “Series B Investors” shall have the meaning set forth in the preamble.

Series B Warrant Loan Agreements” shall mean, collectively, 58 Limited Loan Agreement, Qingdao Caigao Loan Agreement, Shanghai Yuya Loan Agreement, Qingdao Lida Loan Agreement, Qingdao Panshi Loan Agreement and Lemi Tianjin Loan Agreement (each, a “Series B Warrant Loan Agreement”).

Series B Preferred Shares” shall mean the Series B preferred shares of par value US$0.000008 each in the share capital of the Company.

Series B Warrants” shall mean, collectively, 58 Limited Series B Warrant, Qingdao Caigao Series B Warrant, Shanghai Yuya Series B Warrant, Qingdao Lida Series B Warrant, Qingdao Panshi Series B Warrant and Lemi Tianjin Series B Warrant (each, a “Series B Warrant”).

Series B Warrant Shares” shall mean the Series B Preferred Shares issued pursuant to any Series B Warrant.

Shanghai WFOE” shall have the meaning set forth in the preamble.

Shanghai Yuya” shall have the meaning set forth in the preamble.

Shanghai Yuya Loan Agreement” shall have the meaning set forth in Section 2.1(e).

Shanghai Yuya Series B Warrant” shall have the meaning set forth in Section 2.1(e).

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Shanghai Yuya Warrant Purchase Price” shall have the meaning set forth in Section 2.1(e).

Shares” means, collectively, the Ordinary Shares and the Preferred Shares. For the avoidance of doubt and only for the purpose of this Agreement, the Shares shall include the Series B Warrant Shares.

Shareholders Agreement” shall mean the Amended and Restated Shareholders Agreement to be entered into by and among the Management Team Holdco, the Series B Investors, the Company and certain other parties, in the form attached hereto as Exhibit B.

Social Insurances” shall mean any form of social insurance and benefits as required by applicable Laws (including without limitation pension fund, medical insurance, unemployment insurance, work-related injury insurance, maternity insurance and housing fund).

Subsidiary” shall mean, with respect to any Person, any corporation, partnership, limited liability company or other organization, whether incorporated or unincorporated, which is Controlled by such Person. For the avoidance of doubt, a “variable interest entity” Controlled by a Person shall be deemed to be a Subsidiary of such Person.

Tax” shall mean any tax, duty, deduction, withholding, impost, levy, fee, assessment or charge of any nature whatsoever (including income, franchise, value added, sales, use, excise, stamp, customs, documentary, transfer, withholding, property, capital, employment, payroll, ad valorem, net worth or gross receipts taxes and any social security, unemployment or other mandatory contributions) imposed, levied, collected, withheld or assessed by any local, municipal, regional, urban, governmental, state, national or other Governmental Authority and any interest, addition to tax, penalty, surcharge or fine in connection therewith, including any obligations to indemnify or otherwise assume or succeed to the liability of any other Person with respect to any of the foregoing items.

Tax Return” shall mean 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.

Tencent” shall have the meaning set forth in the Preamble.

Tencent Computer” shall mean深圳市腾讯计算机系统有限公司.

Tencent Cash Consideration” shall have the meaning set forth in Section 2.1.

Tencent Director” shall mean the director of the Company designated by Tencent.

Tencent Expenses” shall have the meaning set forth in Section 6.9.

Tencent Nominee” shall mean 林芝利创信息技术有限公司, a company incorporated in the PRC, or such other Person designated by Tencent.

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Tencent Purchase Price” shall have the meaning set forth in Section 2.1(a).

Tencent Shares” shall have the meaning set forth in Section 2.1(a).

Third Party Claim” shall have the meaning set forth in Section 5.3(a).

Tianjin WFOE” shall have the meaning set forth in the preamble.

TOPLAND GLOBAL” shall have the meaning set forth in the preamble.

Transaction Documents” shall mean, collectively, this Agreement, the Series B Warrants, the ODI Loan Agreements, the Non-ODI Loan Agreements, the Articles, the Shareholders Agreement, the Business Cooperation Agreement, the Control Documents and any other agreements, documents or certificates delivered pursuant hereto or thereto.

US GAAP” shall mean the Generally Accepted Accounting Principles of the United States of America.

VIE Entity” shall have the meaning set forth in the Preamble.

Warrant Purchase Price” shall mean, as applicable, the 58 Limited Warrant Purchase Price, Qingdao Caigao Warrant Purchase Price, Shanghai Yuya Warrant Purchase Price, Qingdao Lida Warrant Purchase Price, Qingdao Panshi Warrant Purchase Price and Lemi Tianjin Warrant Purchase Price.

WFOEs” shall mean 天津转转世界科技有限责任公司 and 上海发条熊信息技术有限责任公司 and a “WFOE” shall mean any of them.

Zhuanzhuan Youpin” shall have the meaning set forth in the preamble.

Section 1.2      Interpretation. Unless the express context otherwise requires:

(a)        the words “hereof”,  “hereby”,  “hereto”,  “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement;

(b)       the terms defined in the singular have a comparable meaning when used in the plural, and vice versa;

(c)        any references herein to “US$” are to United States Dollars and any references herein to RMB are to PRC Renminbi;

(d)       any references herein to a specific Section, Schedule or Exhibit or to the Recitals or Preamble shall refer, respectively, to Sections, Schedules, Exhibits, Recitals or Preamble of this Agreement, unless otherwise specified;

(e)        wherever the word “include,” “includes” or “including” is used in this Agreement, it shall be deemed to be followed by the words “without limitation;”

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(f)        references herein to any gender shall include each other gender as the context requires;

(g)       the word “or” shall not be exclusive;

(h)       references to “written” or “in writing” include in electronic form;

(i)        the Parties have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties and no presumption of burden of proof shall arise favoring or burdening any Party by virtue of the authorship of any provision in this Agreement;

(j)        reference to any Person includes such Person’s successors and permitted assigns;

(k)       any reference to “days” shall mean calendar days unless Business Days are expressly specified;

(l)        when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded and if the last day of such period is not a Business Day, the period shall end on the next succeeding Business Day;

(m)      any reference to any Law shall be deemed to refer to the applicable Law in effect as of the date hereof (unless the applicable Law addressed matters as of an earlier date, in which case, applicable Law shall be deemed to mean the applicable Law in effect as of that date);

(n)       any reference in this Agreement to any agreement or instrument (other than the Disclosure Schedule) is a reference to that agreement or instrument as amended, novated or supplemented; and

(o)       unless otherwise expressly set forth under this Agreement, if any amount in a certain currency is to be translated into an equivalent amount in another currency, such translation shall be done at the relevant daily spot rate of exchange reported by the People’s Bank of China which appears on the Reuters Screen “SAEC” Page at the end of the day on the second Business Day immediately prior to the Closing Date.

ARTICLE II

 

SALE AND PURCHASE OF SERIES B PREFERRED SHARES AND SERIES B WARRANTS

Section 2.1      Sale and Purchase of Series B Preferred Shares and Series B Warrants. With respect to Tencent, subject to the terms and conditions of this Agreement, the Company agrees to issue and sell to Tencent, and Tencent agrees to purchase from the Company, 156,004,902 Series B Preferred Shares (the “Tencent Shares”), free and clear of all Encumbrances, credited as fully paid and having the rights, privileges and restrictions as set forth in the Articles,

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for an aggregate purchase price of US$149,764,406 (the “Tencent Purchase Price”) constituting (i) US$50,000,000 (the “Tencent Cash  Consideration”) of cash consideration payable in accordance with Section 2.3(a)(i) and (ii) the Business Cooperation Agreement. The payment in full of the Tencent Cash Consideration and the execution of the Business Cooperation Agreement shall constitute full satisfaction of Tencent’s payment obligations under this Agreement. For the avoidance of doubt and notwithstanding any other provisions of this Agreement, the Parties hereby agree and acknowledge that (i) the Tencent Shares, when issued at Closing, will be fully paid and that the par value of the Tencent Shares will have been paid in full by virtue of payment of the Tencent Cash Consideration; (ii) immediately after Closing, Tencent shall be entitled to fully enjoy all the relevant rights attached to the Tencent Shares; and (iii) immediately after Closing, Tencent shall not be subject to the lien, call and forfeiture provisions in the Articles.

(b)       With respect to 58 Limited, subject to the terms and conditions of  this Agreement, 58 Limited agrees to purchase from the Company, and the Company agrees to sell and issue to 58 Limited, a Series B Warrant in the form as attached Exhibit D hereof, pursuant to which 58 Limited shall purchase such number of Series B Preferred Shares from the Company as set forth opposite its name in Schedule 1 attached hereto (such Series B Warrant shall be referred to as “58 Limited Series B Warrant”) for the applicable Purchase Price as set forth opposite its name in Schedule 1 attached hereto. At the Closing, 58 Limited shall deposit the RMB equivalent of its Purchase Price as set forth opposite its name in Schedule 1 (calculated based on the middle foreign exchange rate published by the People’s Bank of China on the Closing Date) (“58 Limited Warrant Purchase Price”) by wire transfer of immediately available funds into a duly designated account of the VIE Entity, and the Company agrees to issue and deliver to 58 Limited the 58 Limited Series B Warrant. At the Closing, 58 Limited shall pay the 58 Limited Warrant Purchase Price to the VIE Entity as a loan pursuant to a loan agreement with the VIE Entity hereof (the “58 Limited Loan Agreement” attached as Exhibit E hereof). 58 Limited shall use its best efforts to complete the overseas investment filing and obtain the relevant approvals from the competent authorities with respect to the overseas investment and/or holding the Series B Preferred Shares in the Company (all such Consents, the “Outbound Approvals”) after the date hereof in accordance with the mechanism as set forth in, and within the timeframe prescribed in the 58 Limited Loan Agreement. After 58 Limited obtains all Outbound Approvals, the Company shall procure the VIE Entity to repay 58 Limited the loan outstanding under the 58 Limited Loan Agreement by installments in accordance with the 58 Limited Loan Agreement and 58 Limited shall pay the equivalent amount of the 58 Limited Warrant Purchase Price in the US dollars in immediately available funds to the Company as the payment of exercise price for the 58 Limited Series B Warrant.

(c)        With respect to Qingdao Caigao, subject to the terms and conditions of this Agreement, Qingdao Caigao agrees to purchase from the Company, and the Company agrees to sell and issue to Qingdao Caigao, a Series B Warrant in the form as attached Exhibit D hereof, pursuant to which, Qingdao Caigao shall purchase such number of Series B Preferred Shares from the Company as set forth opposite its name in Schedule 1 attached hereto (the such Series B Warrant shall be referred to as “Qingdao Caigao Series B Warrant”) for the applicable Purchase Price as set forth opposite its name in Schedule 1 attached hereto. At the Closing, Qingdao Caigao shall deposit the RMB equivalents of its Purchase Price as set forth in Schedule 1 (calculated based on the middle foreign exchange rate published by the People’s Bank of China

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on the Closing Date) (“Qingdao Caigao Warrant Purchase Price”) by wire transfer of immediately available funds into a duly designated account of the VIE Entity, and the Company agrees to issue and deliver to Qingdao Caigao the Qingdao Caigao Series B Warrant. At the Closing, Qingdao Caigao shall pay Qingdao Caigao Warrant Purchase Price to the VIE Entity as a loan pursuant to a loan agreement with the VIE Entity hereof (the “Qingdao Caigao Loan Agreement” attached as Exhibit E hereof). After Qingdao Caigao fully exercises the Qingdao Caigao Series B Warrant in accordance with the mechanism as set forth in, and within the timeframe prescribed in the Qingdao Caigao Series B Warrant, the Company shall procure the VIE Entity to repay Qingdao Caigao the loan outstanding under the Qingdao Caigao Loan Agreement in accordance with the Qingdao Caigao Loan Agreement.

(d)       With respect to TOPLAND GLOBAL, subject to the terms and conditions of this Agreement, TOPLAND GLOBAL agrees to purchase from the Company, and the Company agrees to issue and sell to TOPLAND GLOBAL, 5,208,333 Series B Preferred Shares, free and clear of all Encumbrances, for an aggregate purchase price as set forth opposite its name in Schedule 1 attached hereto.

(e)        With respect to Shanghai Yuya, subject to the terms and conditions of this Agreement, Shanghai Yuya agrees to purchase from the Company, and the Company agrees to sell and issue to Shanghai Yuya, a Series B Warrant in the form as attached Exhibit D hereof, pursuant to which, Shanghai Yuya shall purchase such number of Series B Preferred Shares from the Company as set forth opposite its name in Schedule 1 attached hereto (such Series B Warrant shall be referred to as “Shanghai Yuya Series B Warrant”) for the Purchase Price as set forth opposite its name in Schedule 1 attached hereto. At the Closing, Shanghai Yuya shall deposit the RMB equivalents of its Purchase Price as set forth in Schedule 1 (calculated based on the middle foreign exchange rate published by the People’s Bank of China on the Closing Date) (“Shanghai Yuya Warrant Purchase Price”) by wire transfer of immediately available funds into a duly designated account of the VIE Entity, and the Company agrees to issue and deliver to Shanghai Yuya the Shanghai Yuya Series B Warrant. At the Closing, Shanghai Yuya shall pay the Shanghai Yuya Warrant Purchase Price to the VIE Entity as a loan pursuant to a loan agreement with the VIE Entity hereof (the “Shanghai Yuya Loan Agreement” attached as Exhibit E hereof). Shanghai Yuya shall use it best efforts to obtain the Outbound Approvals after the date hereof in accordance with the mechanism as set forth in, and within the timeframe prescribed in, the Shanghai Yuya Loan Agreement. After Shanghai Yuya obtains all Outbound Approvals, the Company shall procure the VIE Entity to repay Shanghai Yuya the loan outstanding under the Shanghai Yuya Loan Agreement by installments in accordance with the Shanghai Yuya Loan Agreement and Shanghai Yuya shall pay the equivalent amount of the Shanghai Yuya Warrant Purchase Price in the US dollars in immediately available funds to the Company as the payment of exercise price for the Shanghai Yuya Series B Warrant.

(f)        With respect to Qingdao Lida, subject to the terms and conditions of this Agreement, Qingdao Lida agrees to purchase from the Company, and the Company agrees to sell and issue to Qingdao Lida, a Series B Warrant in the form as attached Exhibit D hereof, pursuant to which, Qingdao Lida shall purchase such number of Series B Preferred Shares from the Company as set forth opposite its name in Schedule 1 attached hereto (such Series B Warrant shall be referred to as “Qingdao Lida Series B  Warrant”) for the applicable Purchase Price as set forth opposite its name in Schedule 1  attached hereto. At the Closing, Qingdao Lida shall deposit

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the RMB equivalents of its Purchase Price as set forth in Schedule 1 (calculated based on the middle foreign exchange rate published by the People’s Bank of China on the Closing Date) (“Qingdao Lida Warrant Purchase Price”) by wire transfer of immediately available funds into a duly designated account of the VIE Entity, and the Company agrees to issue and deliver to Qingdao Lida the Qingdao Lida Series B Warrant. At the Closing, Qingdao Lida shall pay the Qingdao Lida Warrant Purchase Price to the VIE Entity as a loan pursuant to a loan agreement with the VIE Entity hereof (the “Qingdao Lida Loan Agreement” attached as Exhibit E hereof). Qingdao Lida shall use its best efforts to obtain the Outbound Approvals after the date hereof in accordance with the mechanism as set forth in, and within the timeframe prescribed in the Qingdao Lida Loan Agreement. After Qingdao Lida obtains all Outbound Approvals, the Company shall cause the VIE Entity to repay Qingdao Lida the loan outstanding under the Qingdao Lida Loan Agreement by installments in accordance with the Qingdao Lida Loan Agreement and Qingdao Lida shall pay the equivalent amount of the Qingdao Lida Warrant Purchase Price in the US dollars in immediately available funds to the Company as the payment of exercise price for the Qingdao Lida Series B Warrant.

(g)       With respect to Lemi Tianjin, subject to the terms and conditions of this Agreement, Lemi Tianjin agrees to purchase from the Company, and the Company agrees to sell and issue to Lemi Tianjin, a Series B Warrant in the form as attached Exhibit D hereof, pursuant to which, Lemi Tianjin shall purchase such number of Series B Preferred Shares from the Company as set forth opposite its name in Schedule 1  attached hereto (such Series B Warrant shall be referred to as “Lemi Tianjin Series B  Warrant”) for the applicable Purchase Price as set forth opposite its name in Schedule 1 attached hereto. At the Closing, Lemi Tianjin shall deposit the RMB equivalents of its Purchase Price as set forth in Schedule 1 (calculated based on the middle foreign exchange rate published by the People’s Bank of China on the Closing Date) (“Lemi Tianjin Warrant Purchase Price”) by wire transfer of immediately available funds into a duly designated account of the VIE Entity, and the Company agrees to issue and deliver to Lemi Tianjin the Lemi Tianjin Series B Warrant. At the Closing, Lemi Tianjin shall pay the Lemi Tianjin Warrant Purchase Price to the VIE Entity as a loan pursuant to a loan agreement with the VIE Entity hereof (the “Lemi Tianjin Loan Agreement” attached as Exhibit E hereof). Lemi Tianjin shall use its best efforts to obtain the Outbound Approvals after the date hereof in accordance with mechanism as set forth in, and within the timeframe prescribed in, the Lemi Tianjin Loan Agreement. After Lemi Tianjin obtains all Outbound Approvals, the Company shall procure the VIE Entity to repay Lemi Tianjin the loan outstanding under the Lemi Tianjin Loan Agreement by installments in accordance with the Lemi Tianjin Loan Agreement and Lemi Tianjin shall pay the equivalent amount of the Lemi Tianjin Warrant Purchase Price in the US dollars in immediately available funds to the Company as the payment of exercise price for the Lemi Tianjin Series B Warrant.

(h)       With respect to Qingdao Panshi, subject to the terms and conditions of this Agreement, Qingdao Panshi agrees to purchase from the Company, and the Company agrees to sell and issue to Qingdao Panshi, a Series B Warrant in the form as attached Exhibit D hereof, pursuant to which, Qingdao Panshi shall purchase such number of Series B Preferred Shares from the Company as set forth opposite its name in Schedule 1 attached hereto (such Series B Warrant shall be referred to as “Qingdao Panshi Series B Warrant”) for the applicable Purchase Price as set forth opposite its name in Schedule 1 attached hereto. At the Closing, Qingdao Panshi shall deposit the RMB equivalents of its Purchase Price as set forth opposite its name in Schedule

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1 (calculated based on the middle foreign exchange rate published by the People’s Bank of China on the Closing Date) (“Qingdao Panshi Warrant Purchase Price”) by wire transfer of immediately available funds into a duly designated account of the VIE Entity, and the Company agrees to issue and deliver to Qingdao Panshi the Qingdao Panshi Series B Warrant. At the Closing, Qingdao Panshi shall pay Qingdao Panshi Warrant Purchase Price to the VIE Entity as a loan pursuant to a loan agreement with the VIE Entity hereof (the “Qingdao Panshi Loan Agreement” attached as Exhibit E hereof). After Qingdao Panshi fully exercises the Qingdao Panshi Series B Warrant in accordance with the mechanism as set forth in, and within the timeframe prescribed in, the Qingdao Panshi Series B Warrant, the Company shall cause the VIE Entity to repay Qingdao Panshi the loan outstanding under the Qingdao Panshi Loan Agreement in accordance with the Qingdao Panshi Loan Agreement.

Section 2.2      Closing. The closing of the sale and issue of the Series B Preferred Shares and/or the Series B Warrants (as applicable) (the “Closing”) shall take place electronically within five (5) Business Days following the satisfaction or waiver of the conditions set forth in Section 2.4(a) (other than those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions), or at such other time and place as the Company and the Series B Investors may agree in writing. The “Closing Date” shall be the date upon which the Closing occurs. Payment and Delivery.

(a)        Payment and Delivery for the purchase of Series B Preferred Shares and Series B Warrants.

(i)  With respect to Tencent, unless otherwise agreed by the Company, Tencent shall (x) pay and deliver, or cause to be paid and delivered, at Closing or such later date as agreed by the Company, to the Company the Tencent Cash Consideration in US$ by wire transfer of immediately available funds to such bank account designated in writing by the Company to Tencent at least five (5) Business Days prior to Closing, such payment obligation to be satisfied by delivery of evidence of an irrevocable payment instruction by Tencent to the Company on the Closing Date or such later date as agreed by the Company; and (y) deliver to the Company, at Closing or such later date as agreed by the Company, a copy of the Business Cooperation Agreement, duly executed by the relevant Affiliates of Tencent.

(ii) With respect to TOPLAND GLOBAL, TOPLAND GLOBAL shall pay and deliver, or cause to be paid and delivered, at Closing, to the Company the applicable Purchase Price in US$ by wire transfer of immediately available funds to such bank account designated in writing by the Company to TOPLAND GLOBAL, such payment obligation to be satisfied by delivery of evidence of an irrevocable payment instruction by TOPLAND GLOBAL to the Company on the Closing Date.

(iii) With respect to each Series B Investor (other than Tencent and TOPLAND), such Series B Investor shall pay and deliver, or cause to be paid and delivered, at Closing, to the VIE Entity the applicable Warrant Purchase Price in RMB by wire transfer of immediately available funds to such bank account

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designated in writing by the VIE Entity to such Series B Investor, such payment obligation to be satisfied by delivery of evidence of an irrevocable payment instruction by such Series B Investor to the Company on the Closing Date.

(iv) At Closing, the Company shall (A) allot and issue to each applicable Series B Investor such number of Series B Preferred Shares as set forth opposite its name in Schedule 1, which shall be validly issued, credited as fully paid and non-assessable, free and clear of all Encumbrances, and having the rights, privileges and restrictions as set forth in the Articles; (B) duly register the Series B Preferred Shares, in the name of each applicable Series B Investor, in the Company’s register of members and promptly deliver a copy to each Series B Investor; (C) promptly deliver to each applicable Series B Investor a copy of share certificate duly completed and issued in the name of each Series B Investor; and (D) promptly deliver to each applicable Series B Investor a copy of applicable Series B Warrant issued in the name of each Series B Investor.

(b)       Discharge of Payment Obligation. Completion by each Series B Investor of its respective obligations under Section 2.3(a) shall constitute full discharge of its obligations to pay the applicable Purchase Price pursuant to Section 2.1.

(c)        Restrictive Legend. Each of share certificates in respect of any of the Series B Preferred Shares issued to the applicable Series B Investor shall be endorsed with the following legend:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (AS AMENDED, THE “ACT”) OR UNDER THE SECURITIES LAWS OF ANY STATE. THIS SECURITY MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE APPLICABLE SHAREHOLDERS’ AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON REQUEST TO THE HOLDER OF RECORD OF THE SHARES REPRESENTED BY THIS CERTIFICATE

Section 2.3      Conditions.

(a)        Conditions to Series B Investors’ Obligations to Effect the Closing. The obligation of each Series B Investor to consummate the transactions contemplated by Section 2.1, Section 2.2 and Section 2.3 is subject to the satisfaction, on or before the Closing Date, of the following conditions, any of which may be waived in writing by such Series B Investor in its sole discretion:

(i)    The Fundamental Representations shall have been true, accurate and not misleading in all respects on and as of the date of this Agreement

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and on and as of the Closing Date with the same effect as if made on and as of the Closing Date (except for such Fundamental Representations that are made as of a specific date, which shall speak only as of such date), and all other representations and warranties of the Company contained in Section 3.1 shall have been true, accurate and not misleading in all respects (in the case of any such representation or warranty containing any materiality or Material Adverse Effect qualification) or in all material respects (in the case of any such representation or warranty without any materiality or Material Adverse Effect qualification) on and as of the date of this Agreement and on and as of the Closing Date with the same effect as if made on and as of the Closing Date (except for such representations and warranties that are made as of a specific date, which shall speak only as of such date).

(ii)    The Company shall have performed and complied in all material respects with all, and not be in breach or default in any material respect under any, agreements, covenants, conditions and obligations contained in this Agreement and the other Transaction Documents that are required to be performed or complied with on or before the Closing Date.

(iii)   No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Law (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins, prevents, prohibits or otherwise makes illegal the consummation of the Contemplated Transactions, or imposes any damages or penalties in connection with the Contemplated Transactions; and no action, suit, proceeding or investigation shall have been instituted or threatened by any Governmental Authority or any third party that seeks to restrain, enjoin, prevent, prohibit or otherwise make illegal the consummation of the Contemplated Transactions, or imposes any damages or penalties in connection with the consummation of the Contemplated Transactions.

(iv)    The Company shall have obtained any and all Authorizations necessary for the consummation by the Company of the issuance of the applicable Series B Preferred Shares or the Series B Warrant to such Series B Investor and the entry by the Company into the Transaction Documents to which it is a party and the performance by it of its obligations contemplated thereby (other than those Authorizations to be obtained after the Closing pursuant to the Transaction Documents), all of which shall be in full force and effect.

(v)   No event, development or state of circumstances shall have occurred or come to exist which, individually or in the aggregate, has had or would reasonably be expected to have or result in a Material Adverse Effect.

(vi)   The Company shall have delivered to the Series B Investors a certificate, dated the Closing Date and signed by a duly authorized signatory of the Company, certifying that the conditions set forth in Section 2.4(a)(i), Section 2.4(a)(ii), Section 2.4(a)(iii), Section 2.4(a)(iv), Section 2.4(a)(v), Section 2.4(a)(vi), Section 2.4(a)(vii), Section 2.4(a)(viii), Section 2.4(a)(ix) (solely with respect to Tencent) and Section 2.4(a)(x) have been satisfied.

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(vii)  The Company shall have delivered to the Series B Investors a copy of legal opinions issued to the Series B Investors by the Company’s Cayman Islands and PRC legal counsels respectively, dated the Closing Date, relating to the Contemplated Transactions.

(viii) The Articles shall have been duly adopted by the Company and shall remain in full force and effect.

(ix)    (solely with respect to Tencent) all parties to the Business Cooperation Agreement having duly executed the Business Cooperation Agreement.

(x)   The Board and the shareholders of the Company, as applicable, shall have duly adopted resolutions approving the issuance of the Series Preferred Shares and/or the Series B Warrants in accordance with this Agreement.

(b)       Conditions to the Company’s Obligations to Effect the Closing. The obligation of the Company to consummate the transactions with respect to each Series B Investor contemplated by Section 2.1, Section 2.2 and Section 2.3 is subject to the satisfaction, on or before the Closing Date, of each of the following conditions, any of which may be waived in writing by the Company in its sole discretion:

(i)   The representations and warranties of such Series B Investor contained in Section 3.2 shall have been true, accurate and not misleading in all respects (in the case of any such representation or warranty containing any materiality qualification) or in all material respects (in the case of any such representation or warranty without any materiality qualification) on and as of the date of this Agreement and on and as of the Closing Date with the same effect as if made on and as of the Closing Date (except for such representations and warranties that are made as of a specific date, which shall speak only as of such date).

(ii)   Such Series B Investor shall have performed and complied in all material respects with all, and not be in breach or default in any material respect under any, agreements, covenants, conditions and obligations contained in this Agreement and the other Transaction Documents that are required to be performed or complied with on or before the Closing Date.

(iii)  No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Law (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins, prevents, prohibits or otherwise makes illegal the consummation of the Contemplated Transactions, or imposes any damages or penalties in connection with the Contemplated Transactions; and no action, suit, proceeding or investigation shall have been instituted or threatened by any Governmental Authority or any third party that seeks to restrain, enjoin, prevent, prohibit or otherwise make illegal the consummation of the Contemplated Transactions, or imposes any damages or penalties in connection with the consummation of the Contemplated Transactions.

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(iv)   Such Series B Investor shall have delivered to the Company a copy of the Shareholders Agreement, duly executed by such Series B Investor.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 3.1      Representations and Warranties of the Group Companies.  Subject to Section 6.1, each of the Group Companies hereby jointly and severally represents, warrants and undertakes to each of the Series B Investors that the following representations and warranties are true, accurate and not misleading on and as of the date of this Agreement, and are true, accurate and not misleading on and as of the Closing Date with the same effect as if made on and as of the Closing Date:

(a)        Due Formation. Each Group Company is duly formed, validly existing and in good standing in the jurisdiction of its organization and has all requisite power and authority to own its properties and assets and to carry on its business as it is currently being conducted.

(b)       Authority. Each Group Company has full power and authority to enter into, execute and deliver each Transaction Document to which it is or will be a party and each other agreement, certificate, document and instrument to be executed and delivered by it pursuant to any Transaction Document and to perform its obligations thereunder. The execution and delivery by each Group Company of each Transaction Document to which it is or will be a party and the performance by such Group Company of its obligations thereunder have been duly authorized by all requisite actions on its part.

(c)        Valid Agreement. Each Transaction Document to which any Group Company is or will be a party has been or will be duly executed and delivered by such Group Company and constitutes, or when executed and delivered in accordance herewith will constitute, the legal, valid and binding obligations of such Group Company, enforceable against it in accordance with its terms, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(d)       Articles; Business Licenses. As of the Closing Date, the Articles shall be in full force and effect and shall not have been superseded or amended. The business licenses and articles of association of each of the Group Companies incorporated in the PRC are in full force and effect under, and in compliance with, PRC Laws.

(e)        Capitalization.

(i)  As of the date hereof, the authorized share capital of the Company is US$50,000 divided into a total of 5,625,000,000 Ordinary Shares of which 552,500,000 is issued and outstanding and 625,000,000 Series A Preferred Shares all of which are issued and outstanding. Immediately prior to the Closing,

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the authorized share capital of the Company shall be US$50,000 divided into (1) a total of 5,312,745,098 Ordinary Shares, of which 552,500,000 is issued and outstanding, (2) a total of 625,000,000 Series A Preferred Shares, all of which are issued and outstanding, and (3) a total of 312,254,902 Series B Preferred Shares, none of which will be issued and outstanding. The Capitalization Table truly and accurately describes the capitalization of each Group Company on a fully diluted basis on the date hereof, immediately prior to the Closing and immediately following the Closing, in each case reflecting all then outstanding Equity Securities in such Group Company, the record and beneficial holders thereof and the terms of any vesting applicable thereto.

(ii) Except for certain rights provided in or contemplated by the Transaction Documents and provided under applicable Laws and the outstanding Equity Securities set forth in the Capitalization Table, (1) there are no outstanding Equity Securities in any Group Company, (2) no Equity Securities in any Group Company are subject to any preemptive rights, rights of first refusal or first offer or other rights to purchase such Equity Securities or any other rights with respect to such Equity Securities, (3) no Group Company is a party or subject to any Contract that affects or relates to the voting or giving of written consents with respect to, or the right to cause the redemption or repurchase of or a change in the vesting provisions related to, any Equity Security in such Group Company and (4) 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.

(iii) Except as provided in the Shareholders Agreement (from and after the Closing), the Company has not granted any registration rights or information rights to any other Person, nor is the Company obliged to cause the listing of any of the Equity Securities in any Group Company on any securities exchange.

(iv) All of the outstanding Equity Securities in each Group Company (1) are duly authorized, validly issued, fully paid and non-assessable, free and clear of all Encumbrances and (2) were not issued in contravention of any preemptive rights, rights of first refusal or first offer or similar rights or any applicable Laws or Contracts.

(v) Except as contemplated by the Transaction Documents, there are no (1) resolutions pending to increase the authorized, issued or outstanding Equity Securities in any Group Company, (2) dividends which have accrued or been declared but are unpaid by any Group Company, (3) obligations, contingent or otherwise, of any Group Company to repurchase, redeem or otherwise acquire any Equity Securities or (4) outstanding or authorized equity appreciation, phantom equity, equity plans or similar rights with respect to any Group Company.

(vi) Other than with respect to the ESOP duly approved by the Board, there are no options or other similar rights or agreements outstanding in

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favor of the employees of the Group Companies or under which the Company is or may become obligated to issue any securities of any class or series.

(vii)           The rights of the Ordinary Shares and the Preferred Shares are as stated in the Articles.

(f)        Due Issuance. The issuance of Series B Preferred Shares and Series B Warrants have been duly authorized and, when issued and delivered to and paid for by applicable Series B Investor pursuant to this Agreement, will be validly issued, fully paid and non-assessable, free and clear of all Encumbrances (except for restrictions arising under the Securities Act or created by virtue of the Transaction Documents), and upon delivery and entry into the register of members of the Company of the Series B Preferred Shares or the execution of the Series B Warrants (as applicable), each Series B Investor shall have good and valid title to the Series B Preferred Shares or Series B Warrants (as applicable), free and clear of all Encumbrance (except for restrictions arising under the Securities Act or created by virtue of the Transaction Documents). The Ordinary Shares into which the Series B Preferred Shares are convertible have been reserved for issuance and, when issued and delivered in accordance with the terms of the Articles, will be validly issued, fully paid and non-assessable, free and clear of all Encumbrances (except for restrictions arising under the Securities Act or created by virtue of the Transaction Documents), and shall rank pari passu in all respects with existing Ordinary Shares at the time of their issuance. The issuance of the Series B Preferred Shares and the Ordinary Shares into which they are convertible is not subject to any preemptive rights, rights of first refusal or first offer or similar rights. Assuming the truthfulness and accuracy of the representations made by the Series B Investors under Section 3.2(f), the issuance of the Series B Preferred Shares pursuant to this Agreement are, and the issuance of the Ordinary Shares into which they are convertible will be, exempt from the registration and prospectus delivery requirements of all applicable Securities Laws. All presently outstanding Equity Securities in the Company have been issued, and, assuming the truthfulness and accuracy of the representations made by the Series B Investors under Section 3.2(f), the Series B Preferred Shares and the Ordinary Shares into which they are convertible will be issued, in compliance with the requirements of all applicable Securities Laws.

(g)       Non-contravention; Litigation. Neither the execution and delivery of each Transaction Document to which any Group Company is or will be a party nor the consummation of any of the Contemplated Transactions will (i) violate any provision of the organizational documents of any Group Company or violate any Law or Order to which any Group Company is subject or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of or creation of an Encumbrance under or create in any party the right to accelerate, terminate, modify or cancel any Contract to which any Group Company is a party, by which any Group Company is bound or to which any Group Company’s assets are subject. There is no action, suit or proceeding pending or threatened in writing against any Group Company that questions the validity of this Agreement or the right of any Group Company to enter into each Transaction Document to which it is or will be a party or to consummate the Contemplated Transactions.

(h)       Consents and Approvals. None of the execution and delivery of each Transaction Document to which any Group Company is or will be a party, the consummation of any of the Contemplated Transactions nor the performance by any Group Company of each

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Transaction Document to which such Group Company is or will be a party in accordance with its terms requires any Authorization, except for those Authorizations expressly set forth in the Transaction Documents.

(i)        Holding Companies. A structure chart with corporate particulars of all the Group Companies is set forth in Section 3.1(i) of the Disclosure  Schedule. The corporate particulars of each of the Group Companies as set forth in such structure chart and in Section 3.1(i) of the Disclosure Schedule are true, correct and complete. Except as disclosed in Section 3.1(i) of the Disclosure Schedule, none of the Group Companies has any Subsidiary, nor does any of them hold or Control, directly or indirectly, any interest in any other Person, or maintain any offices or branches. The corporate structure of the Group Companies and the ownership among the Group Companies and the establishment thereof are in compliance with all applicable Laws. Each of the Group Companies was formed solely to acquire and hold Equity Securities in the relevant Group Companies or to operate the Principal Business and has not since its formation engaged in any business other than the Principal Business and the business in relation to its acquiring and holding Equity Securities in the other relevant Group Companies. Pursuant to the Control Documents, (i) Tianjin WFOE has full control over the VIE Entity and enjoys substantially all of the economic benefit from the operation of the Domestic Companies; and (ii) the VIE Entity is an “variable interest entity” of the Company and its financial results will be consolidated into the Company’s consolidated financial statement as if it were a fully owned subsidiary of the Company, under the US GAAP.

(j)        Brokers. The Company has not dealt with any broker, finder, commission agent, placement agent or arranger in connection with the issuance of the Series B Warrants and the Series B Preferred Shares, and none of the Group Companies is under any obligation to pay any broker’s fee or commission in connection with the issuance of the Series B Warrants and the Series B Preferred Shares or the Contemplated Transactions.

(k)       Constitutional Documents. The constitutional documents of each Group Company are in the form provided to the Series B Investors. The constitutional documents of each Group Company are valid and have been duly approved or issued (as applicable) by competent Governmental Authorities in the jurisdiction where such Group Company is incorporated. None of the Group Companies is in violation, breach or default of any term or provision of the constitutional documents, or of any provision of any Law applicable to or binding upon such Group Company. None of the activities, Contracts or rights of any Group Company is ultra vires or unauthorized. The execution, delivery and performance of and compliance with this Agreement and any other Transaction Documents and the consummation of the transactions contemplated hereby and thereby will not result in (i) any 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 constitutional documents of such Group Company, (b) any term or provision of any Material Contract to which such Group Company is a party or by which it may be bound, or (c) any applicable Law, (ii) the creation or imposition of any lien upon, or with respect to, any of the properties or rights of any Group Company (except for such lien created by the Transaction Documents), or (iii) any termination, modification, cancellation, or suspension of any right of, or any augmentation or acceleration of any obligation of, any Group Company. Each Group Company has made available to each Series B Investor or its respective advisors (if applicable) a copy of its minute books, to the extent such Group Company keeps minute books. Such copy is true, correct

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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.

(l)        Control Documents. As of the Closing Date:

(i)  Each party to any Control Document (other than the Tencent Nominee and the Key Holder Nominee) has full power and authority to enter into, execute and deliver such Control Document to which it is a party and each other agreement, certificate, document and instrument to be executed and delivered by it pursuant to the Control Documents and to perform its obligations thereunder. The execution and delivery by such party of each Control Document to which it is a party and the performance by such party of its obligations thereunder have been duly authorized by all requisite actions on its part. Subject to any necessary Authorization by the relevant Governmental Authority, each Control Document to which such party is a party has been or will be duly executed and delivered by such party and constitutes, or when executed and delivered in accordance herewith will constitute, the legal, valid and binding obligations of such party, enforceable against such party in accordance with its terms, except as limited by (1) applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (2) laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(ii) No Authorizations are required to be obtained for the execution and delivery of the Control Documents, the performance by the parties to each Control Document of their respective obligations thereunder and the transactions contemplated under the Control Documents, other than those Authorizations that (1) have already been obtained or provided for under the Control Documents, (2) remain in full force and effect, (3) are required to register any share pledge to secure the VIE Entity’s obligations under the Control Documents and to make the transfer of profits from the VIE Entity to WFOE, (4) are required for transfer of equity interests in the VIE Entity upon exercise by the WFOE of its rights under the relevant exclusive option agreement among the WFOE, the VIE Entity and the shareholders of the VIE Entity and (5) do not impose any obligation, condition or restriction that would create a material burden on the parties to the Control Documents.

(iii) The execution, delivery and performance by each and all of the relevant parties (other than the Tencent Nominee and the Key Holder Nominee) of their respective obligations under each and all of the Control Documents, and the consummation of the transactions contemplated thereunder, did not and do not (1) result in any violation of their respective articles of association, business licenses or constitutive documents, (2) result in any violation of any applicable PRC Laws which would reasonably be expected to have, individually or in aggregate, a Material Adverse Effect or (3) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default

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under, any Order of any court of the PRC having jurisdiction over the relevant parties to the Control Documents or any Contract to which any of such parties is expressed to be a party or which is binding on any of them.

(iv) Each Control Document entered into between the WFOE and the VIE Entity is, and all of such Control Documents taken as a whole are, legal, valid, enforceable and admissible as evidence under PRC Laws, and constitute the legal and binding obligations of the relevant parties.

(v) All shareholders of the VIE Entity (other than the Tencent Nominee and the Key Holder Nominee) are acting in good faith and in the best interests of the Company. There have been no disputes, disagreements, claims or any legal proceedings of any nature, raised by any Governmental Authority or any other party, pending or, to the Knowledge of the Company, threatened against or affecting any of the VIE Entity and other Group Companies that (1) challenge the validity or enforceability of any part or all of the Control Documents taken as a whole, (2) challenge the VIE structure or the ownership structure as set forth in the Control Documents, (3) claim any ownership, share, equity or interest in the VIE Entity or other Group Companies, or claim any compensation for not being granted any ownership, share, equity or interest in the VIE Entity or other Group Companies or (4) claim any of the Control Documents or the ownership structure thereof or any arrangement or performance of or in accordance with the Control Documents was, is or will violate any PRC Laws.

(m)      Tax Filings.

(i)  Each of the Group Companies has filed or caused to be filed in a timely manner all Tax Returns required to be filed by it, all such Tax Returns are true, correct and complete and each of the Group Companies has paid, or provided adequate reserves, for all Taxes and deficiencies or other assessments of Tax owed by it. All Taxes which any Group Company has been obligated to collect, deduct or withhold from amounts paid by any customer or other third party, or owing to any employee, creditor or other third party, have been timely collected, deducted or withheld and paid to the appropriate Governmental Authority.

(ii) No Tax examination, audit, investigation or administrative or judicial proceedings by any Governmental Authority are currently in progress with respect to the Group Companies. No Group Company has waived any statute of limitations with respect to any Taxes, or agreed to any extension of time with respect to an assessment or deficiency for such Taxes. 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 has received any from any Governmental Authority (1) notice indicating any intent to open an examination, audit, investigation or administrative or judicial proceedings in respect of any Tax or Tax Return or (2) notice of deficiency or proposed adjustment for any unpaid Taxes. No deficiencies for any Taxes with respect to any Tax Returns have been asserted in writing by any Tax authority, and no dispute relating

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to any Tax Returns with any such Tax authority is outstanding or contemplated. No written claim has been received by the Company 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, and there are no unresolved questions or claims concerning any Tax Liability of any Group Company. Since the Financial Statements Date, no Group Company has incurred any liability for Taxes outside the ordinary course of business or otherwise inconsistent with past custom and practice. 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 there is no proposed Liability for a deficiency in any Tax to be imposed upon the properties or assets of any Group Company.

(iv) All Tax credits and Tax holidays enjoyed by the Group Company established under the Laws of the PRC under applicable laws since its establishment have been in compliance with all applicable laws and is not subject to reduction, revocation, cancellation or any other changes (including retroactive changes) in the future, except through change in applicable laws published by relevant Governmental Authority.

(n)       Interested Party Transaction. Except as set forth in or contemplated by the Transaction Documents, none of the Key Employees, the shareholders, officers or directors of a Group Company, or officer or director of any Group Company’s shareholder, or any Affiliate of any foregoing party, has any contract, understanding or proposed transaction with, or is indebted to, any Group Company, nor is any Group Company indebted, or committed to make loans or extend or guarantee credit, to any of such Persons, other than for accrued salaries, reimbursable expenses or other standard employee benefits.

(o)       FCPA Compliance. None of the Group Companies nor, to the Knowledge of the Company, any director, officer, agent, employee, Affiliate or other Person acting on the behalf of any Group Company has:

(i)  made, or offered any payment of anything of value, or authorized such payment or offer, to any Government Official or to any person knowing or being aware of a high probability that all or a portion of such money or thing of value will be unlawfully offered, given or promised, directly or indirectly, to any Government Official, for the purpose of (1) influencing any act or decision of such Government Official in his official capacity, (2) inducing such Government Official to do or omit to do any act in violation of his lawful duty, (3) securing any improper advantage, (4) inducing such Government Official to influence or affect any act or decisions of any entity or enterprise owned or controlled by a government or (5) assisting any Group Company in obtaining or retaining business for or with, or directing business to any Group Company; or

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(ii) violated any provision of applicable anti-bribery and anti-corruption Laws of any jurisdiction in which any Group Company conducts its business or operations, including the FCPA.

(p)       Compliance with Laws.

(i)  Except as disclosed in the Disclosure Schedule, each of the Group Companies has been in compliance with any Law or Order applicable to it in all material aspects since its establishment (including applicable Laws governing the receipt, collection, use, storage, processing, sharing, security, disclosure or transfer of personal information). No event has occurred and no circumstance exists that (with or without notice or lapse of time) (a) constitute or may constitute or result in a material violation by any Group Company of, or a failure on the part of such Group Company to comply with, any applicable Laws, or (b) may give rise to any material obligation on the part of any Group Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. None of the Group Companies has received any notice from any Governmental Authority regarding any of the foregoing. Except as disclosed in the Disclosure Schedule, no Group Company is under investigation, has received any Government Order, or is subject to any Action with respect to a violation of any Law.

(ii) All governmental approvals, permits, licenses, authorizations, certifications, registrations, and filings (collectively, the “Permits”) (A) which are required to be obtained or made by any Group Company under applicable Laws in connection with the due and proper establishment of each Group Company and (B) which are necessary to carry out the Principal Business and operations of each Group Company in each relevant jurisdiction, have been obtained or completed in accordance with the applicable Laws, are not in default, and are in full force and effect. None of the Group Companies is in receipt of any letter or notice from any Governmental Authority notifying the revocation of any Permits issued to it for non-compliance or the need for compliance or remedial actions in respect of the activities carried out directly or indirectly by it. In respect of the Permits which are subject to periodic renewal, none of the Group Companies has any reason to believe that such requisite renewals will not be timely granted by the relevant Governmental Authorities.

(iii) The capital and organizational structure of each PRC Company and the business conducted by such PRC Company are valid and in full compliance with relevant PRC Laws. All consents required under PRC Laws for the due and proper establishment and operation of each PRC Company, including but not limited to the registrations with MOFCOM, SAIC, SAFE, MIIT, MCT, CAC, SAPPRFT tax bureau and customs authorities, have been duly obtained from the relevant PRC Governmental Authorities or completed in accordance with the relevant Laws, and are in full force and effect. Each PRC Company has been conducting and will conduct its business activities within the permitted scope of business, and has been operating or will operate its business in full compliance with

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all relevant legal requirements and with all requisite Permits granted by the competent PRC Governmental Authorities.

(iv) All SAFE Rules and Regulations have been fully complied with by the Group Companies and their shareholders and beneficial owners and all requisite Consents required under the SAFE Rules and Regulations in relation thereto have been duly and lawfully obtained and are in full force and effect, and there exist no grounds on which any such Consent may be cancelled or revoked or any PRC Company or its legal representative may be subject to Liability or penalties for misrepresentations or failure to disclose information to the issuing SAFE. Each Person who beneficially owns any Equity Securities of the Company and is required to comply with the SAFE Rules and Regulations has registered with SAFE with respect to their direct or indirect holdings of Equity Securities in the Company in accordance with the SAFE Rules and Regulations. Such Person has not received any oral or written inquiries, notifications, orders or any other forms of correspondence from SAFE with respect to any actual or alleged noncompliance with the SAFE Rules and Regulations.

(q)       Litigation.

(i)  Except as disclosed in the Disclosure Schedule, there is no Action pending or, to the best Knowledge of any Group Company, threatened against or involving any Group Company or the business of the Group Companies. None of the Group Companies is aware of any event or circumstance that may form a basis for any such Action. The foregoing includes, without limitation, Actions pending or threatened against the Group Companies or the business of the Group Companies (or any basis therefor known to the Group Companies) involving the prior employment of the Key Employees or any of the Group Company’s employees, their use in connection with the business of the Group Companies of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with former employers. None of the Group Companies is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or Governmental Authority. There is no Action by the Group Companies that is currently pending or that any Group Company intends to initiate.

(ii) There is no Action pending or, to the best Knowledge of any Group Company, threatened, that questions the validity of any Transaction Document, or the right of any Group Company to enter into such agreement, or to consummate the transactions contemplated hereby or thereby or that could, individually or in the aggregate, result in a Material Adverse Effect or a change in the current equity ownership of any Group Company.

(iii) There is no Action pending or, to the best Knowledge of any Group Company, threatened against any Group Company or any director, officer, agent, employee, or any other Person acting for or on behalf of such Group Company, alleging a violation of any applicable Law, including but not limited to

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the anti-corruption Laws, (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, or (iii) to obtain special concessions or for special concessions already obtained, for or in respect of such Group Company.

(r)        Financial Conditions.

(i)  The Group Companies have delivered to the Series B Investors true, correct and complete copies of unaudited financial statements of the PRC Companies for the period commencing from its date of incorporation (collectively, the “Financial Statements”, and July 31, 2019, the “Balance Sheet Date”). Such Financial Statements (1) have been prepared in accordance with the books and records of each Group Company, (2) are true, correct and complete and present fairly the financial condition of such Group Company at the date or dates therein indicated and the results of operations for the period or periods therein specified, and (3) have been prepared in accordance with the PRC GAAP applied on a consistent basis, except as to the unaudited consolidated Financial Statements, for the omission of notes thereto and normal year-end audit adjustments. Specifically, but not by way of limitation, the most recent balance sheets included within the Financial Statements disclose each Group Company’s Indebtedness and Liabilities, as of their respective dates (including, without limitation, absolute liabilities, accrued liabilities, and contingent liabilities) to the extent such Indebtedness and Liabilities are required to be disclosed on a balance sheet in accordance with the PRC GAAP applied on a consistent basis, other than current liabilities that were incurred after the Balance Sheet Date in the ordinary course of business consistent with its past practices that are not material in the aggregate. Each Group Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with the US GAAP for the companies incorporated outside the PRC or PRC GAAP for companies incorporated in the PRC applied on a consistent basis.

(ii) Other than may be contemplated by the Transaction Documents or disclosed in the Disclosure Schedule, since the Balance Sheet Date, each Group Company (1) has operated its business in the ordinary course consistent with its past practice, (2) used its reasonable best efforts to preserve its business, (3) collected receivables and paid payables and similar obligations in the ordinary course of business consistent with past practice, and (4) not engaged in any new line of business or entered into any material agreement, transaction or activity or made any commitment except those in the ordinary course of business consistent with past practice. Since the Balance Sheet Date, there has not been any Material Adverse Effect or any material change in the way any Group Company conducts its business, and there has not been by or with respect to any Group Company:

(1)          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;

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(2)          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, or any sale or disposition of any business or division thereof;

(3)          any waiver, termination, cancellation, settlement or compromise by a Group Company of a material right, debt or claim owed to it;

(4)          any incurrence, creation, assumption, repayment, satisfaction, or discharge of (A) any material lien or (B) any Indebtedness, 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;

(5)          any amendment to or early termination of any Material Contract, any entering of any new Contract that would have been a Material Contract if in effect on the date hereof, or any amendment to or waiver under any constitutional documents;

(6)          any material change in any compensation arrangement or Contract with any employee of any Group Company except in the ordinary course of business consistent with past practice, or adoption of any new benefit plan, or made any material change in any existing benefit plan;

(7)          any declaration, setting aside or payment or other distribution in respect of any Equity Securities of any Group Company, or any issuance, transfer, redemption, purchase or acquisition of any Equity Securities by any Group Company;

(8)          any material damage, destruction or loss, whether or not covered by insurance, that would have a Material Adverse Effect to a Group Company;

(9)          any material change in accounting methods or practices or any revaluation of any of its assets;

(10)        any change in the approved or registered business scope of any PRC Company or any change to any Consent or Permits held by such PRC Company;

(11)        except in the ordinary course of business consistent with its past practice, entry into any closing agreement in respect of Taxes, settlement of any claim or assessment in respect of any Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of any Taxes, entry or change of any Tax election, change of any method of accounting resulting in an amount of additional Tax or filing of any material amended Tax Return;

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(12)        any commencement or settlement of any Action;

(13)        any authorization, sale, issuance, transfer, pledge or other disposition of any Equity Securities of any Group Company;

(14)        any resignation or termination of any Key Employee of any Group Companies any material group of employees of any Group Company that is deemed essential to the Principal Business;

(15)        any transaction with any Related Party; or

(16)        any agreement or commitment to do any of the things described in this Section.

(s)        Material Contracts.

(i)  For purpose of this Agreement, a “Material Contract” means such Contract that any Group Company is a party to or is bound by, having an aggregate value, cost or amount, or imposing Liability on any Group Company in excess of US$200,000 or extending for more than one (1) year beyond the date of this Agreement, and that

(1)          is not readily to be fulfilled or performed by a Group Company on time or without undue or unusual expenditure of money or efforts or a Group Company does not have the technical and other capabilities or the human and material resources to enable it to fulfill, perform and discharge all its outstanding obligations in the ordinary course of business without realizing a loss on closing of performance,

(2)          involves any Related Party transactions,

(3)          relates to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any Equity Securities of any Group Company,

(4)          is entered into with a material customer or material supplier of a Group Company or with a Governmental Authority,

(5)          involves a guaranty or assumption of any obligation, or the creation of any lien on any equity interest, properties or assets of any Group Company,

(6)          involves the acquisition or sale of a business, a merger, consolidation, amalgamation, a partnership, joint venture, or similar arrangement,

(7)          involves the transfer or license of any Intellectual Property to or from a Group Company (other than licenses granted in the ordinary

36

course of business or from commercially readily available “off the shelf” computer Software), or obligates a Group Company to share or develop any Intellectual Property with any third party,

(8)          contains change in Control, exclusivity, non-competition or similar clauses that may be reasonably expected to impair, restrict or impose conditions on a Group Company’s right to offer or sell products or services in specified areas, during specified periods or otherwise, or

(9)          the entering into and termination of which would be reasonably likely to have a Material Adverse Effect on any Group Company.

(ii) All Material Contracts are listed in the Disclosure Schedule and have been made available for inspection by or, if they are oral Contracts, have been summarized in writing for the Series B Investors and their counsel. Each Material Contract is a valid, binding and enforceable agreement of the parties thereto, the performance of which does not violate any applicable Law, and is in full force and effect, and the terms thereof have been complied with by the relevant Group Companies and, to the best Knowledge of each Group Company by all the other parties thereto, and the execution and performance of which is fully authorized pursuant to the constitutional documents of the Group Companies. There are no circumstances likely to give rise to any breach of such terms, no grounds for rescission, avoidance or repudiation of any of the Material Contracts and no notices of violation, default, termination or intention to terminate (whether or not such notice is in writing) have been received in respect of any Material Contract.

(t)        Assets and Properties.

(i)  The Group Companies have good and valid title to, or a valid leasehold interest in, all of the properties and assets that are currently used by the Group Companies, free from any lien. Except for leased properties and licensed assets, no Person other than a Group Company owns any interest in any such properties or assets. All leases of properties and assets leased by the Group Companies are fully effective and afford the Group Companies the right to use and process such leased properties and assets. The Group Companies’ owned by the Group Companies properties and assets collectively represent in all material respects all properties and assets necessary for the conduct of the business of the Group in the manner currently conducted.

(ii) Section 3.1(t)(ii) of the Disclosure Schedule sets forth a true, accurate and complete list of all Real Properties leased or otherwise used by any Group Company, whether completed or in progress (the “Company Real Properties”). All Permits of all applicable Governmental Authorities necessary for the use of the Company Real Properties, whether completed or in progress, the absence of which would reasonably be expected to have a Material Adverse Effect on any Group Company, have been issued, have not been suspended or revoked,

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and it has no reason to believe that such Permits will be suspended or revoked. The design, construction, development, operation, leasing, use and management of the Company Real Properties is in compliance with all requirements of applicable Laws, without limitation, all zoning Laws, building codes and environmental protection except for any failure to comply with which would not have a Material Adverse Effect on any Group Company. All leases of the Company Real Properties are in compliance with applicable Laws, including with respect to the ownership, registered land use, operation of property and conduct of business as now conducted by the applicable Group Company which is a party to such Lease.

(iii) Section 3.1(t)(iii) of the Disclosure Schedule sets forth a true, accurate and complete list of all the Intellectual Properties that are owned by, or registered or applied for in the name of, or licensed to any Group Company (the “Company Intellectual Properties”). Except as disclosed in Section 3.1(t)(iii) of the Disclosure Schedule, each Group Company owns or otherwise has sufficient rights (including but not limited to the rights of development, maintenance, licensing and sale) to or otherwise has the licenses to use all Company Intellectual Property without any known conflict with or known infringement of the rights of any other Person.

(1)          Each Company Intellectual Properties is owned exclusively by, registered or applied for solely in the name of a Group Company, or licensed exclusively to the relevant Group Company, and is not subject to any lien or Encumbrance, without any known conflict with, or infringement of, the rights of others. All Company Intellectual Properties 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. The Group Companies own or possess all rights and/or license to use all Intellectual Properties necessary for the conduct of their respective businesses as currently being conducted. 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 Company Intellectual Properties 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 material Company Intellectual Properties. No material Company Intellectual Property is the subject of license or other Contract granting rights therein to any other 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 material Company Intellectual Properties. No Company Intellectual Property is subject to any proceeding or outstanding Governmental Order or settlement agreement or stipulation that (a) restricts in any manner the use, transfer or licensing thereof, or the making, using, sale, or offering for sale of any Group Company’s products or services, by any Group Company, or (b) may affect the validity, use or enforceability of such Company Intellectual Properties. Each Group Company has assigned and transferred to a Group Company any and all of its Intellectual Property related to the Principal Business. No Group Company has (A)

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transferred or assigned any Company Intellectual Properties; (B) authorized the joint ownership of, any Company Intellectual Properties; or (C) permitted the rights of any Group Company in any Company Intellectual Properties to lapse or enter the public domain.

(2)          No Group Company has violated, infringed or misappropriated any Intellectual Property of any other Person, nor has any Group Company received any written notice alleging any of the foregoing. No Person has violated, infringed or misappropriated any Company Intellectual Properties of any Group Company, and no Group Company has given any written notice to any other Person alleging any of the foregoing. No Person has challenged the ownership or use of any Company Intellectual Properties by a Group Company in writing. No Group Company has agreed to indemnify any Person for any infringement, violation or misappropriation of any Intellectual Property by such Person.

(3)          All inventions and know-how conceived by employees of a Group Company related to the business of such Group Company are currently owned exclusively by a Group Company. None of the Group Companies believes it is or will be necessary to utilize any inventions of any of its officers or employees (or any Person it currently intends to hire) made prior to or outside the scope of their employment by such Group Company. 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 a Group Company exclusive ownership of all right, title and interest in and to such Intellectual Property, to the extent not already provided by Law. All employee inventors of Company Intellectual Properties have received reasonable reward and remuneration from a Group Company for his/her service inventions or service technology achievements in accordance with the applicable PRC Laws. It will not be necessary to utilize any Intellectual Property of any such Persons made prior to their employment by a Group Company and none of such Intellectual Property has been utilized by any Group Company, except for those that are exclusively owned by a Group Company. None of the employees, consultants or independent contractors, currently or previously employed or otherwise engaged by any Group Company, (a) is in violation in any material respect of any current or prior confidentiality, non-competition or non-solicitation obligations to such Group Company or to any other Persons, including former employers, or (b) 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 Companies or that would conflict with the business of such Group Company as presently conducted.

(4)          Section 3.1(t)(iii) of the Disclosure Schedule sets forth a true, accurate and complete list of all the Company Intellectual Properties that are being licensed by and among Group Companies, which include (A) all licenses, sublicenses, and other Contracts to which any Group Company is a party and pursuant to which any third party is authorized to use, exercise or receive any benefit from any material Company Intellectual Properties, and (B) all licenses,

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sublicenses and other Contracts to which any Group Company is a party and pursuant to which such Group Company is authorized to use, exercise, or receive any benefit from any material Intellectual Property of another Person, in each case except for (A) agreements involving “off-the-shelf” commercially available Software, and (2) non-exclusive licenses to customers of the Business in the ordinary course of business consistent with past practice. The Group Companies have paid all license and royalty fees required to be paid under the such licenses, sublicenses, and other Contracts.

(5)          Each Group Company has taken reasonable and appropriate steps to protect, maintain and safeguard Company Intellectual Properties and made all applicable 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 any Group Company and all suppliers, distributors, and other third parties having access to any Company Intellectual Properties have executed and delivered to such Group Company an agreement requiring the protection of such Company Intellectual Properties. To the extent that any Company Intellectual Property has been developed or created independently or jointly by an independent contractor or other third party for any Group Company, or is incorporated into any products or services of any Group Company, such Group Company has a written agreement with such independent contractor or third party and has thereby obtained ownership of, and is the exclusive owner of all such independent contractor’s or third party’s Intellectual Property in such work, material or invention by operation of law or valid assignment.

(6)          No Public Software forms part of any product or service provided by any Group Company or was or is used in connection with the development of any product or service provided by any Group Company or is incorporated into, in whole or in part, or has been distributed with, in whole or in part, any product or service provided by any Group Company. No software included in any Company Intellectual Properties has been or is being distributed, in whole or in part, or was used, or is being used in conjunction with any Public Software in a manner which would require that such Software be disclosed or distributed in source code form or made available at no charge. For the purpose of this Agreement, “Public Software” shall mean any software that contains, or is derived in any manner (in whole or in part) from, any software that is distributed as free software, open source software (e.g., Linux) or similar licensing or distribution models, including, without limitation, software licensed or distributed under any of the following licenses or distribution models, or licenses or distribution models similar to any of the following: (A) GNU’s General Public License (GPL) or Lesser/Library GPL (LGPL), (B) the Artistic License (e.g., PERL), (C) the Mozilla Public License, (D) the Netscape Public License, (E) the Sun Community Source License (SCSL), (F) the Sun Industry Standards License (SISL), (G) the BSD License, and (H) the Apache License.

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(7)          The Group Companies’ use and dissemination of any personally-identifiable information concerning individuals is in compliance with all applicable privacy policies, terms of use, applicable Law and Contracts applicable to any Group Company. The Group Companies maintain policies and procedures regarding data security and privacy and maintain administrative, technical, and physical safeguards that are commercially reasonable and, in any event, in compliance with all applicable Laws and Contracts applicable to any Group Company. To the knowledge of the Group Companies, there have been no security breaches relating to, or violations of any security policy regarding any data or information of Group Companies’ customers or used by the Group Companies. There has been no loss, unauthorized access, misappropriation, or misuse of any data or information of Group Companies’ customers or used by the Group Companies to conduct the Principal Business.

(u)       Employment Matters.

(i)  Each Group Company (1) is in compliance in all material aspects with all applicable Laws respecting employment, employment practices and terms and conditions of employment, including without limitation the applicable PRC Laws pertaining to Social Insurances; (2) has withheld and reported all amounts required by any applicable Law or any Contract to be withheld and reported with respect to wages, salaries and other payments to employees; (3) is not liable for any arrear of wages, Tax or penalty for failure to comply with any of the foregoing; and (4) other than as required by applicable Laws, is not liable for any payment to any trust or fund governed by or maintained by or on behalf of any Governmental Authority with respect to any Social Insurance or other benefits or obligations for employees.

(v)       Each employee, officer, director and consultant of the Group Companies has duly executed an employment agreement containing confidentiality, non-competition, non-solicitation and invention assignment provisions to the satisfaction of the Series B Investors which is in full force and effect and binding upon and enforceable against each such Person. To the best Knowledge of the Group Companies, none of the employees, officers, directors or consultants is in violation of such employment agreement. None of the Group Companies is aware that any Key Employee of a Group Company intends to terminate his employment with the Group Company, nor does any Group Company have a present intention to terminate the employment of any Key Employee. Except as required by applicable Laws, no Group Company has or maintains any employee benefit plan, employee pension plan, medical insurance, or life insurance to which any Group Company contributed or is obligated to contribute thereunder for employees of any Group Company.

(w)       Prior Investment. All prior investments in any Group Company and all prior transfers or disposals of any Equity Securities of any Group Company have been conducted in accordance with the applicable shareholders or investors agreement and charter documents of the Company and applicable Laws, and have obtained all required Authorizations. There is no Action pending against any Person in respect of any of the foregoing matters.

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(x)       Restructuring. The Restructuring has been duly completed in accordance with the Restructuring Framework Agreement and in compliance with applicable Laws in all material aspects.

(y)       Insolvency.

(i)  The aggregate assets of each Group Company, at a fair valuation, exceeds or shall exceed the aggregate debt of such Group Company as the debt becomes absolute and mature, and each Group Company is not incurring nor intends to incur, and shall not have incurred nor intended to incur, debt beyond its ability to pay such debt as such debt becomes absolute and matures.

(ii) There has not been commenced against any Group Company an involuntary case under any applicable national, provincial, city, local or foreign bankruptcy, insolvency, receivership or similar Law, or any Action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of such Group Company or for any substantial part of its property or for the winding up or liquidation of its affairs.

Section 3.2      Representations and Warranties of the Series B Investors.  Each Series B Investor severally but not jointly represents, warrants and undertakes to the Company that the following representations and warranties are true, accurate and not misleading on and as of the date of this Agreement and shall be true, accurate and not misleading on and as of the Closing Date with the same effect as if made on and as of the Closing Date:

(a)        Due Formation. Such Series B Investor is duly formed, validly existing and in good standing in its jurisdiction and has all requisite power and authority to carry on its business as it is currently being conducted.

(b)       Authority. Such Series B Investor has full power and authority to enter into, execute and deliver each Transaction Document to which it is or will be a party and each other agreement, certificate, document and instrument to be executed and delivered by it pursuant to any Transaction Document and to perform its obligations thereunder. The execution and delivery by such Series B Investor of each Transaction Document to which it is or will be a party and the performance by such Series B Investor of its obligations thereunder have been duly authorized by all requisite actions on its part.

(c)        Valid Agreement. Each Transaction Document to which such Series B Investor is or will be a party has been or will be duly executed and delivered by such Series B Investor and constitutes, or when executed and delivered in accordance herewith will constitute, the legal, valid and binding obligations of such Series B Investor, enforceable against such Series B Investor in accordance with its terms, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(d)       Non-contravention; Litigation. Neither the execution and delivery of each Transaction Document to which such Series B Investor is or will be a party nor the

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consummation of any of the Contemplated Transactions will (i) violate any provision of the organizational documents of such Series B Investor or violate any Law or Order to which such Series B Investor is subject or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of or creation of an Encumbrance under or create in any party the right to accelerate, terminate, modify or cancel any Contract to which such Series B Investor is a party, by which such Series B Investor is bound or to which any of such Series B Investor’s assets are subject. There is no action, suit or proceeding pending or, to the Knowledge of such Series B Investor, threatened against such Series B Investor that questions the validity of this Agreement or the right of such Series B Investor to enter into this Agreement or to consummate the Contemplated Transactions.

(e)        Consents and Approvals. None of the execution and delivery by such Series B Investor of each Transaction Document to which such Series B Investor is a party, the consummation by such Series B Investor of any of the Contemplated Transactions nor the performance by such Series B Investor of each Transaction Document to which such Series B Investor is a party in accordance with its terms requires any Authorization, except for those Authorizations as have been or will have been obtained, made or given on or prior to the Closing Date.

(f)        Status and Investment Intent.

(i)  Experience. Such Series B Investor has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the transactions contained hereof. Such Series B Investor is capable of bearing the economic risks of such investment, including a complete loss of its investment.

(ii) Purchase Entirely for Own Account. Such Series B Investor is acquiring the Series B Warrant and/or the Series B Warrant Shares and/or the Series B Preferred Shares (as applicable) pursuant to this Agreement for its own account for investment purposes only and not with the view nor intention to resell, distribute or otherwise dispose thereof. Such Series B Investor does not have any direct or indirect arrangement or understanding with any other Person to distribute the Series B Preferred Shares or the Series B Warrant Shares or Series B Warrant (as applicable) in violation of the Securities Act or any other applicable state securities law.

(iii) Solicitation. Such Series B Investor was not identified or contacted through the marketing of the Series B Preferred Shares or the Series B Warrant or the Series B Warrant Shares (as applicable). Such Series B Investor did not contact the Company as a result of any general solicitation or directed selling efforts.

(iv) Restricted Securities. Such Series B Investor acknowledges that the applicable purchased Series B Preferred Shares or the Series B Warrant or the Series B Warrant Shares (as applicable) are “restricted securities” that have not been registered under the Securities Act or any applicable state

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securities law. Such Series B Investor further acknowledges that, absent an effective registration under the Securities Act, the purchased Series B Preferred Shares or the Series B Warrant or the Series B Warrant Shares (as applicable) may only be offered, sold or otherwise transferred (1) to the Company, (2) outside the United States of America in accordance with Rule 904 of Regulation S under the Securities Act or (3) pursuant to an exemption from registration under the Securities Act.

(v) Not U.S. Person. Such Series B Investor is not a “U.S. person” as defined in Rule 902 of Regulation S under the Securities Act.

(vi) Offshore Transaction. Such Series B Investor has been advised and acknowledges that in issuing the Series B Warrant or Series B Preferred Shares or Series B Warrant Shares (as applicable) to it pursuant hereto, the Company is relying upon the exemption from registration provided by Regulation S under the Securities Act. Such Series B Investor is acquiring the applicable Series B Warrant or Series B Preferred Shares or Series B Warrant Shares (as applicable) in an offshore transaction in reliance upon the exemption from registration provided by Regulation S under the Securities Act.

Section 3.3      Representations and Warranties of Magic Heart. Magic Heart hereby represents and warrants that, the director appointed by Magic Heart has not taken any action or consented to any action by any Group Company which leads to the breach of the representations and warranties made by the Group Companies under Section 3.1 hereof.

ARTICLE IV

COVENANTS

Section 4.1      Conduct of Business of the Company. From the date hereof until the Closing Date, except as expressly contemplated by any Transaction Document or with the prior written consent of (i) the Series B Investor(s) representing a majority of all the Purchase Price (excluding the applicable Purchase Price of 58 Limited) and (ii) 58 Limited (which consent shall not be unreasonably withheld or delayed), the Company shall not, and the Company shall cause each of the Group Companies not to and no Group Company may:

(a)        amend its organizational documents;

(b)       split, combine or reclassify any Equity Security in any Group Company;

(c)        declare, set aside or pay any dividend or other distribution (whether in cash, stock, property or any combination thereof) in respect of the Equity Securities in any Group Company;

(d)       redeem, repurchase or otherwise acquire any Equity Securities in the any Group Company;

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(e)        issue, deliver or dispose of any Equity Securities in any Group Company, other than the issuance of any Equity Securities of any wholly-owned Subsidiary of the Company to the Company or any other wholly-owned Subsidiary of the Company;

(f)        amend any term of any Equity Securities in any Group Company;

(g)       acquire (by merger, consolidation or otherwise), directly or indirectly, any assets, securities, properties, interests or businesses, other than in the ordinary course of business consistent with past practice;

(h)       sell, lease or otherwise dispose of, or create or incur any Encumbrance on, any assets, securities, properties or interests of any Group Company, other than in the ordinary course of business consistent with past practice;

(i)        make any loans, advances or capital contributions to, or investments in, any other Person;

(j)        create, incur, assume, suffer to exist or otherwise be liable with respect to any Indebtedness, other than in the ordinary course of business consistent with past practice;

(k)       hire any employee or consultant or adopt, establish, enter into, amend, terminate or increase the benefits under any employee benefit plan, practice, program, policy or Contract;

(l)        make any material change in any method of accounting or accounting practice used by such Group Company;

(m)      enter into any contract or other transaction with an Affiliate;

(n)       make, change or revoke any material Tax election, enter into, request or obtain any “closing agreement” with any Governmental Authority in respect of Taxes, file any amended Tax return, incur any Liability for Tax other than in the ordinary course of business or consent to any extension or waiver of the limitations period applicable to any Tax claim or assessment;

(o)       initiate or settle any Action involving or against any Group Company; or

(p)       agree, commit or offer to do any of the foregoing.

Section 4.2      Operation of the Principal Business. Each of the Group Companies shall comply with all applicable Laws and regulations with respect to the operation of the Principal Business in all material aspects, including applicable Laws and regulations in connection with telecommunication business, network culture, video & audio programs, publication, foreign exchange, labor, consumer protection, cyber security, privacy, personal data and information protection, internet advertising, welfare funds, social benefits, medical benefits, insurance, requirement benefits, pensions, tax and other business and operations of the Group Companies.

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The Group Companies shall ensure that, each entity described above and its respective shareholders are in compliance with such requirements in all material aspects and that there is no barrier to repatriation of profits, dividends and other distributions from the WFOEs (or any successor entity) to the HK Company.

Section 4.3     Regulatory Compliance. The Company shall ensure that each of the Group Companies complies, in all material respects, with all applicable Laws, including Laws in connection with the operation of the Principal Business, internet advertising, welfare funds, social benefits, medical benefits, insurance, requirement benefits, pensions and income, value-added or business tax.

Section 4.4     Negative Covenants. From the date hereof until the Closing Date, except as expressly contemplated by any Transaction Documents or with the prior written consent of (i) at least a majority of the Series B Investor(s) representing a majority of all the Purchase Price (excluding the applicable Purchase Price of 58 Limited) and (ii) 58 Limited (which consent shall not be unreasonably withheld or delayed), the Group shall not do any of the following:

(a)        No Material Adverse Effect. take any action that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(b)       Authorizations. do any act or fail to do any act which could result in the termination, expiration, revocation, suspension, nonrenewal or adverse modification of any Authorizations necessary and material for the operation of the Principal Business;

(c)        Waivers etc. waive, release or assign any material right or claim relating to the Principal Business; and

(d)       No Agreement. agree to do any of the foregoing.

Section 4.5      Affirmative Covenants. From the date hereof until the Closing Date, the Group Companies shall do the following:

(a)        Access to Information. provide each of the Series B Investors and their respective representatives reasonable access to the Principal Business for purposes of audit and inspection, and make available or cause to be made available to each of the Series B Investors and their respective authorized representatives all information with respect to the Principal Business as such Person may reasonably request;

(b)       Maintenance of Assets. maintain all of the assets of the Group Companies and all buildings or other improvements located on any leased real property owned or used in connection with the Principal Business in a condition (ordinary wear and tear excepted) no worse than the condition as of the date hereof, and use all of the assets and all buildings or other improvements located on any leased real property owned or used in connection in the Principal Business in a commercially reasonable manner;

(c)        Insurance. maintain existing insurance coverage with respect to the Principal Business consistent with past practice;

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(d)       Books and Records. maintain the books and records of the Principal Business in the ordinary course;

(e)        Notification. promptly notify each Series B Investor of (i) any material change in the Company’s representations and warranties or any material failure to perform any covenant or agreement of the Company contained in any Transaction Document or (ii) any material breach of any representation, warranty, covenant or agreement of the Company contained in any Transaction Document. Such notification shall be without prejudice to any rights or remedies accruing to each Series B Investor from any such change, failure or breach;

(f)        Compliance with Laws. comply in all material respects with all Laws applicable to the Principal Business and the Group Companies; and

(g)       Goodwill. use its commercially reasonable efforts to preserve for the Company the goodwill of the Company’s suppliers, customers, landlords and other Persons having business relations with the Company in relation to the Principal Business.

Section 4.6      Further Assurances. From the date hereof until the Closing Date, the Parties shall use their commercially reasonable efforts to satisfy the conditions precedent to the consummation of the Contemplated Transactions.

Section 4.7     Use of Proceeds. The Company shall use the Purchase Price for the general corporate purposes of the Group Companies.

Section 4.8     Cooperation. The Parties shall use their commercially reasonable efforts to cooperate to facilitate the further development of the Principal Business following the Closing.

Section 4.9      Permits. The Group Companies shall use their best efforts to (i) obtain and maintain in a timely manner all requisite consents and Permits for conducting the Principal Business in compliance with applicable Laws in all material aspects, including but not limited to: (1) in no event later than March 31, 2020 or otherwise approved by Tencent, obtaining the Value Added Telecommunication Service Operation License (online data processing and transaction processing business) (增值电信业务经营许可证(在线数据处理与交易处理业务), (2) in no event later than nine (9) months following the Closing or otherwise approved by Tencent, obtaining the Internet Culture Permit including the scope of online performance and transaction of virtual currencies for online gaming (网络文化经营许可证(经营范围为网络表演和网络游戏虚拟货币交易)) and the Filing of Online Live-Streaming Service Providers (直播服务提供者备案), (3) as soon as practical after the Closing, obtaining the Online Publishing Services Permit (网络出版服务许可证) or cooperation with any other third parties with Online Publishing Services Permit (网络出版服务许可证) or adjustment to the business patterns to conduct live-streaming related to the Principal Business to the extent required by competent Governmental Authorities and permitted by the applicable laws, (4) as soon as practical after the Closing, obtaining or cooperation with any other third parties with Permit for Audio-Video Programs Transmitted through Information Network (信息网络传播视听节目许可证) or adjustment to the business patterns to conduct live-streaming related to the Principal Business to the extent required by

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competent Governmental Authorities and permitted by the applicable laws, (5) as soon as practical after the Closing, cooperation with any other third parties with Payment Business License (支付业务许可证) or adjustment to the business patterns to conduct the online payment related to the Principal Business to the extent required by competent Governmental Authorities and permitted by the applicable laws, and (ii) if so required by any applicable Laws, obtain additional consents and Permits necessary for conducting the Principal Business as soon as possible but in any event no later than the time limit required by the applicable PRC Laws or the competent Governmental Authorities.

Section 4.10    Access. From the date hereof until the Closing Date, the Company shall, and shall cause its Affiliates to, (a) give each Series B Investor and its counsel, financial advisors, auditors and other representatives reasonable access to the offices, properties, books and records of the Group Companies and the Principal Business, (b) furnish to each Series B Investor and its counsel, financial advisors, auditors and other representatives such information relating to the Group Companies and the Principal Business as may be reasonably requested and (c) instruct the employees, counsel, accountants and other advisors of the Company and its Affiliates to cooperate with such Series B Investor in such Series B Investor’s investigation of the Group Companies and the Principal Business.

Section 4.11   ESOP Increase. Each Party hereby acknowledges and agrees that, as soon as possible after the Closing but in any event within one month after the Closing, the reserved Ordinary Shares under the ESOP shall be increased by 117,589,079 Ordinary Shares (“ESOP Increase”, the newly reserved Ordinary Shares under the foregoing ESOP Increase referred to as “ESOP Increase Shares”) such that the ESOP Increase Shares shall represent seven percent (7%) of all the outstanding Shares of the Company (on a fully diluted and as converted basis) immediately after the ESOP Increase to give the effect that immediately after the ESOP Increase, the capitalization of the Company (on a fully diluted and as converted basis) shall be as set for in Part III of Exhibit C. Each Party shall use commercially reasonable efforts to cooperate with such ESOP Increase (including but not limited to voting for such ESOP Increase in shareholder/board resolutions and signing relevant documents).

Section 4.12    Other Covenants.

(a)        Circular 37 Registration. To the extent required by applicable Laws and SAFE, as soon as practicable after the Closing, the Company shall procure each shareholder of the Company (other than Magic Heart, Tencent and Series B Investors) who is a “domestic resident” (as defined in Circular 37) shall report and register with the competent local branch of the SAFE in accordance with the requirements of Circular 37.

(b)       Intellectual Property Protection. The Group Companies shall establish and maintain appropriate intellectual inspection system to protect the Intellectual Property of the Group Companies. The Group Companies shall, to fully comply with the laws and regulations in respect of the protection of the Intellectual Property and refrain from infringing the Intellectual Property of other parties. Without limiting the generality of the foregoing, (1) in no event later than nine (9) months after the Closing, the VIE Entity shall, and the other Group Companies shall cause the VIE Entity to, complete all registration procedures for transfer of the following trademarks or take such other actions to ensure the following trademarks can be used by

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or licensed to the applicable Group Company in such appropriate and lawful manner: the trademarks of “ PICTURE 1 ” in category 16, 35, and 36, “ PICTURE 11 ” in category 35, 36 and 38, “ PICTURE 13  ” in category 9, 16, 35, 36, 38, 39, 42 and 45, “ PICTURE 10  ” in category 9, “ PICTURE 12  ”  “ in category 9, 16, 35, 36, 38, 39, 42 and 45, “ PICTURE 14  ” in category 9, 16, 35, 36, 38, 39, 42 and 45, provided that in case the foregoing covenant fails to be completed at the date of nine (9) months anniversary of the Closing for reasons not attributable to the Group Companies, then the Parties shall negotiate in good faith to work out such other feasible solutions; (2) in no event later than nine (9) months after the Closing, the VIE Entity shall, and the other Group Companies shall cause the VIE Entity to, complete all registration procedures for transfer of the following trademarks: the trademarks of “ PICTURE 9 ”in category 7, 9, 16, 25, 37, 38 and 42, “为什么实验室” in category 7, 9, 16, 35 and 37, from Shenzhen Yueya Technology Co., Ltd. (深圳月牙科技有限公司) to the VIE Entity respectively.

(c)        Information Security System Ratification and Filing for Software. The Group Companies shall, in no event later than March 31, 2020, obtain the Information Security System Ratification and Filing (信息安全系统登记核定及备案) for the software operated by the Group Companies.

(d)       Establishment Filing with MOFCOM of Tianjin WFOE. Tianjin WFOE shall, and other Group Companies shall cause Tianjin WFOE to, in no event later than three (3) months after the Closing, obtain Establishment Filing with MOFCOM and complete any other filing or registration procedures required by applicable Laws.

(e)        Leasing. In no event later than three (3) months after the Closing, the Group Companies shall enter into a lease agreement with the applicable Affiliate of the Key Holder in respect to the leased property leased by Fatiao Time.

(f)        Compliance with Series B Warrants. Each Series B Investor (other than Tencent and TOPLAND GLOBAL) and each Group Company hereby undertakes to each other Party that it shall duly comply with all of their respective obligations under the applicable Series B Warrant and the applicable Series B Warrant Loan Agreement, including without limitation to exercise the relevant Series B Warrant (in the case of the Series B Investors) and to repay the outstanding loans under the relevant Series B Warrant Loan Agreement (in the case of the Group Companies) within the time stipulated thereunder.

(g)       Exercise of Rights under Series B Warrants. Notwithstanding any other provision of this Agreement, the Shareholders Agreement, the Articles or any of the constitutional documents of any other Group Company or otherwise, no Group Company shall, without the prior written consent or approval of Tencent for so long as Tencent and its Affiliates hold in the aggregate at least 8% of the Shares on an as-converted, fully diluted basis (provided that the affirmative consent or approval of the Tencent Director to or of any such action at a Board meeting or as evidenced on a written resolution of the Board which expressly tabled for approval such action shall be deemed to constitute the prior written approval of Tencent of such action), take, permit to occur, approve, authorize, agree or commit to, whether in a single transaction or a series of related transactions and whether directly or indirectly: (i) the exercise of any right,

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approval or consent against any Series B Investor (other than Tencent and TOPLAND GLOBAL) or any Affiliate thereof under (x) Sections 2(b)(vi), 2(b)(vii), 5, 7 and 14 of any ODI Warrant (if applicable), (y) Sections 2(b)(i), 2(b)(vii), 2(b)(viii), 5, 7 and 14 of any Non-ODI Warrant, and (z) Section 5.2 of any Series B Warrant Loan Agreement (if applicable), or (ii) the waiver, release, termination, cancellation, settlement or compromise of any obligation or debt of or claim against any Series B Investor (other than Tencent and TOPLAND GLOBAL) or any Affiliate thereof, under any Series B Warrant or any Series B Warrant Loan Agreement.

(h)       Related Party Transaction. In no event later than three (3) months after the Closing, the VIE Entity shall use best efforts to, and the Company shall procure the VIE Entity to, enter into a business cooperation agreement with Tianjin Wuba Daojia Service Co., Ltd. (天津五八到家生活服务有限公司) in form and substance satisfactory to Tencent, pursuant to which the transactions thereunder shall be on arms-length and the service fees for the information diversion of Kuaigou Dache (快狗打车) and Wuba Express (五八速运) provided by the VIE Entity shall be at fair market price. All transactions between any Group Company and any of their respective Related Parties shall be duly approved by Tencent or Tencent Director in accordance with the Shareholders Agreement and the Articles.

Section 4.13    Most Favored Nation. From the date hereof until the Closing Date, if the Company proposes to issue any Equity Security to any Person or enter into any agreement with any Person in connection with the subscription for Equity Securities in the Company by such Person, which is on terms or provides rights which are more favorable to such Person than those granted to or applicable to Tencent as contained in the Transaction Documents, Tencent shall automatically enjoy the benefit of such more favorable terms or rights and the Company shall promptly notify Tencent thereof and agree to, and shall cause all necessary third parties to agree to, such amendments to the Transaction Documents as shall ensure that those same terms or rights are provided to Tencent.

ARTICLE V

INDEMNIFICATION

Section 5.1      Survival of the Representations and Warranties. All representations and warranties made by the Group Companies to the Series B Investors contained in Section 3.1 or by the Series B Investors to the Company contained in Section 3.2 shall survive for a period of 18 months following the Closing Date, save for the Fundamental Representations which shall survive until the expiration of the applicable statutory limitation periods. Notwithstanding the foregoing, if an Indemnified Party asserts any claim in writing pursuant to Section 5.2(a) resulting from or arising out of an alleged breach of any such representation or warranty on or prior to the applicable expiration date of such representation or warranty, such representation or warranty shall survive, solely with respect to such asserted claim, until such claim has been finally resolved. The post-Closing covenants and agreements of each Party contained in this Agreement shall survive the Closing until they are terminated, whether by the performance thereof, their respective express terms or as a matter of applicable Law.

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Section 5.2      Indemnification.

(a)        From and after the Closing, the Group Companies (on a joint and several basis) (the “Indemnifying Party”) shall indemnify and hold each Series B Investor and its Affiliates (collectively, the “Indemnified Parties”) harmless from and against any losses, claims, damages, judgments, fines, obligations, expenses and Liabilities of any kind or nature whatsoever, including any investigative, legal and other expenses incurred in connection with, and any amounts paid in settlement of, any pending or threatened legal action or proceeding, and any Taxes or levies that may be payable by such Person by reason of the indemnification of any indemnifiable loss hereunder (collectively, “Losses”), resulting from or arising out of (a) the breach of any representation or warranty of the Indemnifying Party contained in this Agreement, (b) the violation or nonperformance, partial or total, of any covenant or agreement of such Indemnifying Party contained in this Agreement, (c) any Liability of Tax of any Group Company not reflected in the Financial Statements or arising out of any failure, by any Group Company to comply with any applicable Laws of the PRC or of any other applicable jurisdiction relating to tax, occurring before the Closing, (d) any Liability attributable to the infringement, violation or misappropriation of any Intellectual Property of any third party by any Group Company occurring before the Closing, (e) any Liability incurred by any Group Company arising in respect of, by reference to or in consequence of any Group Company’s failure to obtain or maintain the relevant license, permit or approval for its Principal Business in accordance with Laws or regulations occurring before the Closing, (g) any Liability incurred by any Group Company arising in respect of, by reference to or in consequence of any noncompliance with any applicable laws in connection with telecommunication business, network culture, video & audio programs, publication, consumer protection, cyber security, privacy, personal data and information protection, internet advertising by any Group Company occurring before the Closing, or (h) any Action against the Group Companies due to any event occurred or existed prior to Closing.

Section 5.3      Third Party Claims.

(a)        If any third party shall notify any Indemnified Party in writing with respect to any matter involving a claim by such third party (a “Third Party Claim”) which such Indemnified Party believes would give rise to a claim for indemnification against an Indemnifying Party under this Article V, then the Indemnified Party shall promptly following receipt of notice of such claim (i) notify the Indemnifying Party thereof in writing and (ii) transmit to the Indemnifying Party a written notice (a “Claim Notice”) describing in reasonable detail the nature of the Third Party Claim, a copy of all papers served with respect to such claim (if any) and the basis of the Indemnified Party’s request for indemnification under this Agreement. Notwithstanding the foregoing, no failure or delay in providing such Claim Notice shall constitute a waiver or otherwise modify the Indemnified Party’s right to indemnification hereunder, except to the extent that the Indemnifying Party shall have been prejudiced by such failure or delay. If the Indemnifying Party does not notify the Indemnified Party in writing within 30 days from receipt of such Claim Notice that the Indemnifying Party disputes such claim for indemnification under this Agreement, the Indemnifying Party shall be deemed to have accepted and agreed with such claim for indemnification under this Agreement.

(b)       Upon the receipt of a Claim Notice with respect to a Third Party Claim, the Indemnifying Party shall have the right to assume the defense of any Third Party Claim by

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notifying the Indemnified Party in writing within 30 days of receipt of such Claim Notice that the Indemnifying Party elects to assume the defense of such Third Party Claim, and upon delivery of such notice by the Indemnifying Party, the Indemnifying Party shall have the right to fully control and settle the relevant proceeding; provided, that any such settlement shall be permitted hereunder only with the written consent of the Indemnified Party. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense of any Third Party Claim if (i) the Third Party Claim relates to or arises in connection with any criminal action, (ii) the Third Party Claim seeks an injunction or equitable relief against any Indemnified Party, (iii) the Third Party Claim is or would reasonably be expected to result in Losses in excess of the amounts available for indemnification pursuant to this Article V or (iv) the Indemnifying Party has not acknowledged that such Third Party Claim is subject to indemnification pursuant to this Article V. If the Indemnifying Party assumes the defense of a Third Party Claim pursuant to this Section 5.3(b), the Indemnifying Party shall conduct such defense in good faith.

(c)        If requested by the Indemnifying Party, the Indemnified Party shall, at the sole cost and expense of the Indemnifying Party, cooperate reasonably with the Indemnifying Party and its counsel in contesting any Third Party Claim which the Indemnifying Party elects to contest, including in connection with the making of any related counterclaim against the third party asserting the Third Party Claim or any cross complaint against any Person. The Indemnified Party shall have the right to receive copies of all pleadings, notices and communications with respect to such Third Party Claim, other than any privileged communications between the Indemnifying Party and its counsel, and shall be entitled, at its sole cost and expense, to retain separate co-counsel and participate in, but not control, any defense or settlement of any Third Party Claim assumed by the Indemnifying Party pursuant to Section 5.3(b).

(d)       In the event of a Third Party Claim for which the Indemnifying Party elects not to assume the defense, fails to make such an election within 30 days of receipt of the relevant Claim Notice or otherwise fails to continue the defense of the Indemnified Party reasonably and in good faith, the Indemnified Party may, at its option, defend, settle, compromise or pay such action or claim at the expense of the Indemnifying Party.

Section 5.4      Other Claims. If any Indemnified Party has a claim against any Indemnifying Party hereunder which does not involve a Third Party Claim, the Indemnified Party shall promptly transmit to the Indemnifying Party a written notice (the “Indemnity Notice”) describing in reasonable detail the nature of the claim, the Indemnified Party’s best estimate of the amount of Losses attributable to such claim and the basis of the Indemnified Party’s request for indemnification under this Agreement; provided, that no failure or delay in providing such Indemnity Notice shall constitute a waiver or otherwise modify the Indemnified Party’s right to indemnification hereunder, except to the extent that the Indemnifying Party shall have been prejudiced by such failure or delay. If the Indemnifying Party does not notify the Indemnified Party within 30 days from its receipt of the Indemnity Notice that the Indemnifying Party disputes such claim, the Indemnifying Party shall be deemed to have accepted and agreed with such claim.

Section 5.5      Limitations on Liability.

(a)        Basket; Maximum Liability. Other than with respect to fraud or breach of any of the Fundamental Representations or Section 4.3 or Section 4.4, (i) no

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Indemnifying Party shall be liable under Section 5.2(a) unless and until the aggregate amount of all claims thereunder exceeds US$250,000 (in which case the Indemnifying Party shall be responsible for the full amount of such claim, subject to Section 5.5(a)(ii)) and (ii) the maximum aggregate liability of the Indemnifying Parties towards each Indemnified Party in respect of all Losses under Section 5.2(a) shall not exceed the applicable Purchase Price of such Indemnified Party.

(b)       Double Claims. No Indemnifying Party shall be required to compensate any Indemnified Party more than once (whether under this Agreement or any other Transaction Document) in respect of the same Loss. For the avoidance of doubt and to avoid double recovery, if any Series B Investor has exercised its right of redemption and received the Redemption Price (as defined under the Articles) with respect to any breach by any Group Company of any of the Transaction Documents pursuant to Article 46 through Article 50 of the Articles, the Indemnified Parties shall not be entitled to make any claim or recover any losses, claims, damages, judgments, fines, obligations, expenses and Liabilities of any kind or nature whatsoever hereunder and under other Transaction Documents for the same breach.

(c)        Exclusive Monetary Remedy. Notwithstanding any provision to the contrary in this Agreement, this Article V shall be the sole and exclusive monetary remedy of the Indemnified Parties for any claim arising out of or resulting from this Agreement. Nothing in this Article V or elsewhere in this Agreement shall affect the Parties’ rights to specific performance or other equitable or non-monetary remedies with respect to the covenants and agreements in this Agreement.

(d)       No Indemnified Party shall raise any indemnity claim against the Group Companies for or arising from any matter which has been fully and fairly disclosed by the Group Companies in the relevant sections of the Disclosure Schedule.

(e)        Mitigation. To the extent required by applicable Law, the relevant Indemnified Party shall mitigate any Losses for which the Indemnified Party makes claims under this Agreement; provided, that all costs of mitigation shall be taken into account in calculating the amount of Losses hereunder.

(f)        Materiality. For purposes of this Article V, materiality, Material Adverse Effect and other similar qualifications contained in any representations and warranties shall be disregarded for the sole purposes of calculating the amount of Losses under this Article V.

ARTICLE VI

MISCELLANEOUS

Section 6.1      Disclosure Schedule References. The Parties agree that any reference in a particular Section of the Disclosure Schedule shall be deemed to be an exception to or, as applicable, a disclosure for purposes of (i) the representations and warranties, or covenants, as applicable, of the relevant Party that are contained in the corresponding Section of this Agreement and (ii) any other representations and warranties of such Party that is contained in this

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Agreement, regardless of the absence of an express reference or cross reference thereto, but only if the relevant disclosure is fully and fairly disclosed and the relevance of that reference as an exception to or a disclosure for purposes of such representations and warranties would be reasonably apparent. The Parties acknowledge and agree that the Disclosure Schedule may include certain items and information solely for informational purposes for the convenience of the Series B Investors, and the disclosure by the Company of any matter in the Disclosure Schedule shall not be deemed to constitute an acknowledgment by the Company that the matter is required to be disclosed by the terms of this Agreement or that the matter is material.

Section 6.2      Governing Law; Arbitration. This Agreement shall be governed by and interpreted in accordance with the laws of Hong Kong. Any dispute arising out of or relating to this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration at the Hong Kong International Arbitration Centre (the “HKIAC”) in accordance with the Hong Kong International Arbitration Centre Administered Arbitration Rules in force when the relevant arbitration notice is received by the HKIAC. There shall be three arbitrators. The Company shall have the right to appoint one arbitrator, the applicable Series B Investor(s) shall have the right to appoint one arbitrator and the third arbitrator shall be appointed by the HKIAC. The language to be used in the arbitration proceedings shall be English. Each of the Parties irrevocably waives any immunity to jurisdiction to which it may be entitled or become entitled (including immunity to pre-award attachment, post-award attachment or otherwise) in any arbitration proceedings and/or enforcement proceedings against it arising out of or based on this Agreement or the Contemplated Transactions. 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. Any Party shall be entitled to seek preliminary injunctive relief from any court of competent jurisdiction pending the constitution of the arbitral tribunal.

Section 6.3      Amendment. This Agreement shall not be amended, changed or modified, except by another agreement in writing executed by the Parties.

Section 6.4      Binding Effect. This Agreement shall inure to the benefit of, and be binding upon, each of the Parties and their respective heirs, successors and permitted assigns and legal representatives.

Section 6.5      Assignment. Neither this Agreement nor any of the rights, duties or obligations hereunder may be assigned by any Party without the express written consent of the other Parties. Any purported assignment in violation of the foregoing sentence shall be null and void. Notwithstanding the foregoing, each Series B Investor may assign its rights hereunder to any of its Affiliates.

Section 6.6     Notices.  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) in writing and served by personal delivery upon the Party for whom it is intended, (b) if delivered by facsimile or electronic mail with receipt confirmed or (c) if delivered by certified mail, registered mail or courier service, return-receipt received, to the Party at the address set forth below:

54

 

If to Magic Heart & 58 Limited, at:

Address:          Building 105, 10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing 100015, P.R. China

Attn:                Xiaojing Li

Email:              ***

If to the Company, at:

Address:          北京市海淀区西小口路东升科技园 B2 号楼 6 层

Attn:    白喜凤

Email:  ***

With a copy to:

Address:          北京市海淀区西小口路东升科技园 B2 号楼 6 层

Attn:    山盟

Email:  ***

If to the Management Team Holdco, at:

Address:          北京市海淀区西小口路东升科技园 B2 号楼 6 层

Attn:                黄炜

Email:             ***

If to Tencent, at:

Address:          c/o Tencent Holdings Limited Level 29, Three Pacific Place, 1 Queen’s Road East, Wanchai, Hong Kong

Attn.:               Compliance and Transactions Department

E-mail:            ***

With a copy (which shall not constitute notice) to:

Address:          Tencent Building, Keji Zhongyi Avenue, Hi-tech Park, Nanshan District, Shenzhen 518057, PRC

Attn.:               Mergers and Acquisitions
Department

E-mail:            ***

If to Qingdao Caigao, at:

Address:          青岛市崂山区深圳路 177 号

Attn:                李骏

Email:              ***

55

 

If to TOPLAND GLOBAL, at:

Address:          Room 2308-09, 23/F, West Tower, Shun Tak Centre, 200 Connaught Road Central, Sheung Wan,HONG KONG

Attn:                潘智威

Email:              ***

If to Shanghai Yuya, at:

Address:          上海市黄浦区西藏中路 525 号 8 楼

Attn:                孙亚茹

Email:              ***

If to Qingdao Lida, at:

Address:          青岛市崂山区秦岭路 18 号

Attn:                苏旭

Email:              ***

If to Lemi Tianjin, at:

Address:          天津华苑产业园 8 号楼-3-401

Attn:                张乐

Email:              ***

If to Qingdao Panshi, at:

Address:          青岛市龙成路 39 号 12 楼

Attn:                谭海明

Email:              ***

Any Party may change its address for purposes of this Section 6.6 by giving the other Parties written notice of the new address in the manner set forth above.

Section 6.7      Entire Agreement. This Agreement, together with the Schedules and Exhibits and the other Transaction Documents, constitutes the entire understanding and agreement among the Parties with respect to the matters covered hereby and thereby, and all prior agreements and understandings, oral or in writing, if any, among the Parties with respect to the matters covered hereby and thereby are superseded by this Agreement and the other Transaction Documents.

Section 6.8      Severability. If any provision of this Agreement is inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to any extent whatsoever. If any provision of this Agreement shall be adjudged to be excessively broad as to duration, geographical scope, activity or subject, such provision shall be deemed modified to the minimum degree necessary to make such provision valid and enforceable under

56

applicable Law and that such modified provision shall thereafter be enforced to the fullest extent possible.

Section 6.9      Fees and Expenses.

With respect to Tencent, if the Closing occurs, the Company shall reimburse all legal, financial, professional and other third-party fees incurred by Tencent in connection with the conduct of its industry, legal and financial due diligence and its negotiation, preparation, execution and completion of this Agreement and any other Transaction Agreements hereunder and thereunder for a maximum of US$200,000 (the “Tencent Expenses”). If the this Agreement is terminated with respect to Tencent pursuant to Section 6.12(a)(v) solely as the result of Tencent being the defaulting Series B Investor, Tencent shall bear all Tencent Expenses itself, provided however that, Tencent shall bear no obligation of reimbursing all legal, financial, professional and other third-party fees incurred by the Company or any other Party.

Except for the abovementioned, the Parties will bear their respective expenses incurred in connection with the negotiation, preparation and execution of the Transaction Documents and the Contemplated Transactions, including fees and expenses of attorneys, accountants, consultants and financial advisors.

Section 6.10    Confidentiality.

(a)        Subject to Section 6.10(b) and Section 6.10(c), each Party shall keep confidential and shall not disclose to any Person the existence and provisions of any Transaction Document, the negotiations relating to any Transaction Document and any non-public material or information with respect to the business, technology, financial conditions or other aspects of the other Parties or their respective Affiliates (collectively, “Confidential Information”).

(b)       Confidential Information shall not include any information that is (i) previously known on a non-confidential basis by the receiving Party, (ii) in the public domain through no fault of such receiving Party, its Affiliates or its or its Affiliates’ officers, directors or employees, (iii) received from a Person other than any of the other Parties or their respective representatives or agents, so long as such Person was not, to the best knowledge of the receiving Party, subject to a duty of confidentiality to such other Party or (iv) developed independently by the receiving Party without reference to confidential information of the disclosing Party.

(c)        Notwithstanding Section 6.10(a):

(i)  each of the Series B Investors and their respective Affiliates may disclose Confidential Information to the extent such disclosure is necessary in connection with its normal accounting or Tax reporting in respect of its investment in the Company as required by applicable accounting standards or Laws;

(ii) any Party may disclose Confidential Information to the extent that such disclosure is required under applicable Laws or any judicial or regulatory process or is requested by any Governmental Authority or other regulatory body, including the rules and requirements of the SEC and/or any

57

securities exchange; provided, that such Party shall, to the extent permitted by Law and so far as it is practicable, provide the other Parties with prompt notice of such requirement or request and cooperate with the other Parties at such other Parties’ request and cost to enable such other Parties to seek an appropriate protection order or remedy; and

(iii) any Party may disclose Confidential Information to its Affiliates and its and its Affiliates’ respective officers, directors, employees, agents, professional advisors and representatives on a need-to-know basis; provided, that such Party shall use commercially reasonable efforts to ensure that each such Person to which it discloses Confidential Information strictly abides by the confidentiality obligations hereunder.

Section 6.11    Specific Performance. The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the Parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity.

Section 6.12    Termination.

(a)        This Agreement may be terminated at any time prior to the Closing:

(i)  by the written consent of each of the Parties;

(ii) by any Party by written notice to the other Parties if the Closing shall not have occurred by September 30, 2019; provided, that no Party shall be permitted to terminate this Agreement pursuant to this Section 6.12(a)(ii) if the failure to consummate the Closing was proximately caused by the breach by such Party or its Affiliate of any representation, warranty or covenant in this Agreement;

(iii) by any Party by written notice to the other Parties if any Governmental Authority shall have issued any Order or taken any other action permanently restraining, enjoining, preventing, prohibiting or otherwise making illegal the consummation of the Contemplated Transactions and such Order or other action has become final and non-appealable; provided, that no Party shall be permitted to terminate this Agreement pursuant to this Section 6.12(a)(iii) if the imposition of such Order or other action was proximately caused by the breach by such Party or its Affiliate of any representation, warranty or covenant in this Agreement;

(iv) by a Series B Investor with respect to itself only, if there exists a material breach of any representation or warranty of any Group Company such that the condition set forth in Section 2.4(a)(i) would not be satisfied and such breach has not been cured, or is incapable of being cured, by the relevant Group Company within 30 days following its receipt of notice from such Series B Investor of such breach; or

58

(v) (solely with respect to the defaulting Series B Investor) by the Company if there exists a material breach of any representation or warranty of any Series B Investor such that the condition set forth in Section 2.4(b)(i) would not be satisfied and such breach has not been cured, or is incapable of being cured, by such Series B Investor within 30 days following its receipt of notice from the Company of such breach.

(b)       Upon the termination of this Agreement pursuant to this Section 6.12, this Agreement (other than Article I, Article V and this Article VI) shall become void and have no further force or effect; provided, that no such termination shall relieve any Party of liability for any breach of this Agreement prior to such termination.

Section 6.13    Third Party Rights. Except as provided in Section 5.3, a Person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Ordinance (Chapter 623 of the Laws of Hong Kong) to enforce any term of, or enjoy any benefit under, this Agreement, provided that any Affiliate of each Series B Investor that is not a company may not bring any claim directly against the Company pursuant to this Agreement.

Section 6.14    Headings. The headings of the various Articles and Sections of this Agreement are inserted merely for the purpose of convenience and do not expressly or by implication limit, define or extend the specific terms of the Article or Section so designated.

Section 6.15   Execution in Counterparts. This Agreement may be executed in one or more counterparts, including counterparts transmitted by facsimile or e-mail, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Delivery of executed signature pages by facsimile or electronic transmission (via scanned PDF) by all Parties will constitute effective and binding execution and delivery of this Agreement.

Section 6.16    Waiver. No waiver of any provision of this Agreement shall be effective unless set forth in a written instrument signed by the Party waiving such provision. No failure or delay by a Party in exercising any right, power or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy.

[SIGNATURE PAGES FOLLOW]

 

 

59

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.

 

 

 

MAGIC HEART INC.

 

 

 

By:

/s/ Jinbo Yao

 

 

 

58 CO., LTD. (五八有限公司)

 

/s/ [company seal is affixed]

 

 

[SIGNATURE PAGE TO SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.

 

 

 

 

ZHUAN SPIRIT HOLDINGS LIMITED

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Jinbo Yao

 

 

 

ZHUAN VISION HOLDINGS LIMITED

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Jinbo Yao

 

 

 

Tianjin Zhuanzhuan World Technology Co., Ltd. (天津转转世界科技有限任公司)

 

 

[company seal is affixed]

 

 

 

By:

/s/ Jinbo Yao

 

 

 

Beijing Zhuanzhuan Spirit Technology Co., Ltd. (北京转转精神科技有限任公司)

 

 

[company seal is affixed]

 

 

 

By:

/s/ Jinbo Yao

 

 

[SIGNATURE PAGE TO SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.

 

 

 

SHANGHAI WINDER BEAR INFORMATION TECHNOLOGY CO., LTD. (seal)

(上海条熊信息技有限任公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Huang Wei

 

 

 

Beijing Zhuanzhuan Youpin Auction Co., Ltd. (seal)

 

(北京转转优品拍有限任公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Huang Wei

 

 

 

Tianjin Fatiao Time Information Technology Co., Ltd. (seal)

(天津光信息技有限任公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Huang Wei

 

 

[SIGNATURE PAGE TO SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.

 

 

 

CIVILIZATION AND TIME LTD

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Huang Wei

 

 

[SIGNATURE PAGE TO SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.

TENCENT MOBILITY LIMITED

 

 

 

 

By:

/s/ Chi Ping Lau

 

Name:

Chi Ping Lau

 

Title:

Authorized Signatory

 

 

[SIGNATURE PAGE TO SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.

 

 

 

 

Qingdao Caigao Group Co., Ltd. (才高集有限公司)

 

[company seal is affixed]

 

 

 

By:

/s/ Jun Li

 

Name:

Jun Li

 

Title:

Chairman

 

 

[SIGNATURE PAGE TO SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.

 

 

 

TOPLAND GLOBAL HOLDINGS LIMITED

 

 

 

By:

/s/ Jiang Ping

 

Name:

Jiang Ping

 

Title:

CEO

 

 

[SIGNATURE PAGE TO SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.

 

 

 

 

Shanghai Yuya Enterprise Management Partnership (Limited Partnership) (上海彧雅企业管理合伙企业(有限合伙))

 

[company seal is affixed]

 

 

 

By:

/s/ Yaru Sun

 

 

[SIGNATURE PAGE TO SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.

 

 

 

 

Qingdao Lida Shopping Center Co., Ltd. (青岛丽达购物中心有限公司)

 

[company seal is affixed]

 

 

 

By:

/s/ Jin Li

 

Name:

Jin Li

 

Title:

Chairman

 

 

[SIGNATURE PAGE TO SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.

 

 

 

 

Lemi (Tianjin) Architectural Engineering Programming and Design Co., Ltd. (乐米(天津) 建筑工程规划设计有限公司)

 

[company seal is affixed]

 

 

 

By:

/s/ Yue Zhang

 

Name:

Yue Zhang

 

Title:

President

 

 

[SIGNATURE PAGE TO SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the day and year first above written.

 

 

 

 

Qingdao Panshi Kaiyuan Trade Co., Ltd. (青岛磐石开源贸易有限公司)

 

 

[company seal is affixed]

 

 

 

 

By:

/s/ Zuren Liu

 

Name:

Zuren Liu

 

Title:

President

 

 

[SIGNATURE PAGE TO SERIES B PREFERRED SHARE AND WARRANT PURCHASE AGREEMENT]

 

Exhibit 4.25

AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

among

MAGIC HEART INC.

TENCENT MOBILITY LIMITED

CIVILIZATION AND TIME LTD

HUANG Wei

58 Co., Ltd. (五八有限公司)

Qingdao Caigao Group Co., Ltd. (青岛才高集团限公司)

TOPLAND GLOBAL HOLDINGS LIMITED

Shanghai Yuya Enterprise Management Partnership (Limited Partnership) (上海

彧雅企业管理合伙企业(有限合伙))

Qingdao Panshi Kaiyuan Trade Co., Ltd. (青岛磐石开源贸易有限公司)

Qingdao Lida Shopping Center Co., Ltd. (青岛丽达购物中心限公司)

Lemi (Tianjin) Architectural Engineering Programming and Design Co., Ltd. (乐米(天津)建筑工程规划设计有限公司)

ZHUAN SPIRIT HOLDINGS LIMITED

and

Certain other parties


Dated September 9, 2019


 

 

 

 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

SECTION 1 INTERPRETATION

4

SECTION 2 OBLIGATIONS OF THE SHAREHOLDERS

18

SECTION 3 RESTRICTIONS ON TRANSFER OF SHARES

18

SECTION 4 PREEMPTIVE RIGHTS

29

SECTION 5 CORPORATE GOVERNANCE

32

SECTION 6 REGISTRATION RIGHTS

38

SECTION 7 COVENANTS

38

SECTION 8 REPRESENTATIONS AND WARRANTIES

43

SECTION 9 CONFIDENTIALITY

44

SECTION 10 TERM AND TERMINATION

45

SECTION 11 NOTICES

46

SECTION 12 MISCELLANEOUS

48

SECTION 13 GOVERNING LAW AND DISPUTE RESOLUTION

50

 

 

SCHEDULES

 

SCHEDULE 1

SHAREHOLDING STRUCTURE OF THE COMPANY

 

SCHEDULE 2

REGISTRATION RIGHTS

 

SCHEDULE 3

KEY EMPLOYEES

 

SCHEDULE 4

PRINCIPAL BUSINESS

 

EXHIBIT

 

EXHIBIT A

FORM OF DEED OF ADHERENCE

 

 

i

 

AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT (this “Agreement”) made as of September 9, 2019

AMONG:

(1)        MAGIC HEART INC., a company incorporated under the laws of the British Virgin Islands (the “Key Holder”);

(2)        TENCENT MOBILITY LIMITED, a company incorporated under the laws of Hong Kong (“Tencent”; Tencent (only in the capacity as a holder of Series A Preferred Shares) together with the Key Holder, collectively the “Series A Investors” and each a “Series A Investor”);

(3)        CIVILIZATION AND TIME LTD, a company incorporated under the laws of the British Virgin Islands (the “Management Team Holdco”);

(4)        HUANG Wei (黄炜), a Chinese citizen with his identification card number being ***  (“Mr. Huang”);

(5)        58 Co., Ltd. (五八有限公司), a limited liability company incorporated in the PRC (“58 Limited”);

(6)        Qingdao Caigao Group Co., Ltd. (青岛才高集团有限公司), a company incorporated in the PRC (“Qingdao Caigao”);

(7)        TOPLAND GLOBAL HOLDINGS LIMITED, a company incorporated in British Virgin Islands (“TOPLAND GLOBAL”);

(8)        Shanghai Yuya Enterprise Management Partnership (Limited Partnership)(上海彧雅企业管理合伙企业(有限合伙)), a limited partnership incorporated in the PRC (“Shanghai Yuya”);

(9)        Qingdao Lida Shopping Center Co., Ltd. (青岛丽达购物中心有限公司), a company incorporated in the PRC (“Qingdao Lida”);

(10)      Qingdao Panshi Kaiyuan Trade Co., Ltd. (青岛磐石开源贸易有限公司), a company incorporated in the PRC (“Qingdao Panshi”);

 

 

2

 

(11)      Lemi (Tianjin) Architectural Engineering Programming and Design Co., Ltd. (乐米(天津)建筑工程规划设计有限公司)  (“Lemi Tianjin”, together with Tencent (only in the capacity as a holder of Series B Preferred Shares), 58 Limited, Qingdao Caigao, TOPLAND GLOBAL, Shanghai Yuya, Qingdao Lida and Qingdao Panshi, collectively the “Series B Investors” and each a “Series B Investor”);

(12)      ZHUAN SPIRIT HOLDINGS LIMITED, a company incorporated under the laws of the Cayman Islands (the “Company”);

(13)      Zhuan Vision Holdings Limited, a company incorporated in the Hong Kong (the “HK Company”);

(14)      Shanghai Winder Bear Information Technology Co., Ltd. (上海发条熊信息技术有限责任公司), a company incorporated in the PRC (the “Shanghai WFOE”);

(15)      Tianjin Zhuanzhuan World Technology Co., Ltd. (天津转转世界科技有限责任公司), a company incorporated in the PRC (the “Tianjin WFOE”);

(16)      Beijing Zhuanzhuan Spirit Technology Co., Ltd. (北京转转精神科技有限责任公司), a company incorporated in the PRC (the “VIE Entity”);

(17)      Beijing Zhuanzhuan Youpin Auction Co., Ltd. (北京转转优品拍卖有限责任公司), a company incorporated in the PRC (“Zhuanzhuan Youpin”); and

(18)      Tianjin Fatiao Time Information Technology Co., Ltd. (天津发条时光信息技术有限责任公司), a company incorporated in the PRC (together with the VIE Entity and Zhuanzhuan Youpin, the “Domestic Companies” and each a “Domestic Company”).

RECITALS:

1.         As of the date hereof, the Key Holder, Tencent and the Management Team Holdco collectively own, legally and beneficially, all of the issued share capital of the Company. The share ownership and certain other particulars of the Company and each Shareholder are set forth in Schedule 1.

2.         The Parties hereof (other than Management Team Holdco, Mr. Huang and the Series B Investors) have entered into certain Shareholders Agreement (the “Prior Shareholders Agreement”) on April 28, 2017.

3

 

3.         The Parties wish to provide for certain matters relating to the financing, management and operation of the Company and its Subsidiaries and the transfer of Shares.

AGREEMENT:

For the purposes of this Agreement, to the extent legally permissible under applicable laws and subject to the compliance by each holder of a Series B Warrant (and its Affiliates, if applicable) with the provisions of this Agreement, the Articles, the applicable Series B Warrant and the applicable ODI Loan Agreement or Non-ODI Loan Agreement (each as defined in the Series B Purchase Agreement) to which such party is a party, such holder of a Series B Warrant shall be deemed as a holder of the corresponding Series B Preferred Shares of the Company assuming that such Series B Warrant has been fully exercised and such holder of the applicable Series B Warrant has been duly registered as a Shareholder of the Company holding such Series B Preferred Shares. If the full and effective exercise of any rights of a holder of the applicable Series B Warrant in accordance with this Agreement and the Articles requires its prior exercise of the applicable Series B Warrant, all the Shareholders shall, subject to applicable laws, use their voting and/or management power to allow the exercise of such Series B Warrant (subject to the terms therein) or allow such rights of the holder of the applicable Series B Warrant to be exercised to the maximum extent permitted under the applicable laws, and to provide such commercially reasonable assistance (including the reasonable extension of any time constraint pertaining to the exercise of any rights of the holder of the applicable Series B Warrant) as may be reasonably requested by such holder of the applicable Series B Warrant.

SECTION 1

INTERPRETATION

1.1       Definitions. In this Agreement, unless the context otherwise requires, the following words and expressions have the following meanings:

Act” means the Companies Law (2018 Revision) of the Cayman Islands, as amended, modified or re-enacted from time to time.

Affiliate” of a Person (the “Subject Person”) means (a) in the case of a Person other than a natural person, any other Person that directly or indirectly Controls, is Controlled by or is under common Control with the Subject Person and (b) in the case of a natural person, any other Person that is directly or indirectly Controlled by the Subject Person or is a Relative of the Subject Person; provided, that the Group Companies shall not be deemed to be Affiliates of any Shareholder (other than the Management Team Holdco).

Articles” means the third amended and restated memorandum and articles of association of the Company adopted by the Company on or about the date hereof.

Authorization” means any consent, approval, order, license or authorization of, registration, certificate, declaration or filing with or notice to any Governmental Authority or other third party.

4

 

Board” means the board of directors of the Company.

Budget” means the annual budget for the Group, setting out the detailed budget of the Group for the relevant Fiscal Year, as may be adopted by the Group from time to time in accordance with this Agreement and the Articles.

Business Day” means any day other than Saturday, Sunday or other day on which commercial banks located in the Cayman Islands, New York, the PRC or Hong Kong are authorized or required by law or executive order to be closed and on which no tropical cyclone warning No. 8 or above and no “black” rainstorm warning signal is hoisted in Hong Kong at any time between 8:00 a.m. and 6:00 p.m. Hong Kong time.

Business Plan” means the annual business plan for the Group, setting out details of all material matters relating to the operation, development and business of the Group, as may be adopted by the Group from time to time in accordance with this Agreement and the Articles.

Chairman” means the chairman of the Board.

Company Secretary” means the company secretary of the Company.

Competitor” means any Person whose primary business is in competition with the Principal Business, which shall include Alibaba Group Holding Limited and AiHuiShou International Company Limited, or any Affiliate of such Person.

Competitive Business” means mean any business which is in competition with the Principal Business.

Contract” means, as to any Person, a contract, agreement, indenture, note, bond, loan, instrument, lease, mortgage, franchise, license, commitment, purchase order, and other legally binding arrangement, whether written or oral.

Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management of a Person, whether through the ownership of voting securities, by contract, credit arrangement or proxy, as trustee, executor or agent or otherwise. For purposes of this definition, a Person shall be deemed to Control another Person if such first Person, directly or indirectly, owns or holds more than 50% of the voting Equity Securities in such other Person. The terms “Controlled” and “Controls” shall have meanings correlative to the foregoing.

Control Documents” shall have the meaning as ascribed in the Series B Purchase Agreement.

5

 

Director” means a director of the Company (including any duly appointed alternate director).

Director’s Indemnification Agreements” means the respective indemnification agreements entered into by and between the Company and each director appointed to the Board on April 28, 2017.

Encumbrance” means (a) any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, deed of trust, title retention, security interest or other encumbrance of any kind securing, or conferring any priority of payment in respect of, any obligation of any Person, including any right granted by a transaction which, in legal terms, is not the granting of security but which has an economic or financial effect similar to the granting of security under applicable law, (b) any proxy, power of attorney, voting trust agreement, interest, option, right of first offer, negotiation or refusal or transfer restriction in favor of any Person and (c) any adverse claim as to title, possession or use.

Equity Securities” means, with respect to any Person, such Person’s capital stock, membership interests, partnership interests, registered capital, joint venture or other ownership interests (including, in the case of the Company, Ordinary Shares) or any options, warrants or other securities that are directly or indirectly convertible into, or exercisable or exchangeable for, such capital stock, membership interests, partnership interests, registered capital, joint venture or other ownership interests (whether or not such derivative securities are issued by such Person).

ESOP” means the employee equity incentive plan of the Company adopted as of September 8, 2017, as amended and duly adopted in accordance with this Agreement and the Articles.

Fiscal Year” means the fiscal year of the Company, which ends on December 31.

Framework Restructuring Agreement” shall have the meaning set forth in the Tencent Subscription Agreement.

Governmental Authority” means any government or political subdivision thereof, whether on a federal, central, state, provincial, municipal or local level and whether executive, legislative or judicial in nature, including any agency, authority, board, bureau, commission, court, department or other instrumentality thereof and any governing body of any securities exchange.

Group” or “Group Companies” means, collectively, the Company and its Subsidiaries (including, for the

6

 

avoidance of doubt, the HK Company, the Shanghai WFOE, the Tianjin WFOE and the Domestic Companies), and a “Group Company” means any of them.

Hong Kong” means the Hong Kong Special Administrative Region of the People’s Republic of China.

Information Technology” means all computer systems, telecommunication systems, software (and the tangible media on which it is stored) and hardware including source and object code, cabling, routers, switched, racks, servers, PCs, laptops, terminals, scanners, printers and all associated peripherals, excluding in all cases Intellectual Property.

Intellectual Property” means any and all (a) patents (including all reissues, divisionals,  provisionals, continuations, continuations in part, re-examinations, renewals and extensions thereof), patent applications, and other patent rights, (b) trademarks, service marks, tradenames, brand names, logos, slogans, trade dress, design rights, and other similar designations of source or origin, together with all goodwill associated with any of the foregoing and applications, registrations and renewals in connection therewith, (c) copyrights, mask works, and copyrightable works, and all applications, registrations for and renewals in connection therewith,

(d) internet domain names, web addresses, web pages, websites and related content, accounts with Twitter, Facebook, Instagram, and other social media companies and the content found thereon and related thereto, and uniform resource locators, (e) proprietary computer software, including source code, object code and supporting documentation for such computer software, (f) trade secrets and proprietary information, including confidential business information, technical data, customer lists, data collections, methods and inventions (whether or not patentable and where or not reduced to practice), (g) copies and tangible embodiments of any of the foregoing and (h) all other intellectual property, whether or not registrable, in each case, under any law or statutory provision or common law doctrine in any country.

Key Employees” means the Persons specified in Schedule 3.

Key Holder Business Cooperation Agreements” means the business cooperation agreement entered into by and among certain Group Companies and the Key Holder and/or its Affiliates on April 28, 2017 and the follow-on business arrangement agreement entered into by and among certain Group Companies and the Key Holder and/or its Affiliates on July 1, 2018.

Key Holder Nominee” means 北京云企互有限公司, a company incorporated in the PRC, or such other Person designated by the Key Holder.

7

 

Non-ODI Loan Agreement” shall have the meaning as ascribed in the Series B Purchase Agreement.

ODI Loan Agreement” shall have the meaning as ascribed in the Series B Purchase Agreement.

Order” means any order, ruling, decision, verdict, decree, writ, subpoena, mandate, command, directive, consent, approval, award, judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.

Ordinary Shares” means the ordinary shares of par value US$0.000008 each in the share capital of the Company.

Party” or “Parties” means any signatory or the signatories to this Agreement and any Person or Persons who subsequently becomes a party to this Agreement as provided herein.

Person” means any natural person, firm, partnership, association, corporation, company, trust, public body or government or other entity of any kind or nature.

PRC” means the People’s Republic of China, but for purposes of this Agreement, excluding Hong Kong, the Macau Administrative Region and Taiwan.

PRC GAAP” means the Generally Accepted Accounting Principles of the PRC.

Preferred Shares” means the Series A Preferred Shares and the Series B Preferred Shares.

Principal Business” means the businesses set forth in Schedule 4.

Qualified IPO” means a firm commitment underwritten public offering of Ordinary Shares or of the listing vehicle (or securities representing such Ordinary Shares) on a Recognized Exchange which meets the following requirements: (a) the offering price per share is equal to or exceeds the product of (i) the original price per Series A Preferred Share paid by Tencent pursuant to the Tencent Subscription Agreement (as adjusted for share splits, share dividends, share combinations and the like) and (ii) 5, (b) the offering price per share values the Company at US$5,000,000,000 or more on an as-converted, fully diluted basis immediately prior to the completion of such offering and (c) such offering results in gross proceeds to the Company or the listing vehicle (as the case may be) of at least US$200,000,000. The term “gross proceeds” used herein means the total amount raised from an

8

 

initial public offering prior to paying any expenses, including underwriters’ discounts, legal expense, auditors’ fees and similar third-party expenses.

Recognized Exchange” means the main board of The Stock Exchange of Hong Kong Limited, NASDAQ, the New York Stock Exchange, the Shanghai Stock Exchange, the Shenzhen Stock Exchange or another internationally recognized securities exchange or board approved by the Board.

Regulatory Approvals” means all Authorizations from any Governmental Authority.

Related Party” means any of the following: (a) any Person who beneficially owns, directly or indirectly, more than 10% of any voting securities or ownership interests in the Company or the VIE Entity, (b) any director, officer or Key Employee of any Group Company and (c) any Person in which any of the Persons referred to in (a) or (b) holds, directly or indirectly, more than 10% (in case such Person referred to in (a) is 58 Limited, the Key Holder or any of their Affiliates, such percentage shall be 30%) of the voting securities or ownership interests. For the avoidance of doubt, none of the Group Companies shall be deemed to be a Related Party of the Company.

Relative” of a natural person means such Person’s spouse, parents, children and siblings, whether by blood, marriage or adoption.

Restricted Person” means (i) in the case of a Transfer by Shareholders other than the Key Holder, a “Key Holder Restricted Person”, and (ii) in the case of a Transfer by Shareholders other than Tencent, a “Tencent Restricted Person”, in each case as such Persons agreed between the Key Holder and Tencent, which may be updated once per Fiscal Year by mutual agreement of Tencent and the Key Holder in writing, and in each case to include the Affiliates of agreed Persons.

Restructuring Documents” shall have the meaning set forth in the Tencent Subscription Agreement.

SEC” means the Securities and Exchange Commission of the United States of America or any other federal agency at the time administering the Securities Act.

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 SEC thereunder, all as the same shall be in effect at the time.

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Series A Preferred Shares” means the Series A preferred shares of par value US$0.000008 each in the share capital of the Company.

Series B Financing” means any series B financing of the Group Companies (taken as a whole), with a pre-money valuation of no more than US$1,600,000,000 (or its equivalent other currency).

Series B Majority” means the holders of at least fifty percent (50%) of the Series B Preferred Shares then outstanding, voting as a single class on an as converted basis.

Series B New Shareholder” means any holder of Series B Preferred Shares (excluding any Series B Preferred Share held by Tencent or 58 Limited or their respective Affiliates).

Series B Preferred Shares” means the Series B preferred shares of par value US$0.000008 issued by the Company in Series B Financing of the Group Companies. For the avoidance of doubt and only for the purpose of this Agreement, the Series B Preferred Shares shall include the Series B Warrant Shares.

Series B Warrants” and “Series B Warrant” as defined in the Series B Purchase Agreement.

Series B Warrant Shares” shall mean the Series B Preferred Shares issued or issuable upon the exercise of the applicable Series B Warrant.

Series B Purchase Agreement” means the Series B Preferred Share and Warrant purchase agreement entered into by and among the Key Holder, Tencent, the Management Team Holdco, the Series B Investors, the Company and certain other parties on September 9, 2019.

Shareholders” means the holders of the Shares, and in the case of any Shareholder that is a natural person shall be deemed to include the estate of such Shareholder and the executor, conservator, committee or other similar legal representative of such Shareholder or such Shareholder’s estate following the death or incapacitation of such Shareholder.

Shares” means, collectively, the Ordinary Shares and the Preferred Shares. For the avoidance of doubt and only for the purpose of this Agreement, the Shares shall include the Series B Warrant Shares.

Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company or other organization, whether incorporated or unincorporated, which is Controlled by such Person. For the

10

 

avoidance of doubt, a “variable interest entity” Controlled by a Person shall be deemed to be a Subsidiary of such Person.

Tencent Business Cooperation Agreements” means (i) the business cooperation agreement entered into by and among certain Group Companies, Tencent and/or its Affiliates on April 28, 2017; (ii) the supplemental agreement to the foregoing agreement entered into by and among certain Group Companies, Tencent and/or its Affiliates on June 29, 2018; (iii) the business cooperation agreement entered into by and among certain Group Companies, Tencent and/or its Affiliates on June 29, 2018; and (iv) the business cooperation agreement entered into by and among certain Group Companies, Tencent and/or its Affiliates on or around the date hereof.

Tencent Nominee” means “林芝利术有公司”, a company incorporated in the PRC, or such other Person designated by Tencent.

Tencent Subscription Agreement” means share subscription agreement entered into by and among the Key Holder, 58.com Inc., Tencent and the Company on April 18, 2017.

Trade Sale” means any of the following: (a) a merger or consolidation in which (i) the Company is a constituent party or (ii) a Subsidiary of the Company is a constituent party and the Company issues Shares pursuant to such merger or consolidation, except for any such merger or consolidation in which the Shares outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, a majority, by voting power, of the capital stock of (x) the surviving or resulting corporation or (y) if the surviving or resulting corporation is a wholly-owned Subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; (b) the sale, transfer or other disposition, in a single transaction or series of related transactions, of outstanding Shares representing greater than 50% of the voting power or equity value of the Company; provided, that neither (i) the bona fide sale by the Company of Shares for the purposes of raising additional funds nor (ii) dispositions of Shares pursuant to any exercise of the First Refusal Right under Section 3.4 shall constitute a Trade Sale; and (c) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by any Group Company of all or substantially all of the assets of the Group taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more Subsidiaries of the Company if substantially all of the assets of the Group taken as a whole are held by such Subsidiary or Subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly-owned Subsidiary of the Company.

Transaction Documents” means, collectively, this Agreement, the Series B Purchase Agreement, the Tencent

11

 

Subscription Agreement, the ODI Loan Agreements and the Non-ODI Loan Agreements, the Series B Warrants, the Articles, the Key Holder Business Cooperation Agreements, the Tencent Business Cooperation Agreements, the Director’s Indemnification Agreements, the Restructuring Documents, the Control Documents and any other agreements, documents or certificates delivered pursuant hereto or thereto.

US GAAP” means the Generally Accepted Accounting Principles of the United States of America.

US$” means United States Dollars, the lawful currency of the United States of America.

VIE Entity” means “北京转转精神科技有限责任公司” , the PRC domestic limited liability company which shall operate the Principal Business.

1.2       Terms Defined Elsewhere in this Agreement. The following terms are defined in this Agreement as follows:

 

 

 

 

Term

    

Section

 

 

 

58 Limited

 

1.1(a)(i)First,Q:A:(5)

Acceptance Notice

 

3.4(d)

Act

 

12.1, 1.1

ADSs

 

2

Affiliate

 

1.1

Agreement

 

2

Alternative Transaction

 

5(e)

Authorization

 

1.1

Board

 

1.1

Budget

 

1.1

Business Day

 

1.1

Business Plan

 

1.1

Chairman

 

1.1

Company

 

12(A), 1.1(a)(i)First,Q:A:(12)

Company Secretary

 

1.1

Competitive Business

 

1.1

Competitor

 

1.1

Confidential Information

 

9.1

Contract

 

1.1

Control

 

1.1

Control Documents

 

1.1

Controlled

 

1.1

Controls

 

1.1

Current ESOP

 

7.6

Director

 

1.1

 

12

 

Director’s Indemnification Agreements

 

1.1

Disclosure Document

 

11(a)

Dispute

 

13.2

Domestic Companies

 

1.1(a)(i)First,Q:A:(18)

Domestic Company

 

1.1(a)(i)First,Q:A:(18)

Electing Offeree

 

3.4(c)

Encumbrance

 

1.1

Equity Securities

 

1.1

ESOP

 

1.1

Excess Offered Shares

 

3.4(c)

Excess Securities

 

4.3(a)

Exchange Act

 

2

First Refusal Allocation

 

3.4(c)

First Refusal Right

 

3.4(a)

Fiscal Year

 

1.1

Form F-3

 

2

Framework Restructuring Agreement

 

1.1

fully diluted basis

 

1.3(h)

Fully Participating Shareholder

 

4.3(a)

Government Official

 

7.7(b)

Governmental Authority

 

1.1

gross proceeds

 

1.1

Group

 

1.1

Group Companies

 

1.1

Group Company

 

1.1

HK Company

 

1.1(a)(i)First,Q:A:(13)

HKIAC

 

13.2

Holder

 

4(b), 2

Hong Kong

 

1.1

Indemnified Party

 

11(c)

Indemnifying Party

 

11(c)

Information Technology

 

1.1

Initiating Holders

 

3(b)

Intellectual Property

 

1.1

Issuance Period

 

4.3(c)

Issuance Securities

 

4.1(a)

Key Employees

 

1.1

Key Holder

 

1.1(a)(i)First,Q:A:(1)

Key Holder Business Cooperation Agreements

 

1.1

Key Holder Director

 

5.2(a)(iii)

Key Holder Nominee

 

1.1

Key Holder Restricted Person

 

1.1

Lemi Tianjin

 

1.1(a)(i)First,Q:A:(11)

Liabilities

 

11(a)

Liability

 

11(a)

Management Director

 

5.2(a)(ii)

13

 

Management Team Holdco

 

1.1(a)(i)First,Q:A:(3)

Mr. Huang

 

1.1(a)(i)First,Q:A:(4)

New Shareholder

 

12

Non-Electing Offerees

 

3.4(c)

Non-ODI Loan Agreement

 

1.1

ODI Loan Agreement

 

1.1

Offer Period

 

3.4(d)

Offer Price

 

3.4(b)

Offered Shares

 

3.4(b)

Offerees

 

3.4(b)

Order

 

1.1

Ordinary Shares

 

1.1

Parties

 

1.1

Party

 

1.1

Permitted Transferee

 

3.3(c)

Per-Share Offer Price

 

3.4(c)

Person

 

1.3(f), 1.1

PRC

 

1.1

PRC GAAP

 

1.1

Preemptive Acceptance Notice

 

4.3(a)

Preemptive Acceptance Period

 

4.3(a)

Preemptive Offer

 

4.2(b)

Preemptive Offer Notice

 

4.2(a)

Preferred Shares

 

1.1

Principal Business

 

1.1

Prior Shareholders Agreement

 

1.1(a)(i)First,Q:A:(18)2

Pro Rata Share

 

4.1(b)

Proposed Issuance

 

4.2(a)

Proposed Recipient

 

4.1(a)

Qingdao Caigao

 

1.1(a)(i)First,Q:A:(6)

Qingdao Lida

 

1.1(a)(i)First,Q:A:(9)

Qingdao Panshi

 

1.1(a)(i)First,Q:A:(10)

Qualified IPO

 

1.1

Recognized Exchange

 

1.1

register

 

2

Registrable Securities

 

2

Registrable Securities then outstanding

 

2

Regulatory Approvals

 

1.1

Related Party

 

1.1

Relative

 

1.1

Remaining Shares

 

3.4(f)

Replacement

 

7.10(b)

Request Notice

 

3(a)

Resale Shelf

 

5(e)

Restricted Person

 

1.1

Restricted Shareholder

 

3.4(a)

14

 

Restructuring Documents

 

1.1

SEC

 

1.1

Securities Act

 

1.1

Series A Acceptance Notice

 

3.6(d)

Series A Electing Offeree

 

3.6(c)

Series A Excess Offered Shares

 

3.6(c)

Series A First Refusal Allocation

 

3.6(c)

Series A First Refusal Right

 

3.6(a)

Series A Investor

 

1.1(a)(i)First,Q:A:(2)

Series A Investors

 

1.1(a)(i)First,Q:A:(2)

Series A Non-Electing Offerees

 

3.6(c)

Series A Offer Period

 

3.6(d)

Series A Offer Price

 

3.6(b)

Series A Offered Shares

 

3.6(b)

Series A Offerees

 

3.6(b)

Series A Per-Share Offer Price

 

3.6(c)

Series A Preferred Shares

 

1.1

Series A Remaining Shares

 

3.6(f)

Series A Restricted Shareholder

 

3.6(a)

Series A Tag-Along Notice

 

3.7(a)(ii)

Series A Tag-Along Offeree

 

3.7(a)(ii)

Series A Tag-Along Right

 

3.7(a)(i)

Series A Transfer Notice

 

3.6(b)

Series A Transferring Shareholder

 

3.6(b)

Series B Financing

 

1.1

Series B Investor

 

1.1(a)(i)First,Q:A:(11)

Series B Investors

 

1.1(a)(i)First,Q:A:(11)

Series B Majority

 

1.1

Series B New Shareholder

 

1.1

Series B Preferred Shares

 

1.1

Series B Purchase Agreement

 

1.1

Series B Warrant

 

1.1

Series B Warrant Shares

 

1.1

Series B Warrants

 

1.1

Shanghai WFOE

 

1.1(a)(i)First,Q:A:(14)

Shanghai Yuya

 

1.1(a)(i)First,Q:A:(8)

Shareholders

 

1.1

Shareholders Agreement

 

12(B)

Shareholders Meeting

 

5.1

Shares

 

1.1

Subject Person

 

1.1

Subscribed Shares

 

12(A)

Subsidiary

 

1.1

Tag-Along Notice

 

3.5(a)(ii)

Tag-Along Offeree

 

3.5(a)(ii)

Tag-Along Right

 

3.5(a)(i)

15

 

Tencent

 

1.1(a)(i)First,Q:A:(2)

Tencent Business Cooperation Agreements

 

1.1

Tencent Director

 

5.2(a)(i)

Tencent Nominee

 

1.1

Tencent Restricted Person

 

1.1

Tencent Subscription Agreement

 

1.1

Tianjin WFOE

 

1.1(a)(i)First,Q:A:(15)

TOPLAND GLOBAL

 

1.1(a)(i)First,Q:A:(7)

Trade Sale

 

1.1

Transaction Documents

 

1.1

Transfer

 

3.1

Transfer Notice

 

3.4(b)

Transferee

 

3.4(b)

Transferor

 

12(A)

Transferred Shares

 

12(A)

Transferring Shareholder

 

3.4(b)

US GAAP

 

1.1

US$

 

1.1

VIE Entity

 

1.1, 1.1(a)(i)First,Q:A:(16)

Zhuanzhuan Youpin

 

1.1(a)(i)First,Q:A:(17)

 

1.3       Interpretation.

(a)        Directly or Indirectly. The phrase “directly or indirectly” means directly, or indirectly through one or more intermediate Persons or through contractual or other arrangements and “direct or indirect” has the correlative meaning.

(b)        Gender and Number. Unless the context otherwise requires, all words (whether gender-specific or gender neutral) shall be deemed to include each of the masculine, feminine and neuter genders, and words importing the singular include the plural and vice versa.

(c)        Headings. Headings are included for convenience only and shall not affect the construction of any provision of this Agreement.

(d)        Include not Limiting.  “Include,” “including,” “are inclusive of” and similar expressions are not expressions of limitation and shall be construed as if followed by the words “without limitation”.

(e)        Law. References to “law” or “laws” shall include all applicable laws, regulations, rules and Orders of any Governmental Authority, securities exchange or other self-regulating body, including any common or customary law, constitution, code, ordinance, statute or other legislative measure and any regulation, rule, treaty, order, decree or judgment; and “lawful” shall be construed accordingly.

16

 

(f)        Persons. A reference to any “Person” shall, where the context permits, include such Person’s executors, administrators, legal representatives and permitted successors and assigns.

(g)        References to Documents. References to this Agreement include the Schedules and Exhibits, which form an integral part hereof. A reference to any Section, Recital, Schedule or Exhibit is, unless otherwise specified, to such Section of or Recital, Schedule or Exhibit to this Agreement. The words “hereof,” “hereunder,” “hereto” and words of like import, unless the context requires otherwise, refer to this Agreement as a whole and not to any particular Section hereof or Recital, Schedule or Exhibit hereto. References to any document (including this Agreement) are references to that document as amended, consolidated, supplemented, novated or replaced from time to time.

(h)        Share Calculations. In calculations of share numbers, references to “fully diluted basis” mean that the calculation is to be made assuming that all outstanding options, warrants and other Equity Securities directly or indirectly convertible into or exercisable or exchangeable for Ordinary Shares (whether or not by their terms then currently convertible, exercisable or exchangeable) and Equity Securities which have been reserved for issuance pursuant to the ESOP have been so converted, exercised, exchanged or issued. Any share calculation that makes reference to a specific date shall be appropriately adjusted to take into account any share split, share consolidation or similar event after such date.

(i)         Statutory References. A reference to a statute or statutory provision includes, to the extent applicable at any relevant time:

(i)         that statute or statutory provision as from time to time consolidated, modified, re-enacted or replaced by any other statute or statutory provision;

(ii)       any repealed statute or statutory provision which it re-enacts (with or without modification); and

(iii)      any subordinate legislation or regulation made under the relevant statute or statutory provision.

(j)         Time. Except as otherwise provided, (i) for purposes of calculating the length of time from a given day or the day of a given act or event, the relevant period shall be calculated exclusive of that day, and (ii) for all other purposes, any period of time commencing on or from a given day or the day of a given act or event shall include that day. If the day on or by which a payment must be made is not a Business Day, such payment must be made on or by the Business Day immediately following such day.

17

 

(k)        Writing. References to writing include any mode of reproducing words in a legible and non-transitory form including emails and faxes.

SECTION 2

OBLIGATIONS OF THE SHAREHOLDERS

2.1       Shareholder Obligations. Each Shareholder shall comply with the provisions of this Agreement in relation to its investment in the Company and in transacting business with the Company and shall exercise its rights and powers in accordance with and so as to give effect to this Agreement, and each shareholder of such Shareholder which is a Party hereto shall cause such Shareholder to comply with this Section 2.

SECTION 3

RESTRICTIONS ON TRANSFER OF SHARES

3.1       Limitation on Transfers. No Shareholder shall sell, give, assign, hypothecate, pledge, encumber, grant a security interest in or otherwise dispose of or suffer to exist (whether by operation of law or otherwise) any Encumbrance on any Shares or any right, title or interest therein or thereto (each, a “Transfer”), except as expressly permitted by this Section 3. Any attempt to Transfer any Shares in violation of the preceding sentence shall be null and void ab initio, such Transfer shall not confer on any transferee or purported transferee any rights whatsoever and no Party (including the Company) shall recognize or register any such Transfer.

3.2       Restrictions on Transfers. Notwithstanding any other provision of this Agreement,

(a)        no Transfer may be made pursuant to this Section 3 unless (i) the transferee has agreed in writing to be bound by the terms and conditions of this Agreement pursuant to a Deed of Adherence substantially in the form attached hereto as Exhibit A, (ii) the transferee is not a Competitor, (iii) if the transferee is a Key Holder Restricted Person, the prior written approval of the Key Holder shall have been obtained, (iv) if the transferee is a Tencent Restricted Person, the prior written approval of Tencent shall have been obtained, (v) for so long as Tencent and its Affiliates hold in the aggregate at least 8% of the Shares on an as-converted, fully diluted basis, if the Key Holder or the Management Team Holdco or any holder of Ordinary Shares issued under the ESOP directly or indirectly transfers Ordinary Shares, the prior written approval of Tencent shall have been obtained, (vi) if any direct or indirect transfer of any shares which would result in a change of Control of the Company, the prior written consent or approval of the holders of over 40% of the Series A Preferred Shares shall have been obtained, (vii) the Transfer complies in all respects with the other applicable provisions of this Agreement and (viii) the Transfer complies in all respects with applicable securities laws; and

(b)        (i) in the case of Trade Sale to or involving any Tencent Restricted Person, or any merger, amalgamation, consolidation, division, scheme of

18

 

arrangement or any other type of corporate restructuring involving any Group Company and any Tencent Restricted Person, the prior written approval of Tencent shall have been obtained, for so long as Tencent and its Affiliates hold in the aggregate at least 8% of the Shares on an as-converted, fully diluted basis, (ii) in the case of Trade Sale to or involving any Key Holder Restricted Person, or any merger, amalgamation, consolidation, division, scheme of arrangement or any other type of corporate restructuring involving any Group Company and any Key Holder Restricted Person, the prior written approval of the Key Holder shall have been obtained, and (iii) in the case of Trade Sale, or any merger, amalgamation, consolidation, division, scheme of arrangement or any other type of corporate restructuring involving any Group Company not referred to in Section 3.2(b)(i) and Section 3.3(b)(ii), the prior written consent or approval of the holders of over 40% of the Series A Preferred Shares shall have been obtained.

3.3       Permitted Transfers. The following Transfers may be made without compliance with the provisions of Section 3.4 or Section 3.5:

(a)        any Transfer by a Shareholder to an Affiliate of such Shareholder; provided, that the transferee is not a Competitor nor a Restricted Person;

(b)        any Transfer by a Shareholder that is a natural person to a trust for the benefit of Relative(s) of such Shareholder; provided, that such Shareholder is the sole trustee of such trust; or

(c)        any sale or transfer of Equity Securities to the Company pursuant to a repurchase right or right of first refusal held by the Company in the event of a termination of employment relationship.

A Person described with respect to a Shareholder in clause (a) or (b) of this Section 3.3 is hereinafter referred to as a “Permitted Transferee” of such Shareholder. If a transferee of Shares pursuant to clause (a) or (b) of this Section 3.3 at any time ceases to be a Permitted Transferee of the transferring Shareholder, the transferee shall Transfer such Shares back to such transferring Shareholder.

3.4       Right of First Refusal against the Restricted Shareholders.

(a)        Transfers Subject to Right of First Refusal. If any holder of Ordinary Shares or any holder of Series B Preferred Shares (other than any Series B Preferred Share acquired by Tencent or 58 Limited at the completion of the Series B Financing) (each, a “Restricted Shareholder”) proposes to Transfer any Shares, the holders of Preferred Shares shall have a right of first refusal (the “First Refusal Right”) with respect to such Transfer as provided in this Section 3.4. A Restricted Shareholder proposing to Transfer any Shares

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to a third party shall, prior to delivering the Transfer Notice in respect thereof, confirm with the Company that the proposed transferee is not a Competitor or a Restricted Person. If the Company confirms that such proposed transferee is a Competitor or a Restricted Person, the proposed Transfer to such proposed transferee shall not proceed.

(b)        Transfer Notice. If a Restricted Shareholder (the “Transferring Shareholder”) either receives a bona fide offer to acquire Shares held by it and the Transferring Shareholder proposes to accept such offer or makes a bona fide offer to sell Shares held by it to a third party and the third party proposes to accept such offer, the Transferring Shareholder shall send a written notice (the “Transfer Notice”) to the Company and all of the holders of Preferred Shares (other than the Transferring Shareholder, if applicable) (such holders, the “Offerees”), which notice shall state (i) the name of the Transferring Shareholder, (ii) the name and address of the proposed transferee (the “Transferee”) and the name of the ultimate Controller of the Transferee, (iii) the number and the type of Shares to be Transferred (the “Offered Shares”), (iv) the amount and form of the proposed consideration for the Transfer and (v) the other material terms and conditions of the proposed Transfer. In the event that the proposed consideration for the Transfer includes consideration other than cash, the Transfer Notice shall include a calculation of the fair market value of such consideration and an explanation of the basis for such calculation. The total value of the consideration for the proposed Transfer is referred to herein as the “Offer Price”.

(c)        Rights of the Offerees. The Offerees shall have the right, exercisable by each Offeree through the delivery of an Acceptance Notice as provided in Section 3.4(d), to purchase up to all of the Offered Shares at a purchase price per Share (“Per-Share Offer Price”) equal to the Offer Price divided by the total number of Offered Shares, and upon the other terms and conditions set forth in the Transfer Notice. Each Offeree shall have the right to purchase up to such number of Offered Shares as is equal to the total number of Offered Shares multiplied by a fraction, the numerator of which is the number of Shares held by such Offeree and the denominator of which is the number of Shares held by all of the Offerees (such number, an Offeree’s  “First Refusal Allocation”), in each case (for both the numerator and the denominator) on an as-converted, fully diluted basis as of the date of the Transfer Notice. In addition, in the event that one or more Offerees (“Non-Electing Offerees”) declines or is deemed pursuant to Section 3.4(d) to have waived its First Refusal Right, or does not fully purchase the number of Offered Shares that it is entitled to purchase, each Offeree electing to exercise its First Refusal Right in full (an “Electing Offeree”)

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shall have the right as provided in Section 3.4(d) to purchase all or a portion of the Offered Shares not so purchased by the Non-Electing Offerees (“Excess Offered Shares”). An Offeree may assign to an Affiliate of such Offeree its right to acquire Offered Shares pursuant to this Section 3.4;  provided, that such Affiliate is not a Competitor nor a Restricted Person unless otherwise approved by the Key Holder or Tencent, as the case may be, pursuant to Section 3.2.

(d)        Exercise of Rights. The First Refusal Right of each Offeree under Section 3.4(c) shall be exercisable by delivering a written notice of exercise (an “Acceptance Notice”) within a period of 20 days after the date of the Transfer Notice (the “Offer Period”) to the Transferring Shareholder, with a copy to each other Offeree. Each Acceptance Notice shall include a statement of (i) the number of Shares held by such Offeree and (ii) the maximum number of Excess Offered Shares (up to the total number of Offered Shares less such Offeree’s First Refusal Allocation) that such Offeree is willing to purchase, if any. An Acceptance Notice shall be irrevocable and shall constitute a binding agreement by such Offeree to purchase the relevant number of Offered Shares determined in accordance with Section 3.4(c) and Section 3.4(e). The failure of an Offeree to give an Acceptance Notice within the Offer Period shall be deemed to be a waiver of such Offeree’s First Refusal Right with respect to the relevant Transfer.

(e)        Allocation of Excess Offered Shares. Each Electing Offeree shall have the right to purchase such number of Excess Offered Shares specified in such Electing Offeree’s Acceptance Notice; provided, that if the number of Excess Offered Shares is less than the aggregate number of Excess Offered Shares that the Electing Offerees have indicated a willingness to purchase in their respective Acceptance Notices, the Excess Offered Shares shall be allocated by the Transferring Shareholder and agreed by all Electing Offerees in a fair manner such that each Electing Offeree shall have a right to purchase (i) not less than the total number of Excess Offered Shares multiplied by a fraction, the numerator of which is the number of Shares held by such Electing Offeree and the denominator of which is the number of Shares held by all Electing Offerees, in each case (for both the numerator and the denominator) on an as-converted, fully diluted basis as of the date of the Transfer Notice, and (ii) not more than the maximum number of Excess Offered Shares specified in such Electing Offeree’s Acceptance Notice.

(f)        Sale to Third Party Purchaser. If the Offerees do not elect in the aggregate to purchase all of the Offered Shares, the Transferring Shareholder may Transfer, subject to Section 3.5, the remaining Offered Shares (the “Remaining Shares”) to the Transferee identified in the Transfer Notice on the terms and conditions set forth in the Transfer Notice; provided, that (i) such sale is bona fide, (ii) the

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price per Share for the sale to the Transferee is a price not less than the Offer Price divided by the total number of Offered Shares and the sale is otherwise on terms and conditions no less favorable to the Transferring Shareholder than those set forth in the Transfer Notice, (iii) the Transfer is made within three (3) months after the giving of the Transfer Notice and (iv) the Transferee is not a Competitor nor a Restricted Person unless otherwise approved by the Key Holder or Tencent, as the case may be, pursuant to Section 3.2. If such a Transfer does not occur within such three-month period for any reason, the restrictions provided for herein shall again become effective, and no Transfer of Shares may be made by the Transferring Shareholder thereafter without again making an offer to the Offerees in accordance with this Section 3.4.

(g)        Closing. The closing of any purchase of Offered Shares by an Offeree shall be held at the principal office of the Company at 11:00 a.m. local time on the 15th day after the giving of the Acceptance Notice by such Offeree or at such other time and place as the parties to the transaction may agree. The said 15-day period shall be extended for an additional period of up to 45 days if necessary to obtain any Regulatory Approvals required for such purchase and payment. At such closing, the Transferring Shareholder shall deliver share certificates representing the relevant Offered Shares, accompanied by duly executed instruments of transfer and the Transferring Shareholder’s portion of the requisite stamp duty and transfer taxes or fees, if any. Such Offered Shares shall be free and clear of any Encumbrance (other than Encumbrances arising hereunder or attributable to actions by such Offeree acquiring such Offered Shares), and the Transferring Shareholder shall so represent and warrant and shall further represent and warrant that it is the beneficial and record owner of such Offered Shares. Each Offeree purchasing Offered Shares shall, with respect to each Offered Share it elected to purchase pursuant to its First Refusal Right, deliver at the relevant closing (or on such later date or dates as may be provided in the Transfer Notice with respect to payment of consideration by the proposed Transferee, or as otherwise agreed between the Transferring Shareholder and such Offeree) payment in full of the Per-Share Offer Price. At such closing, all of the parties to the transaction shall execute such additional documents as may be necessary or appropriate to effect the sale of such Offered Shares to such Offeree. Any stamp duty or transfer taxes or fees payable on the transfer of any Offered Shares shall be borne and paid equally by the Transferring Shareholder and the relevant Offeree.

3.5       Tag-Along Rights.

(a)        Tag-Along Rights on Transfer.

(i)         Tag-Along Right. If a Transferring Shareholder proposes to make a Transfer, provided that an Offeree does not exercise its First Refusal Right in accordance with Section 3.4, such Offeree shall have the

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right (the “Tag-Along Right”) but not the obligation to require the Transferee in such Transfer to purchase from such Offeree, for the same consideration per Share and upon the same terms and conditions as to be paid and given to the Transferring Shareholder, up to a maximum number of Shares as is equal to the Remaining Shares multiplied by a fraction, the numerator of which is the number of Shares held by such Offeree and the denominator of which is the aggregate number of Shares held by the Transferring Shareholder and the Offerees exercising the Tag-Along Right, in each case (for both the numerator and the denominator) on an as-converted, fully diluted basis as of the date of the Transfer Notice. If an Offeree elects to exercise its Tag-Along Right, the number of Shares to be Transferred by the Transferring Shareholder shall be reduced accordingly.

(ii)       Tag-Along Notice. If an Offeree elects to exercise its Tag-Along Right (the “Tag-Along Offeree”), such Tag-Along Offeree shall deliver a written notice (the “Tag-Along Notice”) of such election to the Transferring Shareholder within the Offer Period, specifying the number of Shares with respect to which it wishes to sell pursuant to the Tag-Along Right, subject to the maximum number of Shares calculated pursuant to Section 3.5(a)(i). Such notice shall be irrevocable and shall constitute a binding agreement by such Shareholder to Transfer up to such number of Shares on the terms and conditions set forth in the Transfer Notice. The failure of the Tag-Along Offeree to give a Tag-Along Notice within the Offer Period shall be deemed to be a waiver of such Tag-Along Offeree’s Tag Along Right.

(iii)      Allocation of Remaining Shares. Within five (5) Business Days after the expiry of the Offer Period, the Transferring Shareholder shall send a notice to each Tag-Along Offeree specifying (1) the number of Remaining Shares, (2) the identity of each Tag-Along Offeree, (3) the number and type of Shares that each Tag-Along Offeree has requested to sell and (4) the number and the type of Shares that each Tag-Along Offeree shall sell to the Transferee.

(b)        Consummation. The closing of the sale of Shares pursuant to the Tag-Along Right shall occur simultaneously with the Transfer of Shares by the Transferring Shareholder to the Transferee. Where any Offeree has properly elected to exercise its Tag-Along Right and the proposed Transferee fails to purchase Shares from such Offeree, the Transferring Shareholder shall not make the proposed Transfer, and if purported to be made, such Transfer shall be void.

3.6       Right of First Refusal against the Series A Restricted Shareholders.

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(a)        Transfers by Holders of Series A Preferred Shares Subject to Right of First Refusal. If any holder of Series A Preferred Shares (each, a “Series A Restricted Shareholder”) proposes to Transfer any Series A Preferred Shares, the other holders of Series A Preferred Shares shall have a right of first refusal (the “Series A First Refusal Right”) with respect to such Transfer as provided in this Section 3.6. A Series A Restricted Shareholder proposing to Transfer any Series A Preferred Shares to a third party shall, prior to delivering the Transfer Notice in respect thereof, confirm with the Company that the proposed transferee is not a Competitor or a Restricted Person. If the Company confirms that such proposed transferee is a Competitor or a Restricted Person, the proposed Transfer to such proposed transferee shall not proceed.

(b)        Transfer Notice. If a Series A Restricted Shareholder (the “Series A Transferring Shareholder”) either receives a bona fide offer to acquire Series A Preferred Shares held by it and the Series A Transferring Shareholder proposes to accept such offer or makes a bona fide offer to sell Series A Preferred Shares held by it to a third party and the third party proposes to accept such offer, the Series A Transferring Shareholder shall send a written notice (the “Series A Transfer Notice”) to the Company and all of the other holders of Series A Preferred Shares (such holders, the “Series A Offerees”), which notice shall state (i) the name of the Series A Transferring Shareholder, (ii) the name and address of the proposed Transferee and the name of the ultimate Controller of the Transferee, (iii) the number of Series A Preferred Shares to be Transferred (the “Series A Offered Shares”), (iv) the amount and form of the proposed consideration for the Transfer and (v) the other material terms and conditions of the proposed Transfer. In the event that the proposed consideration for the Transfer includes consideration other than cash, the Series A Transfer Notice shall include a calculation of the fair market value of such consideration and an explanation of the basis for such calculation. The total value of the consideration for the proposed Transfer is referred to herein as the “Series A Offer Price”.

(c)        Rights of the Series A Offerees. The Series A Offerees shall have the right, exercisable by each Series A Offeree through the delivery of a Series A Acceptance Notice as provided in Section 3.6(d), to purchase up to all of the Series A Offered Shares at a purchase price per Series A Preferred Share (“Series A Per-Share Offer Price”) equal to the Series A Offer Price divided by the total number of Series A Offered Shares, and upon the other terms and conditions set forth in the Series A Transfer Notice. Each Series A Offeree shall have the right to purchase up to such number of Series A Offered Shares as is equal to the

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total number of Series A Offered Shares multiplied by a fraction, the numerator of which is the number of Shares held by such Series A Offeree and the denominator of which is the number of Shares held by all of the Series A Offerees (such number, an Series A Offeree’s  “Series A First Refusal Allocation”), in each case (for both the numerator and the denominator) on an as-converted, fully diluted basis as of the date of the Series A Transfer Notice. In addition, in the event that one or more Series A Offerees (“Series A Non-Electing Offerees”) declines or is deemed pursuant to Section 3.6(d) to have waived its Series A First Refusal Right, or does not fully purchase the number of Series A Offered Shares that it is entitled to purchase, each Series A Offeree electing to exercise its Series A First Refusal Right in full (a “Series A Electing Offeree”) shall have the right as provided in Section 3.6(d) to purchase all or a portion of the Series A Offered Shares not so purchased by the Series A Non-Electing Offerees (“Series A Excess Offered Shares”). A Series A Offeree may assign to an Affiliate of such Series A Offeree its right to acquire Series A Offered Shares pursuant to this Section 3.6; provided, that such Affiliate is not a Competitor nor a Restricted Person unless otherwise approved by the Key Holder or Tencent, as the case may be, pursuant to Section 3.2.

(d)        Exercise of Rights. The Series A First Refusal Right of each Series A Offeree under Section 3.6(c) shall be exercisable by delivering a written notice of exercise (a “Series A Acceptance Notice”) within a period of 20 days after the date of the Series A Transfer Notice (the “Series A Offer Period”) to the Series A Transferring Shareholder, with a copy to each other Series A Offeree. Each Series A Acceptance Notice shall include a statement of (i) the number of Shares held by such Offeree and (ii) the maximum number of Series A Excess Offered Shares (up to the total number of Series A Offered Shares less such Series A Offeree’s Series A First Refusal Allocation) that such Series A Offeree is willing to purchase, if any. A Series A Acceptance Notice shall be irrevocable and shall constitute a binding agreement by such Series A Offeree to purchase the relevant number of Series A Offered Shares determined in accordance with Section 3.6(c) and Section 3.6(e). The failure of an Series A Offeree to give a Series A Acceptance Notice within the Series A Offer Period shall be deemed to be a waiver of its Series A First Refusal Right with respect to the relevant Transfer.

(e)        Allocation of Series A Excess Offered Shares. Each Series A Electing Offeree shall have the right to purchase such number of Series A Excess Offered Shares specified in its Series A Acceptance Notice; provided, that if the number of Series A Excess Offered Shares is less than the aggregate number of Series A Excess Offered Shares that the Series A Electing

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Offerees have indicated a willingness to purchase in their respective Series A Acceptance Notices, the Series A Excess Offered Shares shall be allocated by the Series A Transferring Shareholder and agreed by all Series A Electing Offerees in a fair manner such that each Series A Electing Offeree shall have a right to purchase (i) not less than the total number of Series A Excess Offered Shares multiplied by a fraction, the numerator of which is the number of Shares held by such Series A Electing Offeree and the denominator of which is the number of Shares held by all Series A Electing Offerees, in each case (for both the numerator and the denominator) on an as-converted, fully diluted basis as of the date of the Series A Transfer Notice, and (ii) not more than the maximum number of Series A Excess Offered Shares specified in such Series A Electing Offeree’s Series A Acceptance Notice.

(f)        Sale to Third Party Purchaser. If the Series A Offerees do not elect in the aggregate to purchase all of the Series A Offered Shares, the Series A Transferring Shareholder may Transfer, subject to Section 3.7, the remaining Series A Offered Shares (the “Series A Remaining Shares”) to the Transferee identified in the Series A Transfer Notice on the terms and conditions set forth in the Series A Transfer Notice; provided, that (i) such sale is bona fide, (ii) the price per Share for the sale to the Transferee is a price not less than the Series A Offer Price divided by the total number of Series A Offered Shares and the sale is otherwise on terms and conditions no less favorable to the Series A Transferring Shareholder than those set forth in the Series A Transfer Notice, (iii) the Transfer is made within three (3) months after the giving of the Series A Transfer Notice and (iv) the Transferee is not a Competitor nor a Restricted Person unless otherwise approved by the Key Holder or Tencent, as the case may be, pursuant to Section 3.2. If such a Transfer does not occur within such three-month period for any reason, the restrictions provided for herein shall again become effective, and no Transfer of Series A Preferred Shares may be made by the Series A Transferring Shareholder thereafter without again making an offer to the Series A Offerees in accordance with this Section 3.6.

(g)        Closing. The closing of any purchase of Series A Offered Shares by a Series A Offeree shall be held at the principal office of the Company at 11:00 a.m. local time on the 15th day after the giving of the Series A Acceptance Notice by such Series A Offeree or at such other time and place as the parties to the transaction may agree. The said 15-day period shall be extended for an additional period of up to 45 days if necessary to obtain any Regulatory Approvals required for such purchase and payment. At such closing, the Series A Transferring Shareholder shall deliver share certificates representing the relevant Series A Offered Shares, accompanied by duly executed instruments of transfer and the Series A Transferring Shareholder’s portion of the requisite stamp duty and transfer taxes or fees, if any. Such Series A Offered Shares shall be free and clear of any

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Encumbrance (other than Encumbrances arising hereunder or attributable to actions by such Series A Offeree acquiring such Series A Offered Shares), and the Series A Transferring Shareholder shall so represent and warrant and shall further represent and warrant that it is the beneficial and record owner of such Series A Offered Shares. Each Series A Offeree purchasing Series A Offered Shares shall, with respect to each Series A Offered Share it elected to purchase pursuant to its Series A First Refusal Right, deliver at the relevant closing (or on such later date or dates as may be provided in the Series A Transfer Notice with respect to payment of consideration by the proposed Transferee, or as otherwise agreed between the Series A Transferring Shareholder and such Series A Offeree) payment in full of the Series A Per-Share Offer Price. At such closing, all of the parties to the transaction shall execute such additional documents as may be necessary or appropriate to effect the sale of such Series A Offered Shares to such Series A Offeree. Any stamp duty or transfer taxes or fees payable on the transfer of any Series A Offered Shares shall be borne and paid equally by the Series A Transferring Shareholder and the relevant Series A Offeree.

3.7       Series A Tag-Along Rights.

(a)        Tag-Along Rights on Transfer by Holders of Series A Preferred Shares.

(i)         Tag-Along Right. If a Series A Transferring Shareholder proposes to make a Transfer of Series A Preferred Shares, provided that a Series A Offeree does not exercise its Series A First Refusal Right in accordance with Section 3.6, such Series A Offeree shall have the right (the “Series A Tag-Along Right”) but not the obligation to require the Transferee in such Transfer to purchase from such Series A Offeree, for the same consideration per Share and upon the same terms and conditions as to be paid and given to the Series A Transferring Shareholder, up to a maximum number of Series A Preferred Shares as is equal to the Series A Remaining Shares multiplied by a fraction, the numerator of which is the number of Shares held by such Offeree and the denominator of which is the aggregate number of Shares held by the Series A Transferring Shareholder and the Series A Offerees exercising the Tag-Along Right, in each case (for both the numerator and the denominator) on an as-converted, fully diluted basis as of the date of the Transfer Notice. If a Series A Offeree elects to exercise its Series A Tag-Along Right, the number of Series A Preferred Shares to be Transferred by the Series A Transferring Shareholder shall be reduced accordingly.

(ii)       Tag-Along Notice. If a Series A Offeree elects to exercise its Series A Tag-Along Right (the “Series A Tag-Along Offeree”), such Series A Tag-Along Offeree shall deliver a written notice (the “Series A Tag-Along

27

 

Notice”) of such election to the Series A Transferring Shareholder within the Series A Offer Period, specifying the number of Series A Preferred Shares with respect to which it wishes to sell pursuant to the Series A Tag-Along Right, subject to the maximum number of Series A Preferred Shares calculated pursuant to Section 3.7(a)(i). Such notice shall be irrevocable and shall constitute a binding agreement by such Shareholder to Transfer up to such number of Series A Preferred Shares on the terms and conditions set forth in the Series A Transfer Notice. The failure of the Series A Tag-Along Offeree to give a Series A Tag-Along Notice within the Series A Offer Period shall be deemed to be a waiver of its Series A Tag Along Right.

(iii)      Allocation of Series A Remaining Shares. Within five (5) Business Days after the expiry of the Series A Offer Period, the Series A Transferring Shareholder shall send a notice to each Series A Tag-Along Offeree specifying (1) the number of Series A Remaining Shares, (2) the identity of each Series A Tag-Along Offeree, (3) the number of Series A Preferred Shares that each Series A Tag-Along Offeree has requested to sell and (4) the number of Series A Preferred Shares that each Series A Tag-Along Offeree shall sell to the Transferee.

(b)        Consummation. The closing of the sale of Series A Preferred Shares pursuant to the Series A Tag-Along Right shall occur simultaneously with the Transfer of Series A Preferred Shares by the Series A Transferring Shareholder to the Transferee. Where any Series A Offeree has properly elected to exercise its Series A Tag-Along Right and the proposed Transferee fails to purchase Series A Preferred Shares from such Series A Offeree, the Series A Transferring Shareholder shall not make the proposed Transfer, and if purported to be made, such Transfer shall be void.

3.8       Avoidance of Restrictions. The Parties agree that the Transfer restrictions in this Agreement and in the Articles shall not be capable of being avoided by the holding of Shares indirectly through a company or other entity that can itself be sold in order to dispose of an interest in Shares free of such restrictions. Any Transfer or other disposal of any shares (or other interest) resulting in any change in the Control of a Shareholder or of any company (or other entity) having Control over that Shareholder shall be treated as being a Transfer of the Shares held by that Shareholder, and the provisions of this Agreement and the Articles that apply in respect of the Transfer of Shares shall thereupon apply in respect of the Shares so held.

3.9       Transfer of Convertible Securities. Any Transfer of Equity Securities exercisable or convertible into or exchangeable for Shares shall be deemed for the purposes of this Section 3 to be a Transfer of Shares.

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3.10     Notice of Transfer. After registering any Transfer of Shares or other Equity Securities on its books, the Company shall promptly send a notice to each Shareholder stating that such Transfer has taken place and setting forth the name of the transferor, the name of the transferee and the number and class of Equity Securities involved.

3.11     Termination of Transfer Restrictions. The Transfer restrictions described in this Section 3 shall terminate upon the earlier of (a) the completion of a Trade Sale and (b) the completion of a Qualified IPO, and shall not apply to any Transfer of Shares pursuant to a Qualified IPO.

SECTION 4

PREEMPTIVE RIGHTS

4.1       Restrictions.

(a)        Except as provided under Section 4.1(c), the Company shall not issue any securities (including any Equity Securities or any debt or other securities of any kind) of any type or class (“Issuance Securities”) to any Person (the “Proposed Recipient”) unless the Company has offered each holder of Preferred Shares in accordance with the provisions of this Section 4 the right to purchase such holder’s Pro Rata Share of such Issuance Securities for a per unit consideration, payable solely in cash, equal to the per unit consideration to be paid by the Proposed Recipient and otherwise on the same terms and conditions as are offered to the Proposed Recipient.

(b)        For the purposes of this Section 4, a holder of Preferred Shares’ “Pro Rata Share” of Issuance Securities at any time shall be calculated as the product of (i) the number of Issuance Securities and (ii) a fraction, the numerator of which is the total number of Shares held by such holder of Preferred Shares and the denominator of which is the total number of Shares held by all holders of Preferred Shares, in each case (for both the numerator and the denominator) on an as-converted, fully diluted basis as of the date of the Preemptive Offer Notice.

(c)        The restrictions set out in Section 4.1(a) shall not apply to (i) any issuance of Ordinary Shares upon the conversion of Preferred Shares, (ii) any issuance of Shares pursuant to a Qualified IPO, (iii) any issuance of Shares pursuant to the ESOP, approved in accordance with this Agreement and the Articles, (iv) any issuance of Equity Securities as consideration in connection with a bona fide business acquisition by the Company, whether by merger, consolidation, amalgamation or other business combination transaction, joint venture, sale or exchange of securities or other similar transaction involving the Company or any other Group Company, approved in accordance with this Agreement and the Articles, (v) any issuance of Series B Preferred Shares upon the applicable exercise of the applicable

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Series B Warrant, and (vi) any issuance of Equity Securities in connection with any share split, share dividend, subdivision, combination, reclassification or other similar event in which all Preferred Shares are entitled to participate on a pro-rata basis in accordance with the Articles.

4.2       Preemptive Offer Notice.

(a)        Not less than 20 days before a proposed issuance of securities other than in connection with an issuance permitted under Section 4.1(c) (a “Proposed Issuance”), the Company shall deliver to each holder of Preferred Shares a written notice (a “Preemptive Offer Notice”) which shall set forth (i) the number, type and terms of such Issuance Securities, (ii) the consideration to be received by the Company in connection with the Proposed Issuance and (iii) a summary of any other material terms and conditions of the Proposed Issuance, including the name of the Proposed Recipient and the proposed issuance date. Such Preemptive Offer Notice shall be accompanied by any written offer, if any, from the Proposed Recipient to purchase such Issuance Securities.

(b)        The Company shall, by delivering the Preemptive Offer Notice, offer each holder of Preferred Shares the option to acquire all or any portion of such holder’s Pro Rata Share of the Issuance Securities (the “Preemptive Offer”). The Preemptive Offer shall remain open and irrevocable for the period set forth below (and, to the extent that the Preemptive Offer is accepted during such period, until the consummation of the issuance contemplated by the Preemptive Offer).

4.3       Exercise of Preemptive Rights.

(a)        Each holder of Preferred Shares shall have the right, exercisable by such holder through the delivery of a written notice (a “Preemptive Acceptance Notice”) to the Company within a period of 15 days after the date of the Preemptive Offer Notice (the “Preemptive Acceptance Period”), to purchase up to its Pro Rata Share of the Issuance Securities at the purchase price and on the terms and conditions stated in the Preemptive Offer Notice. Each Preemptive Acceptance Notice shall specify the maximum number of Issuance Securities such holder of Preferred Shares will purchase. The failure of a holder of Preferred Shares to give a Preemptive Acceptance Notice within the Preemptive Acceptance Period shall be deemed to be a waiver of such holder’s preemptive rights under this Section 4.3 with respect to the relevant Preemptive Offer. If any holder of Preferred Shares does not exercise or is deemed to have waived its preemptive rights under this Section 4.3 or elects to exercise such rights with respect to less than its Pro Rata Share of the Issuance Securities, any holder of Preferred Shares that has elected to exercise its preemptive rights

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under this Section 4.3 with respect to its full Pro Rata Share of the Issuance Securities (a “Fully Participating Shareholder”) shall be entitled to purchase from the Company up to an additional number of Issuance Securities equal to the product of (i) the aggregate number of Issuance Securities over which no holder of Preferred Shares has exercised its preemptive rights under this Section 4.3  (“Excess Securities”) and (ii) a fraction, the numerator of which is the total number of Shares held by such Fully Participating Shareholder and the denominator of which is the total number of Shares held by all of the Fully Participating Shareholders that elect to purchase Excess Securities, in each case (for both the numerator and the denominator) on an as-converted, fully diluted basis as of the date of the Preemptive Offer Notice.

(b)        All sales of Issuance Securities to the holders of Preferred Shares subject to any Preemptive Offer Notice shall be consummated contemporaneously at the offices of the Company on a mutually satisfactory Business Day within 20 Business Days after the expiration of the Preemptive Acceptance Period. The delivery by the Company of share certificates or other instruments, if any, evidencing such Issuance Securities shall be made on such date against payment of the purchase price for such Issuance Securities.

(c)        If any Issuance Securities set forth in the Preemptive Offer Notice remain unpurchased or unsubscribed after all of the holders of Preferred Shares have either exercised or deemed to have waived their respective preemptive rights under this Section 4.3, then the Company may issue all or any portion of such remaining Issuance Securities, at a price not less than the purchase price and on terms and conditions not more favorable to the Proposed Recipient than the purchase price, terms and conditions stated in the Preemptive Offer Notice, at any time within 60 days after the expiration of the Preemptive Acceptance Period (the “Issuance Period”); provided, that in connection with and as a condition to such issuance (solely in the case of any issuance of Shares), each Proposed Recipient that is not then a party to this Agreement shall execute and deliver to the Company a Deed of Adherence substantially in the form attached hereto as Exhibit A; provided,  further, that if such issuance is subject to any Regulatory Approval, the Issuance Period shall be extended until the expiration of the fifth Business Day following the receipt of all such Regulatory Approvals, but in no event later than 240 days following the expiration of the Preemptive Acceptance Period. In the event that any of such remaining Issuance Securities is not issued during the Issuance Period, the right of the Company to issue such remaining Issuance Securities shall expire and the obligations of the Company under this Section 4 shall be reinstated and such remaining Issuance Securities shall not be issued unless first reoffered to the holders of Preferred Shares in accordance with this Section 4.

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(d)        Any issuance of securities by the Company prior to compliance by the Company with this Section 4 shall be void and of no force and effect.

4.4       Termination of Rights. The preemptive rights under this Section 4 shall not apply to any issuance pursuant to a Qualified IPO.

SECTION 5

CORPORATE GOVERNANCE

5.1       General. From and after the date hereof, each Shareholder shall vote its Shares at any regular or special meeting of Shareholders (a “Shareholders Meeting”), and shall take all other actions necessary, to give effect to the provisions of this Agreement and to ensure the inclusion in the Articles of the rights and privileges of the Shareholders included in this Agreement. In addition, each Shareholder shall vote its Shares at any Shareholders Meeting, upon any matter submitted for action by the Shareholders or with respect to which such Shareholder may vote, in conformity with the provisions of this Agreement.

5.2       Board of Directors.

(a)        Number and Composition. The composition of Directors constituting the entire Board shall be as follows. Each Shareholder shall vote its Shares at any Shareholders Meeting called for the purpose of filling the positions on the Board or in any written consent of Shareholders executed for such purpose to elect, and shall take all other actions necessary to ensure the election to the Board of:

(i)         one nominee designated by Tencent (the “Tencent Director”);

(ii)       one nominee designated by the Management Team Holdco (the “Management Director”);

(iii)      one nominee designated by the Key Holder (the “Key Holder Director”).

(b)        Removal and Replacement of Directors.

(i)         A Director shall be removed from the Board, with or without cause, upon, and only upon, the request of the Shareholder who nominated him, unless such Director resigns voluntarily or the term of his service expires, in which case the Shareholder entitled to nominate such Director shall be entitled to nominate a replacement to be appointed to the Board to fill the vacancy thus created.

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(ii)       Each Director may only be nominated to and removed from the Board by the relevant Shareholder in accordance with this Agreement and the Articles.

(c)        Chairman. The Chairman shall be selected by a majority vote of the Directors in office. The Chairman shall not have a casting vote.

5.3       Board Meetings.

(a)        Frequency and Location. Meetings of the Board shall take place at least once every quarter. Meetings shall be held in a location approved by a majority of the Directors.

(b)        Notice. A meeting of the Board may be called by the Chairman or any Director giving notice in writing to the Company Secretary specifying the date, time and agenda for such meeting. The Company Secretary shall upon receipt of such notice give a copy of such notice to all Directors of such meeting, accompanied by a written agenda specifying the business of such meeting and copies of all papers relevant for such meeting. Not less than seven (7) days’ notice shall be given to all Directors; provided, that such notice period may be reduced with the written consent of all of the Directors.

(c)        Quorum. All meetings of the Board shall require a quorum of at least a majority of all the incumbent Directors, including the incumbent Tencent Director, the Management Director and the Key Holder Director. If such a quorum is not present within one hour from the time appointed for the meeting, the meeting shall adjourn to the same place and time seven days later, at which meeting at least a majority of all the incumbent Directors, including the incumbent Tencent Director, the Key Holder Director and the Management Director, present shall constitute a valid quorum. If such a quorum is not present within one hour from the time appointed for such adjourned meeting, such meeting shall adjourn to such place and time as those Directors who did attend shall decide or, if no such decision is reached, at the same place and time seven days later, at which meeting a majority of all the incumbent Directors present shall constitute a valid quorum; provided, that notice of such second adjourned meeting shall have been delivered to all Directors at least three days prior to the date of such second adjourned meeting.

(d)        Voting. At any Board meeting, each Director may exercise one vote. Any Director may, by written notice to the Company Secretary, authorize another Person to attend and vote by proxy for such Director at any Board meeting. Subject to Section 5.3(g), Section 5.5 and Section 5.8, the adoption of any resolution of the Board shall require the affirmative vote of a majority of the Directors present at a duly constituted meeting of the Board. The Board shall not at any meeting adopt any resolution covering any matter

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that is not specified on the agenda for such meeting unless all Directors are present at such meeting and vote in favor of such resolution.

(e)        Participation. Directors may participate in Board meetings by telephone or video conference, and such participation shall constitute presence for purposes of the quorum provisions of Section 5.3(c).

(f)        Expenses. The reasonable costs of attendance of Directors at Board meetings shall be borne by the Company.

(g)        Action by Written Consent. Subject to Section 5.8, any action that may be taken by the Directors at a meeting may be taken by a written resolution signed by all of the Directors.

5.4       Board Approval. Subject to Section 5.5 and Section 5.8, all matters in relation to the operation and management of the Group shall be decided by the Board at a quorate Board meeting or by a written resolution signed by all of the Directors.

5.5       Board Reserved Matters. Subject to Section 5.8 and any additional requirements imposed by the Act, no Group Companies shall take, permit to occur, approve, authorize or agree or commit to do any of the following actions, whether in a single transaction or a series of related transactions, whether directly or indirectly and whether or not by amendment, merger, consolidation, scheme of arrangement, amalgamation or otherwise, without the affirmative consent or approval of the majority of the Directors in office, which shall include the Tencent Director (if any):

(a)        the approval or amendment of, or any deviation from, any Budget or Business Plan;

(b)        any purchase or other acquisition by any Group Company of another Person or the business and/or assets of another Person, or the investment by any Group Company in any Person, exceeding the total amount intended for such purchase, acquisition or investment as set out in any Budget or Business Plan approved in accordance with this Section 5.5 and Section 5.8;

(c)        the declaration or payment of any dividend or other distribution;

(d)        any loan or advancement to any employee of any Group Company by such Group Company in excess of RMB500,000 per employee in aggregate in any calendar year occurred in the ordinary course of business of such Group Company; or any loan or advancement to any employee of any Group Company by such Group Company occurred outside of the ordinary course of business of such Group Company;

(e)        other than in the ordinary course of business, the incurrence of any indebtedness or assumption of any financial obligation, or any issue, assumption, guarantee or creation of any indebtedness in the nature of borrowings, by any Group Company in excess of US$1,000,000;

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(f)        other than in the ordinary course of business, any sale, transfer or other disposal of, or the incurrence of any Encumbrance on, any assets of any Group Company valued in excess of US$1,000,000; and

(g)        the appointment, replacement or termination of, or the approval or amendment of any employment terms of, any member of senior management of any Group Company at the chief executive officer or similar level.

5.6       [Reserved].

5.7       Rights and Obligations of the Shareholders and the Company in Relation to the Group Companies. The Group Companies shall cause (a) the board of directors of each other Group Company to be the same size as the Board and the directors thereof to be nominated in the same manner as the Directors as set out in Section 5.2(a) and (b) the quorum and voting arrangements and other procedures with respect to the respective boards of directors of the Group Companies, as well as other corporate governance matters, to be the same as those set forth in this Section 5, in each case to the extent permitted by applicable law.

5.8       Protective Provisions. Notwithstanding any other provision of this Agreement, the Articles or any of the constitutional documents of any other Group Company or otherwise, and subject to Section 3.2, no Group Company shall take, permit to occur, approve, authorize, agree or commit to do any of the following actions, whether in a single transaction or a series of related transactions, whether directly or indirectly and whether or not by amendment, merger, consolidation, scheme of arrangement, amalgamation or otherwise, without the prior written consent or approval of (x) Tencent for so long as Tencent and its Affiliates hold in the aggregate at least 8% of the Shares on an as-converted, fully diluted basis; and (y) the Key Holder for so long as the Key Holder, 58 Limited and their Affiliates hold in the aggregate at least 8% of the Shares on an as-converted, fully diluted basis, provided, that (xx) the affirmative consent or approval of the Tencent Director to or of any such action at a Board meeting or as evidenced on a written resolution of the Board which expressly tabled for approval such action shall be deemed to constitute the prior written approval of Tencent of such action, and (yy) the affirmative consent or approval of the Key Holder Director to or of any such action at a Board meeting or as evidenced on a written resolution of the Board which expressly tabled for approval such action shall be deemed to constitute the prior written approval of the Key Holder of such action:

(a)        any amendment or change of any rights, preferences, privileges or powers of or affecting, or the restrictions provided for the benefit of, any Preferred Shares;

(b)        the creation, allotment or issue of any Equity Securities in any Group Company or the grant of any option or rights to subscribe for or to convert an instrument into such Equity Securities to any Person (including Restricted Persons), other than (x) any issuance of Ordinary Shares pursuant

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to the conversion of any Preferred Shares; (y) any issuance of securities or grant of options pursuant to the ESOP; and (z) any issuance of Series B Preferred Shares upon the applicable exercise of the Series B Warrants;

(c)        any purchase, repurchase, redemption or retirement of any Equity Securities in any Group Company, other than any redemption of any Preferred Shares in accordance with the Articles and any repurchase of any Ordinary Shares held by a director, employee or consultant of any Group Company upon the termination of his employment with the Group pursuant to a share restriction agreement approved by the Board;

(d)        any amendment or modification to or waiver under the Articles or any material amendment or modification to or waiver under any of the constitutional documents of any other Group Company;

(e)        other than the ESOP Increase (as defined in the Series B Purchase Agreement), the adoption, material amendment (including any other increase of size) or termination of any equity incentive, purchase or participation plan for the benefit of employees, officers, directors, contractors, advisors or consultants of any Group Company (including the ESOP);

(f)        (A) the entry into any contract or commitment by any Group Company with any Related Party (other than Tencent and/or its Affiliates and/or the Related Party of Tencent), provided that in case such Related Party is (x) 58 Limited, the Key Holder or any of their Affiliates, or (y) any Person in which any of 58 Limited, the Key Holder and any of their Affiliates holds 30% of the voting securities or ownership interests, the entry into any contract or commitment by any Group Company with such Related Party with a value in excess of RMB1,000,000 in a single transaction or a series of transactions, or (B) the termination or material amendment of or waiver under any such contract or commitment, other than such entry, termination, amendment or waiver expressly set out in any Budget or Business Plan approved in accordance with Section 5.5 and this Section 5.8;

(g)        the approval or amendment of, or any deviation from, any Budget or Business Plan;

(h)        any purchase or other acquisition by any Group Company of another Person or the business and/or assets of another Person exceeding the total amount intended for such purchase or acquisition as set out in any Budget or Business Plan approved in accordance with Section 5.5 and this Section 5.8;

(i)         any engagement by any Group Company in any business materially different from that described in the then current Business Plan, or the ceasing of any business undertaking of any Group Company, other than any

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such engagement or ceasing set out in any Budget or Business Plan approved in accordance with Section 5.5 and this Section 5.8;

(j)         any liquidation, dissolution or winding up of any Group Company;

(k)        any change in the equity ownership of the VIE Entity or any termination or modification to or waiver of rights under any of the Control Documents;

(l)         any material change in the accounting methods or policies, or any appointment of or change in the independent auditors, of any Group Company;

(m)       the appointment, replacement or termination of, or the approval or material amendment of any employment terms of, any member of senior management of any Group Company at the chief executive officer or similar level;

(n)        any divestiture or sale of an interest in any Group Company, partnership or joint venture other than a Trade Sale;

(o)        the listing of any securities in any Group Company on any securities exchange, other than a Qualified IPO;

(p)        the incurrence of any indebtedness or assumption of any financial obligation, or any issue, assumption, guarantee or creation of any indebtedness in the nature of borrowings, by any Group Company in excess of US$2,000,000 within the previous 12 months, exceeding the total amount intended for such incurrence or assumption as set out in any Budget or Business Plan approved in accordance with Section 5.5 and this Section 5.8;

(q)        any sale, transfer or other disposal of, or the incurrence of any Encumbrance on, any assets of any Group Company valued in excess of US$2,000,000 within the previous 12 months, exceeding the total amount intended for such sale, transfer, or other disposal or the incurrence as set out in any Budget or Business Plan approved in accordance with Section 5.5 and this Section 5.8; and

(r)        any additional expenses payable by any Group Company pursuant to the Restructuring Documents that are not specifically provided for and the amount or the pricing mechanism of which is not expressly provided for in the Framework Restructuring Agreement.

5.9       Shareholder Approval. Notwithstanding any provision to the contrary in this Agreement, where any of the actions set out in Section 3.2 or Section 5.8 requires the approval of the Shareholders in accordance with the Act, and if the Shareholders vote in favor of such action but Tencent, the Key Holder or the holders of over 40% of the Series A Preferred Shares (as the case may be) have delivered a written notice of disapproval to the Company pursuant thereto, then Tencent, the Key Holder or the holders of over 40%

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of the Series A Preferred Shares (as the case may be) shall, in such vote, have such number of votes as is equal to the aggregate number of votes of the Shareholders who voted in favor of such action plus one.

SECTION 6

REGISTRATION RIGHTS

6.1       Generally. The holders of Preferred Shares shall be entitled to the registration rights set out in Schedule 2.

6.2       Other Jurisdictions. In the event that the Company (or, as the case may be, the relevant entity resulting from any merger, reorganization or other arrangements made by the Company for the purposes of public offering) intends to effect a public offering of its securities outside of the United States of America, the Parties agree that the holders of Preferred Shares shall, to the extent permitted by applicable law, have the same registration rights or rights as similar to such registration rights as permissible under the relevant law.

SECTION 7

COVENANTS

7.1       Mutual Cooperation. Each of the Parties shall, and shall cause each of its Affiliates to, use commercially reasonable efforts to cooperate with each other to facilitate the further development of the Principal Business.

7.2       Inspection Rights.

For so long as Tencent and its Affiliates hold in the aggregate at least 5% of the Shares on an as-converted, fully diluted basis, at the prior written request of Tencent, each Group Company shall grant Tencent and its authorized representatives access, at all reasonable times during normal business hours, to the facilities and financial books and records of the Group Companies and the right to discuss the business, operations and conditions of the Group Companies with the directors, officers, employees, accountants, legal counsels, investment bankers and other advisors of the Group Companies; provided, that any onsite inspection of Tencent or any of its representatives shall not affect the normal operation of the Group Companies.

For so long as the Key Holder, 58 Limited and its Affiliates hold in the aggregate at least 5% of the Shares on an as-converted, fully diluted basis, at the prior written request of the Key Holder, each Group Company shall grant the Key Holder and its authorized representatives access, at all reasonable times during normal business hours, to the facilities and financial books and records of the Group Companies and the right to discuss the business, operations and conditions of the Group Companies with the directors, officers, employees, accountants, legal counsels, investment bankers and other advisors of the Group Companies; provided, that any onsite inspection of the Key Holder or any of its representatives shall not affect the normal operation of the Group Companies

7.3       Information Rights.

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(a)        For so long as Tencent and its Affiliates hold in the aggregate at least 5% of the Shares on an as-converted, fully diluted basis, the Company shall provide to Tencent, and for so long as the Key Holder, 58 Limited and their Affiliates hold in the aggregate at least 5% of the Shares on an as-converted, fully diluted basis, the Company shall provide to the Key Holder:

(i)         audited consolidated financial statements of the Group for the previous Fiscal Year, audited by a Big Four accounting firm or any other accounting firm acceptable to Tencent and the Key Holder, within 90 days after the end of each Fiscal Year;

(ii)       unaudited consolidated financial statements of the Group for the previous fiscal quarter within 45 days after the end of each fiscal quarter;

(iii)      unaudited consolidated financial statements of the Group for the previous month, together with relevant operating data, within 30 days after the end of each month;

(iv)       a detailed draft Budget for the following Fiscal Year at least 45 days before the end of each Fiscal Year;

(v)        a detailed draft Business Plan for the following Fiscal Year at least 45 days before the end of each Fiscal Year;

(vi)       copies of all documents or other information sent to the other Shareholders; and

(vii)     copies of other documents and information as Tencent or the Key Holder (as the case may be) may reasonably request.

(b)        For so long as any Series B New Shareholder holds in the aggregate at least 2% of the Shares on an as-converted, fully diluted basis, the Company shall provide to such Series B New Shareholder:

(i)         audited consolidated financial statements of the Group for the previous Fiscal Year, audited by a Big Four accounting firm or any other accounting firm acceptable to Tencent, within 120 days after the end of each Fiscal Year;

(ii)       unaudited consolidated financial statements of the Group for the previous fiscal quarter, together with relevant operating data in certain aspect of the Group Companies, within 50 days after the end of each fiscal quarter;

(iii)      a detailed draft Budget for the following Fiscal Year at least 45 days before the end of each Fiscal Year; and

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(iv)       a detailed draft Business Plan for the following Fiscal Year at least 45 days before the end of each Fiscal Year.

(c)        All financial statements delivered by the Company pursuant to Section 7.3(a)(i), Section 7.3(a)(ii), Section 7.3(a)(a)(iii), Section 7.3(b)(i) and Section 7.3(b)(ii) shall be prepared in accordance with US GAAP.

(d)        In the event that any Group Company enters into any contract or commitment with Tencent or its Affiliate or its Related Party, the Company shall notify the Key Holder such entry of contract or commitment on a quarterly basis.

7.4       Books and Records. Each Group Company shall keep proper, complete and accurate books of account in its functional currency and the currency of the jurisdiction in which such Group Company is organized, in each case in accordance with (a) US GAAP or PRC GAAP and (b) applicable laws. Each Group Company shall have its accounts audited annually in accordance with such standards by a Big Four accounting firm or any other accounting firm acceptable to Tencent (so long as Tencent and its Affiliates hold in the aggregate at least 8% of the Shares on an as-converted, fully diluted basis) and the Key Holder (so long as the Key Holder, 58 Limited and their Affiliates hold in the aggregate at least 8% of the Shares on an as-converted, fully diluted basis).

7.5       Budgets and Business Plans. Subject to Section 5.5 and Section 5.8, the Board shall adopt each Budget and Business Plan within 45 days after the commencement of the relevant Fiscal Year. If in any Fiscal Year a draft Budget or Business Plan is not approved in accordance with Section 5.5 or Section 5.8, the previous Fiscal Year’s Budget or Business Plan (as the case may be), adjusted for inflation, shall continue to apply unless and until a new Budget or Business Plan (as the case may be) is approved in accordance with Section 5.5 and Section 5.8.

7.6       Incentive Plan. It is being acknowledged that the Company has reserved and/or issued 87,500,000 Ordinary Shares representing 7% of the Shares on an as-converted, fully diluted basis immediately prior to the completion of the Series B Financing under the ESOP duly approved as of the date hereof (the “Current ESOP”). The Company shall reserve additional amount of Ordinary Shares required for the ESOP Increase for issuance under the ESOP as contemplated by section 4.11 of the Series B Purchase Agreement.

Except for such Ordinary Shares held by the Management Team Holdco, the Company shall not, and the Key Holder shall ensure that the Company does not, issue any Ordinary Shares to any Person under the Current ESOP unless and until such Person executes a voting proxy appointing the Key Holder as such Person’s proxy to vote on such Person’s behalf in such Person’s capacity as a Shareholder.

7.7       Compliance Covenants.

(a)        Each Group Company shall (a) conducts its business in compliance in all material respects with all applicable laws; (b) obtains, makes and maintains

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in effect all Authorizations required and material for the due and proper establishment and operations of such Group Company in accordance with applicable laws; and (c) conduct its business in such manner absent from fraud against any Investor.

(b)        Without limiting the generality of Section 7.7(a), each Group Company shall, refrain from offering, promising to pay, or authorizing the payment of any money, or offering, giving, promising to give or authorizing the giving of anything of value to any officer, employee or any other person acting in an official capacity for any government or any department, agency or instrumentality thereof, including any entity or enterprise owned or controlled by a government, or for any public international organization, to any political party or official thereof or to any candidate for political office (individually and collectively, a “Government Official”) or to any person knowing or being aware of a high probability that all or a portion of such money or thing of value will be unlawfully offered, given or promised, directly or indirectly, to any Government Official, for the purpose of (i) influencing any act or decision of such Government Official in his official capacity, (ii) inducing such Government Official to do or omit to do any act in violation of his lawful duty, (iii) securing any improper advantage, (iv) inducing such Government Official to influence or affect any act or decisions of any entity or enterprise owned or controlled by a government or (v) assisting any Group Company in obtaining or retaining business for or with, or directing business to any Group Company.

7.8       Cooperation. Each Shareholder and the Company agrees to cooperate and provide all reasonable information and assistance requested upon an investigation or inquiry by a Governmental Authority directed to any Group Company.

7.9       Control Documents. Each of the Parties shall, and shall ensure that each of its Affiliates and any shareholder of the VIE Entity designated by it, performs its obligations under the Control Documents to the fullest extent, carries out the terms and the intent of the Control Documents and ensures that each Control Document is valid and binding, in full force and effect and enforceable in accordance with its terms. Any termination or modification to or waiver of rights under any of the Control Documents shall require the prior written consent or approval of Tencent in accordance with Section 5.8 and the Articles. If any of the Control Documents becomes illegal, void or unenforceable under any applicable laws after the date hereof, the Group Companies shall use their best efforts to devise a feasible alternative legal structure reasonably satisfactory to Tencent and the Key Holder which gives effect to the intentions of the parties in each Control Document and the economic arrangement thereunder as closely as possible and maintains the economic interests of the Shareholders and consolidates the financial results of the Group Companies into the Company’s financial statements.

7.10     Transfer of Equity Interests in the VIE Entity.

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(a)        The percentage of Equity Securities in the VIE Entity held by the Tencent Nominee shall be equal to the percentage of Shares which Tencent holds on an as-converted, fully diluted basis. In the event that there is any discrepancy between the foregoing percentages as a result of a change to the percentage of Shares held by Tencent on an as-converted, fully diluted basis, at the request of Tencent, the Parties shall discuss in good faith and cause the percentage of Equity Securities in the VIE Entity held by the Tencent Nominee to be adjusted, to the extent that such adjustment does not result in any material adverse effect on any Group Company.

(b)        In the event that Tencent wishes to replace the then Tencent Nominee with a new nominee to hold Equity Securities in the VIE Entity (a “Replacement”), the Key Holder shall cause the Key Holder Nominee, and the Company shall cause the VIE Entity, upon the request of Tencent, to take all necessary actions to implement such Replacement, including executing and delivering all resolutions, corporate documents, consents, waivers and other related instruments and documentation and taking all such further actions to the satisfaction of Tencent necessary to approve such Replacement and the transfer of Equity Securities in the VIE Entity held by the then Tencent Nominee to Tencent’s new nominee, to the extent that such Replacement does not result in any material adverse effect on any Group Company.

(c)        Tencent shall bear all costs and expenses, including taxes, filing fees, registration fees and other transaction expenses, incurred in connection with any adjustment pursuant to Section 7.10(a) or any Replacement pursuant to Section 7.10(b).

7.11     Protection of Intellectual Property and Information Technology. Each Group Company shall take all reasonable steps to protect and maintain its material Intellectual Property and Information Technology, including (a) registering its material trademarks, brand names, domain names and copyrights, (b) taking precautions to preserve the availability, security and integrity of its Information Technology and the data and information stored thereon and (c) requiring each of its executive directors and Key Employees to enter into an employment agreement with it which includes provisions in respect of confidentiality, non-competition and work product ownership right assignment in form and substance reasonably satisfactory to Tencent for so long as Tencent and its Affiliates hold in the aggregate at least 8% of the Shares on an as-converted, fully diluted basis. No Group Company shall make any material changes to such employment agreements without the prior written consent of Tencent (which consent shall not be unreasonably withheld or delayed) for so long as Tencent and its Affiliates hold in the aggregate at least 8% of the Shares on an as-converted, fully diluted basis.

7.12     Control of Subsidiaries. The Company shall institute and keep in place such arrangements as are reasonably satisfactory to Tencent such that the Company shall at all times (a) Control the operations of each other Group Company and (b) be permitted to properly consolidate the financial results for each other Group Company (including the

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VIE Entity) in the consolidated financial statements of the Group prepared under US GAAP.

7.13     ESOP. Except for the Ordinary Shares held by the Management Team Holdco, the Parties agree that the Company shall ensure that each Person who shall have received any Equity Securities of the Company pursuant to any options, restricted share units and any other share incentive awards granted to such Person under the Current ESOP grant an irrevocable voting proxy and power of attorney to 58.com Inc., appointing 58.com Inc. as his attorney-in-fact with full power and authority to exercise the voting rights with respect to all of such Equity Securities in any vote of the shareholders of the Company or proposed action by written consent by the shareholders of the Company, and to make, execute and deliver all resolutions, consents and other writings and to do such things and to take such actions in each case to the extent 58.com considers necessary to exercise the voting rights.

7.14     Non-competition.

Each of the Key Holder, 58 Limited and the Series B New Shareholders shall not, and shall cause their respective Affiliates not to, directly or indirectly, invest in, own, manage, operate or Control any Competitor or otherwise participate, engage or invest in or operate any Competitive Business, other than through the Group Companies, without the prior written consent of Tencent; provided, that the restrictions contained in this Section 7.14 shall not restrict (i) the acquisition of less than 5% of the outstanding share capital of any Competitor that is a publicly traded company and (ii) the ownership, management, operation and Control of any Competitor, or the direct or indirect participation, engagement or investment in any Competitive Business by entities not Controlled by the Key Holder or 58 Limited or the Series B New Shareholders (as the case may be) or any of their respective Affiliates.

7.15     The Key Holder shall keep the Company informed of any of the Persons in which any of the Key Holder and 58 Limited, holds, directly or indirectly, more than 30% of the voting securities or ownership interests on an annual basis, each within three (3) months after 58.com Inc. files the 20F with the competent authorities.

SECTION 8

REPRESENTATIONS AND WARRANTIES

8.1       Representations and Warranties. Each Party represents to the other Parties that:

(a)        such Party has full power and authority to enter into, execute and deliver this Agreement and to perform its obligations hereunder and, if such Party is not a natural person, such Party is duly formed, validly existing and in good standing in the jurisdiction of its organization;

(b)        the execution and delivery by such Party of this Agreement and the performance by it of its obligations hereunder have been duly authorized by all requisite actions on its part;

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(c)        assuming the due authorization, execution and delivery hereof by the other Parties, this Agreement constitutes the legal, valid and binding obligations of such Party, enforceable against such Party in accordance with its terms, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights generally and (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies; and

(d)        neither the execution and delivery of this Agreement nor the consummation of any of the transactions contemplated hereby will (i) violate any provision of the organizational documents of such Party, (ii) require such Party to obtain any Authorization, except for those Authorizations as have been obtained or that is permitted to be, and will be, obtained following the date hereof, or that is otherwise expressly required to be obtained hereunder, (iii) conflict with, result in a material breach of or constitute a default in any material respect under any Contract to which such Party is a party, by which such Party is bound or to which any of such Party’s assets are subject or (iv) violate any law or Order to which such Party is subject and would materially and adversely affect such Party’s ability to execute, deliver or perform its obligations hereunder.

SECTION 9

CONFIDENTIALITY

9.1       General Obligation. Subject to Section 9.2 and Section 9.3, each Party shall keep confidential and shall not disclose to any Person the existence and provisions of any Transaction Document, the negotiations relating to any Transaction Document and any non-public material or information with respect to the business, technology, financial conditions or other aspects of the other Parties or their respective Affiliates (collectively, “Confidential Information”).

9.2       Not Confidential Information. Confidential Information shall not include any information that is (a) previously known on a non-confidential basis by the receiving Party, (b) in the public domain through no fault of such receiving Party, its Affiliates or its or its Affiliates’ officers, directors or employees, (c) received from a Person other than any of the other Parties or their respective representatives or agents, so long as such other Person was not, to the best knowledge of the receiving Party, subject to a duty of confidentiality to such other Party or (d) developed independently by the receiving Party without reference to confidential information of the disclosing Party.

9.3       Exemptions. Notwithstanding Section 9.1:

(a)        each of the Management Team Holdco and the Investors and their respective Affiliates may disclose Confidential Information to the extent such disclosure is necessary in connection with its normal accounting or tax reporting in respect of its investment in the Company as required by applicable accounting standards or laws;

44

 

(b)        any Party may disclose Confidential Information to the extent that such disclosure is required under applicable laws or any judicial or regulatory process or is requested by any Governmental Authority or other regulatory body, including the rules and requirements of the SEC and/or any securities exchange; provided, that such Party shall, to the extent permitted by law and so far as it is practicable, provide the other Parties with prompt notice of such requirement or request and cooperate with the other Parties at such other Parties’ request and cost to enable such other Parties to seek an appropriate protection order or remedy; and

(c)        any Party may disclose Confidential Information to its Affiliates and its and its Affiliates’ respective officers, directors, employees, agents, professional advisors and representatives on a need-to-know basis; provided, that such Party shall use commercially reasonable efforts to ensure that each such Person to which it discloses Confidential Information strictly abides by the confidentiality obligations hereunder.

SECTION 10

TERM AND TERMINATION

10.1     Effective Date; Termination. This Agreement shall become effective upon the execution hereof by all of the Parties and shall continue in effect until the earlier to occur of (a) the completion of a Qualified IPO; provided, that Section 5.2 shall survive a Qualified IPO to the extent permitted under applicable law and Section 6 shall survive a Qualified IPO, (b) the completion of the Trade Sale, (c) the date on which the Company goes into liquidation or dissolution or any property or assets of the Company are placed in the hands of a receiver, trust custodian or liquidator or a winding up order in respect of the Company is issued and (d) with respect to a Shareholder, upon such Shareholder ceasing to own any Shares.

10.2     Consequences of Termination. If this Agreement is terminated pursuant to Section 10.1(a), this Agreement shall become null and void and of no further force and effect, except that the Parties shall continue to be bound by the provisions of this Section 10, Section 1, Section 5.2 (to the extent permitted under applicable law), Section 6, Section 9, Section 11, Section 12 and Section 13. If this Agreement is terminated pursuant to Section 10.1(b) or Section 10.1(c), this Agreement shall become null and void and of no further force and effect, except that the Parties shall continue to be bound by the provisions of this Section 10, Section 1, Section 9, Section 11, Section 12 and Section 13. If this Agreement is terminated pursuant to Section 10.1(d), this Agreement shall become of no further force and effect upon the relevant Shareholder, except that such Shareholder shall continue to be bound by the provisions of this Section 10, Section 1, Section 9, Section 11, Section 12 and Section 13. Nothing in this Section 10.2 shall be deemed to release any Party from any liability for any breach of this Agreement prior to the effective date of such termination.

45

 

SECTION 11

NOTICES

11.1     Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) in writing and served by personal delivery upon the Party for whom it is intended, (b) if delivered by facsimile or electronic mail with receipt confirmed or (c) if delivered by certified mail, registered mail or courier service, return- receipt received, to the Party at the address set forth below:

If to the Key Holder & 58 Limited, at:

 

Address:

Building 105, 10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing 100015, P.R. China

Attn:

Xiaojing Li

Email:

***

 

If to Tencent, at:

 

Address:

c/o Tencent Holdings Limited Level 29, Three Pacific Place, 1 Queen’s Road East, Wanchai, Hong Kong

Attn.:

Compliance and Transactions Department

E-mail:

***

 

With a copy (which shall not constitute notice) to:

 

Address:

Tencent Building, Keji Zhongyi Avenue, Hi-tech Park, Nanshan District, Shenzhen 518057, PRC

Attn.:

Mergers and Acquisitions Department

E-mail:

***

 

If to the Company, at:

 

Address:

北京市海淀区西小口路东升科技园 B2 号楼 6

Attn:

白喜

Email:

***

 

With a copy to:

 

Address:

北京市海淀区西小口路东升科技园 B2 号楼 6

Attn:

山盟

Email:

***

 

46

 

If to the Management Team Holdco and Mr. Huang, at:

 

Address:

北京市海淀区西小口路东升科技园 B2 号楼 6

Attn:

Huang Wei

Email:

***

 

If to Qingdao Caigao, at:

 

Address:

岛市崂山区深圳路 177

Attn:

Email:

***

 

If to TOPLAND GLOBAL, at:

 

Address:

Room 2308-09, 23/F, West Tower, Shun Tak Centre, 200 Connaught Road Central, Sheung Wan,HONG KONG

Attn:

潘智威

Email:

***

 

If to Shanghai Yuya, at:

 

Address:

上海市黄浦区西藏中路 525 8

Attn:

孙亚茹

Email:

***

 

If to Qingdao Lida, at:

 

Address:

青岛市崂山区秦邻路 18

Attn:

苏旭

Email:

***

 

If to Lemi Tianjin, at:

 

Address:

天津华苑产业园 8 号楼-3-401

Attn:

张乐

Email:

***

 

If to Qingdao Panshi, at:

 

Address:

青岛市龙成路 39 号 12

Attn:

谭海明

Email:

***

 

11.2     Any Party may change its address for purposes of this Section 11 by giving the other Parties written notice of the new address in the manner set forth above. Notwithstanding the foregoing, any notice involving non-performance or

47

 

termination shall be sent by personal delivery, certified mail, registered mail or courier service.

SECTION 12

MISCELLANEOUS

12.1     Legend. Each share certificate in respect of any Shares now held or hereafter acquired by any Shareholder shall, for as long as this Agreement is effective, bear a legend as follows:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (AS AMENDED, THE “ACT”) OR UNDER THE SECURITIES LAWS OF ANY STATE. THIS SECURITY MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE APPLICABLE SHAREHOLDERS’ AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON REQUEST TO THE HOLDER OF RECORD OF THE SHARES REPRESENTED BY THIS CERTIFICATE.

12.2     Discrepancies. If there is any discrepancy between any provision of this Agreement and any provision of the Articles or the constitutional documents of any Group Company, the provisions of this Agreement shall prevail, and the Parties shall cause the Articles or the constitutional documents of the relevant Group Company (as the case may be) to be promptly amended, to the extent permitted by applicable law, in order to conform with this Agreement.

12.3     Assignment. This Agreement shall inure to the benefit of, and be binding upon, the successors and Persons to whom a Shareholder transfers Equity Securities in the Company in a Transfer permitted under this Agreement; provided, that in each case such Person signs a Deed of Adherence substantially in the form attached hereto as Exhibit A.

12.4     No Agency. No Shareholder, acting solely in its capacity as a Shareholder, shall act as an agent of the Company or have any authority to act for or to bind the Company, except as authorized by the Board. For the purposes of this Section 12.4, unless acting expressly solely in its capacity as a Shareholder, any Shareholder who is a director, officer or employee of any Group Company acting in the ordinary course of business of any Group Company shall be conclusively deemed to act for and on behalf of, and shall not be regarded as acting as an agent of, any Group Company. Any Shareholder that takes any action or binds the Company in violation of this Section 12.4 shall be solely responsible for, and shall indemnify the Company and each other Shareholder against, any losses,

48

 

claims, damages, liabilities, judgments, fines, obligations, expenses and liabilities of any kind or nature whatsoever (including any investigative, legal and other expenses reasonably incurred in connection with, and any amounts paid in settlement of, any pending or threatened legal action or proceeding) that the Company or such other Shareholders (as the case may be) may at any time become subject to or liable for by reason of such violation.

12.5     No Partnership. The Shareholders expressly do not intend hereby to form a partnership, either general or limited, under any jurisdiction’s partnership law. The Shareholders do not intend to be partners to one another, or partners as to any third party, or create any fiduciary relationship among themselves, by virtue of their status as Shareholders. To the extent that any Shareholder, by word or action, represents to another Person that any Shareholder is a partner or that the Company is a partnership, the Shareholder making such representation shall be liable to each of the other Shareholders that incur any losses, claims, damages, liabilities, judgments, fines, obligations, expenses and liabilities of any kind or nature whatsoever (including any investigative, legal or other expenses reasonably incurred in connection with, and any amount paid in settlement of, any pending or threatened legal action or proceeding) arising out of or relating to such representation.

12.6     Amendment. This Agreement may only be amended, modified or supplemented with a written instrument executed by the Key Holder, Tencent, the Management Team Holdco and the Series B Majority.

12.7     Waiver. No waiver of any provision of this Agreement shall be effective unless set forth in a written instrument signed by the Party waiving such provision. No failure or delay by a Party in exercising any right, power or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy.

12.8     Entire Agreement. This Agreement and the other Transaction Documents constitute the entire understanding and agreement among the Parties with respect to the matters covered hereby and thereby, and all prior agreements and understandings, oral or in writing, if any, among the Parties with respect to the matters covered hereby and thereby are superseded by this Agreement and the other Transaction Documents. For avoidance of any doubt, Prior Shareholders Agreement shall be terminated and superseded by this Agreement immediately from the date hereof.

12.9     Severability.    If any provision of this Agreement is inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to any extent whatsoever. If any provision of this Agreement shall be adjudged to be excessively broad as to duration, geographical scope, activity or subject, such provision shall be deemed modified to the minimum degree necessary to make such provision valid and enforceable under applicable law and that such modified provision shall thereafter be enforced to the fullest extent possible.

12.10   Third Party Rights. Except as provided in Schedule 2, a Person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Ordinance (Chapter 623 of the Laws of Hong Kong) to enforce any term of, or enjoy any benefit under, this Agreement.

49

 

12.11   Counterparts. This Agreement may be executed in one or more counterparts, including counterparts transmitted by facsimile or e-mail, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Delivery of executed signature pages by facsimile or electronic transmission (via scanned PDF) by all Parties will constitute effective and binding execution and delivery of this Agreement.

12.12   Consent to Specific Performance. The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the Parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity.

12.13   Consent. Any consent or approval required under this Agreement shall be valid and effective only if given in writing.

SECTION 13

GOVERNING LAW AND DISPUTE RESOLUTION

13.1     Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of Hong Kong.

13.2     Arbitration. Any dispute arising out of or relating to this Agreement (“Dispute”), including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration at the Hong Kong International Arbitration Centre (the “HKIAC”) in accordance with the Hong Kong International Arbitration Centre Administered Arbitration Rules in force when the relevant arbitration notice is received by the HKIAC. There shall be three arbitrators. The claimants to the Dispute shall collectively have the right to appoint one arbitrator, the respondents to the Dispute shall have the right to appoint one arbitrator and the third arbitrator shall be appointed by the HKIAC. The language to be used in the arbitration proceedings shall be English. Each of the Parties irrevocably waives any immunity to jurisdiction to which it may be entitled or become entitled (including immunity to pre-award attachment, post-award attachment or otherwise) in any arbitration proceedings and/or enforcement proceedings against it arising out of or based on this Agreement. 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. Any Party shall be entitled to seek preliminary injunctive relief from any court of competent jurisdiction pending the constitution of the arbitral tribunal.

[Remainder of this page intentionally left blank]

 

50

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

 

 

 

MAGIC HEART INC.

 

 

 

By:

/s/ Jinbo Yao

 

 

 

58 Co., Ltd. (五八有限公司)

 

 

 

/s/ [company seal is affixed]

 

 

 

SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

 

 

 

TOPLAND GLOBAL HOLDINGS LIMITED

 

 

 

By:

/s/ Jiang Ping

 

Name:

Jiang Ping

 

Title:

CEO

 

SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

TENCENT MOBILITY LIMITED

 

 

 

By:

/s/ Chi Ping Lau

 

Name:

Chi Ping Lau

 

Title:

Authorized Signatory

 

SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

ZHUAN SPIRIT HOLDINGS LIMITED

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Jinbo Yao

 

 

 

ZHUAN VISION HOLDINGS LIMITED

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Jinbo Yao

 

 

 

Tianjin Zhuanzhuan World Technology Co., Ltd. (天津转转世界科技有限责任公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Jinbo Yao

 

 

 

Beijing Zhuanzhuan Spirit Technology (北京转转精神科技有限责任公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Jinbo Yao

 

SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

Shanghai Winder Bear Information Technology Co. Ltd. (上海发条熊信息技术有限责任公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Huang Wei

 

 

 

Beijing Zhuanzhuan Youpin Auction Co., Ltd.  (北京转转优品拍卖有限责任公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Huang Wei

 

 

 

Tianjin Fatiao Time Information Technology Co., Ltd. (天津发条时光信息技术有限责任公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Huang Wei

 

SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

CIVILIZATION AND TIME LTD

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Huang Wei

 

 

 

HUANG Wei

 

 

 

By:

/s/ Huang Wei

 

SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

Qingdao Caigao Group Co., Ltd. (青岛才高集团有限公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Jun Li

 

Name:

Jun Li

 

Title:

Chairman

 

SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

Shanghai Yuya Enterprise Management (Limited Partnership) (上海彧雅企业管理合伙企业(有限合伙))

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Yaru Sun

 

SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

Qingdao Lida Shopping Center Co., Ltd.  (青岛丽达购物中心有限公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Jin Li

 

Name:

Jin Li

 

Title:

Chairman

 

SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

Lemi (Tianjin) Architectural Engineering

 

Programming and Design Co., Ltd. (乐米(天津)建筑工程规划设计有限公司)

 

 

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Yue Zhang

 

Name:

Yue Zhang

 

Title:

President

 

SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

Qingdao Panshi Kaiyuan Trade Co., Ltd. (青岛磐石开源贸易有限公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Zuren Liu

 

Name:

Zuren Liu

 

Title:

President

 

SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

Exhibit 4.26

SERIES ANGEL PREFERRED SHARE PURCHASE AGREEMENT

This Series Angel Preferred Share Purchase Agreement (the “Agreement”) is made and entered into as the date of September 30, 2019, by and among:

1.   Golden Pacer, an exempted company incorporated and existing under the laws of the Cayman Islands (the “Company”); and

2.   58.COM INC., a company incorporated and existing under the laws of Cayman Islands (“58.Com” or the “Investor”).

Each of the parties above is referred to herein individually as a “Party”, and collectively as the “Parties”.

WHEREAS, the Investor, the subsidiary of the Company Tianjin 58 Financial Service Co., Ltd. (天津五八金服有限公司)  and certain other parties have entered into certain “Framework Agreement on Business Cooperation and Equity Arrangement (业务合作和权益安排之框架协议)”  dated as of September 2017 (as supplemented by a supplementary agreement entered into by the Investor, the Company and certain other parties dated as of September 12, 2019) (the “Spin-off Framework Agreement”). According to the Spin-off Framework Agreement, the Investor shall be entitled to exercise the “Share Conversion Rights (转股权)” (the “Exercise of Share Conversion of Profit Participation Rights (分润权之转股权)”) and the Investor intends to fully exercise the foregoing “Share Conversion Rights (转股权)” as of the Closing.

WHEREAS, the Company desires to sell and issue certain series Angel preferred shares of par value of US$0.00001 each (“Series Angel Preferred Shares”) to the Investor pursuant to the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, the Parties hereto agree as follows:

SECTION 1

Sale of the Series Angel Preferred Shares

1.1 Purchase of Series Angel Preferred Shares.On and subject to the terms and conditions hereof, at the Closing (as defined below) the Company agrees to issue and sell to 58.Com and 58.Com agrees to subscribe for and purchase 913,333,333 Series Angel Preferred Shares of the Company (the “Purchased Shares”), and the per share purchase price for each Series Angel Preferred Share shall be the par value of such Series Angel Preferred Share (the “Purchase Price”).

SECTION 2

Closing

2.1 Closing. The closing of the sale of the Purchased Shares shall take place remotely via the exchange of documents and signatures on a date specified by the Parties, or at such other time and place as the Company and the Investor may mutually agree upon (the “Closing”).

2.2 Closing Delivery.The Company shall deliver to the Investor at the Closing (i) a copy of updated register of members of the Company reflecting the Investor as the holder of its Purchased Shares certified by the agent of the Company, (ii) a copy of updated register of directors of the Company certified by the agent of the Company, reflecting two (2) directors appointed by the Investor; and (iii) a copy of share certificate for the Purchased Shares, duly signed by a director of the Company, provided, however, that the original of share certificate shall be delivered to the Investor within five (5) business days after the Closing.

For the avoidance of doubt, all the Purchase Price shall be deemed as fully-paid at the Closing by the Exercise of Share Conversion of Profit Participation Rights (分润权之转股权) and the Purchased Shares allotted by the Company to the Investor are allotted and issued as fully paid.

SECTION 3

Representations and Warranties of the Company

The Company represents and warrants on the date hereof and as of the Closing to the Investor as follows:

3.1 Organization, Good Standing, Corporate Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company has all requisite legal and corporate power and authority to execute, deliver and perform this Agreement, and this Agreement and all ancillary documents constitutes valid, legally binding and enforceable obligations on the Company in accordance with its terms.

3.2 Ownership. The Company has the power, and authority to allot, issue, and deliver to the Investor, in accordance with this Agreement, the Purchased Shares, free and clear of all encumbrances.

3.3 Valid Issuance of Shares. The Purchased Shares, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, fully paid, non-assessable, and free from any lien. The Purchased Shares will be issued in compliance with all applicable securities laws and in no violation of the preemptive rights of any person or terms of any agreement, by which the Company at the time of issuance is bound. The conversion shares have been duly reserved for issuance, and upon issuance in accordance with the terms of the Second Amended and Restated Memorandum of Association (“Restated Articles”), will be validly issued, fully paid and nonassessable and free of any liens.

3.4 Non-Contravention. The execution and carrying out of the provisions of this Agreement and compliance with the provisions hereof by the Company will not violate any provision of law and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any of the properties or assets of the Company or any indenture, mortgage, deed of trust, constitution, agreement or other instrument to which the Company is a party or by which it is bound or affected.

SECTION 4

Representations and Warranties of the Investor

The Investor hereby represents and warrants to the Company at the date hereof and as of the Closing that the execution and carrying out of the provisions of this Agreement and compliance with the provisions hereof by the Investor will not violate any provision of law and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any of the properties or assets of the Investor or any indenture, mortgage, deed of trust, agreement or other instrument to which the Investor is a party or by which it is bound or affected.

SECTION 5

Miscellaneous

5.1 Successors and Assigns. 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. Save as expressly provided in this Agreement and subject to the Amended and Restated Shareholders Agreement (the “Shareholders Agreement”) dated on or around the date of Closing entered into by and among the Parties hereof and certain other entities, nothing in this Agreement, express or implied, is intended to confer upon any party other than the Parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement.

5.2 Governing Law. This Agreement shall be governed by and construed exclusively in accordance with the laws of the Hong Kong Special Administrative Region of PRC (“Hong Kong”) without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than Hong Kong to the rights and duties of the parties hereunder.

5.3 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.

5.4 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 by an instrument signed by the Company and the Investor.

5.5 Severabilitv. If one or more provisions of this Agreement are held to be unenforceable under any applicable law, 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.

5.6 Entire Agreement. This Agreement and other agreement concerning the transaction contemplated hereof constitute the entire agreement among the Parties with respect to the subject matter hereto. For the avoidance of doubt, upon the Closing the  “Share Conversion Rights (转股权)” under the Spin-off Framework Agreement shall be deemed as fully exercised and except for the Exercise of Share Conversion of Profit Participation Rights (分润权之转股权), other terms and provisions of the Spin-off Framework Agreement shall be continuously valid and binding upon the relevant parties.

5.7 Dispute Resolution. 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 all Parties, within thirty (30) days after the commencing of the negotiation, such dispute shall be referred to and finally settled by arbitration at the Hong Kong International Arbitration Centre in accordance with the Rules of Arbitration of the International Chamber of Commerce (“ICC Rules”) in effect, subject to the following: (i) the arbitration tribunal shall consist of three (3) arbitrators to be appointed according to the ICC Rules; and (ii) the language of the arbitration shall be English. Notwithstanding anything in this Agreement or in the ICC Rules or otherwise, the arbitration tribunal shall not have the power to award injunctive relief or any other equitable remedy of any kind against the Parties unless such award both (x) is expressly appealable to and subject to de novo review by the courts of Hong Kong, and (y) would not, if upheld, have the effect of impairing, restricting, or imposing any conditions on the right or ability of the Parties or any of their respective Affiliates to conduct its respective business operations or to make or dispose of any other investments. 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.

(The remainder of this page is left blank intentionally)

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

 

 

 

INVESTOR:

58.com INC.

 

 

 

By:

/s/ Jinbo Yao

 

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

 

 

 

COMPANY:

Golden Pacer

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Jinbo Yao

 

Title:

Director

 

Exhibit 4.27

 

 

AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

by and among

Golden Pacer

THE PERSON LISTED IN SCHEDULE A-1

THE PERSONS LISTED IN SCHEDULE A-2

THE PERSONS LISTED IN SCHEDULE A-3

THE PERSONS LISTED IN SCHEDULE A-4

and

THE OTHER PARTIES NAMED HEREIN

April 23, 2020

 

 

 

 

AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

This AMENDED AND RESTATED SHAREHOLDERS AGREEMENT  (this “Agreement”) is entered into on April 23, 2020 by and among:

 

A.        Golden Pacer, a Cayman Islands exempted company whose registered address is at the office of Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands (the “Company”);

 

B.         Golden Hawk Limited, a limited liability company established under the laws of Hong Kong whose registered address is at Suite 1113A 11/F Ocean CTR Harbour City 5 Canton Road, TST KLN, Hong Kong (the “HK Company”);

 

C.        Tianjin Wuba Shuke Information Technology Co., Ltd. (天津五八数科信息技术有限公司), a wholly foreign-owned enterprise established under the laws of the PRC whose registered address is at Kuang Shi International Building 2-1204, Tianjin Pilot Free Trade Zone (central business district), PRC and wholly owned by the HK Company (the “WFOE”);

 

D.        Tianjin Wuba Rongxin Information Technology Co., Ltd. (天津五八融鑫信息技术有限公司), a company established under the laws of the PRC, whose registered address is at No.1840-130, F18, Baofeng Building, No.3678 Xinhua Road, Tianjin Pilot Free Trade Zone (central business district), PRC (the “Wuba Rongxin”);

 

E.         Tianjin Wuba Jinfu Co., Ltd. (天津五八金服有限公司), a company established under the laws of the PRC, whose registered address is at No. 1902, F19, Jinzuo Square, No.5 Meiyuan Road, Huayuan Industrial Zone, Binhai Hi-tech Zone, Tianjin, PRC (the “Wuba Jinfu”, together with the Wuba Rongxin, collectively the “Domestic Companies”, and each a “Domestic Company”; the Domestic Companies and the WFOE, collectively the “PRC Companies” and each, a “PRC Company”);

 

F.         YAO Jinbo  (姚劲波), a PRC citizen with ID number *** (the “Founder”);

 

G.         Golden Rhapsody Limited, a British Virgin Islands exempted company whose registered address is at Vistra Corporate Services Centre, Wickams Cay II, Road Town, Tortola, VG 1110, British Virgin Islands (the “Founder Holdco”, together with Founder, collectively the “Key Parties”, and each a “Key Party”);

 

H.         Golden Rockets L.P., a Cayman Islands exempted limited partnership whose registered address is at the offices of Harneys Fiduciary (Cayman) Limited, 4th floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands (the “Non-Executive Holder”, together with the Key Parties, collectively the “Original Shareholders” and each an “Original Shareholder”);

 

I.          The entities as set forth on Schedule A-1 (the “Series Angel Investor”);

 

J.          The entity as set forth on Schedule A-2 (the “Series Pre-A Investor”);

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K.         The entities as set forth on Schedule A-3 (collectively the “Series A-1 Investors”, and each a “Series A-1 Investor”); and

 

L.         The entities as set forth on Schedule A-4 (collectively the “Series A-2 Investors”, and each a “Series A-2 Investor”; the Series A-2 Investors together with the Series A-1 Investors and such other future series A investor in the future Series A Financing (as defined below), the “Series A Investors” and each a “Series A Investor”; the Series A Investors, the Series Pre-A Investor and the Series Angel Investor, collectively, the “Investors” and each an “Investor”).

 

Each of the foregoing parties is referred to herein individually as a “Party” and collectively as the “Parties”.

 

RECITALS.

 

WHEREAS, 58 (as defined in Schedule A-1) has agreed to purchase from the Company, and the Company has agreed to sell to 58, up to 913,333,333 Series Angel Preferred Shares of the Company on the terms and conditions set forth in the Series Angel Share Purchase Agreement dated September 30, 2019 (the “Series Angel Share Purchase Agreement”), by and among, the Company, the Key Parties and certain other parties.

 

WHEREAS, Tencent (as defined in Schedule A-2) has agreed to purchase from the Company, and the Company has agreed to sell to Tencent, up to 136,370,877 Series Pre-A Preferred Shares of the Company on the terms and conditions set forth in the Series Pre-A Share Purchase Agreement dated September 12, 2019 (the “Series Pre-A Share Purchase Agreement”), by and among the Company, the Key Parties and certain other parties.

 

WHEREAS, TH Capital (as defined in Schedule A-3) has agreed to purchase from the Company, and the Company has agreed to sell to TH Capital, up to 1,889,442 Series A-1 Preferred Shares of the Company on the terms and conditions set forth in the Series A-1 Share Purchase Agreement dated September 12, 2019 (the “Series A-1 Share Purchase Agreement”), by and among, the Company, the Key Parties and certain other parties.

 

WHEREAS, Zhongwei (as defined in Schedule A-4) has agreed to purchase from the Company, and the Company has agreed to sell to Zhongwei, up to 32,003,137 Series A-2 Preferred Shares of the Company on the terms and conditions set forth in the Series A-2 Share Purchase Agreement dated September 12, 2019 (the “Zhongwei Series A-2 Share Purchase Agreement”), by and among, the Company, the Key Parties and certain other parties.

 

WHEREAS, AMTD (as defined in Schedule A-4) has agreed to purchase from the Company, and the Company has agreed to sell to AMTD, up to 19,787,500 Series A-2 Preferred Shares of the Company on the terms and conditions set forth in the Series A-2 Share Purchase Agreement dated September 12, 2019 (the “AMTD Series A-2 Share Purchase Agreement”, together with the Zhongwei Series A-2 Share Purchase Agreement, collectively, the “Series A-2 Share Purchase Agreements”; the Series A-2 Share Purchase Agreements together with the Series Pre-A Share Purchase Agreement, the Series A-1 Share Purchase Agreement and the Series Angel Share Purchase Agreement, collectively the “Share Purchase Agreements” and each a “Share Purchase Agreement”), by and among, the Company, the Key Parties and certain other parties.

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WHEREAS, the Company has agreed to issue to each of the Series A-1 Investors (other than TH Capital) certain warrants to purchase certain Series A-1 Preferred Shares of the Company on the terms and conditions set forth in such warrants dated September 12, 2019 (collectively, the “Series A-1 Warrants” and each a “Series A-1 Warrant”).

 

WHEREAS, the Company has agreed to issue to certain Series A-2 Investors certain warrants to purchase certain Series A-2 Preferred Shares of the Company on the terms and conditions set forth in such warrants dated September 12, 2019 (collectively, the “Series A-2 Warrants” and each a “Series A-2 Warrant”; the Series A-2 Warrants together with the Series A-1 Warrants, collectively the “Warrants” and each a “Warrant”).

 

WHEREAS, the Parties hereto (other than the Series Angel Investor) have entered into certain Shareholders Agreement dated as of September 12, 2019 (the “Prior SHA”).

 

WHEREAS, the Parties hereto desire to enter into this Agreement for the governance, management and operations of the Group Companies and for the rights and obligations between and among the Shareholders and the Company.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

1.         GENERAL MATTERS.

 

1.1       Definitions. Capitalized terms used herein without definition have the meanings assigned to them in Annex A attached to this Agreement. The use of any term defined in Annex A in its uncapitalized form indicates that the words have their normal and general meaning.

 

1.2       The Company’s shareholding structure as of the date hereof shall be as set forth in the Company’s capitalization table attached hereto as Exhibit D.

 

1.3       Notwithstanding anything to the contrary in this Agreement, for the purpose of the interpretation of this Agreement and the rights and obligations of each shareholder hereunder, each Series A Warrant Share shall be deemed as issued and outstanding from the date hereof.

 

2.         INFORMATION AND INSPECTION RIGHTS.

 

2.1       Information Rights.

 

(a)        Information Rights with Respect to Series Angel Investor, Series A-1 Investors and Series A-2 Investors. Commencing on the date of this Agreement, and for so long as any Investor holds any Preferred Share, the Company shall and the Warrantors shall cause the Group Companies to, deliver to such Investor the following with respect to the Group Companies:

 

(i)          annual audited consolidated financial statements which shall contain the consolidated profit-and-loss statement, balance sheet, cash flow statement and other

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operational data within ninety (90) days after the end of each fiscal year, audited in accordance with U.S. GAAP or any internationally recognized accounting standards by an accounting firm;

 

(ii)          quarterly unaudited consolidated financial statements within forty- five (45) days after the end of each quarter which shall contain the quarterly profit-and-loss statement, balance sheet, cash flow statement prepared in accordance with U.S. GAAP; and

 

(iii)          monthly unaudited consolidated financial statements and main operational data within thirty (30) days after the end of each month which shall contain the monthly profit-and-loss statement, balance sheet, cash flow statement prepared in accordance with U.S. GAAP.

 

(b)        Information Rights with Respect to Tencent. The Company covenants and agrees that, commencing on the date of this Agreement, and for so long as Tencent holds any Preferred Share, the Company will and the Warrantors will cause the Group Companies to, deliver to Tencent the following with respect to the Group Companies:

 

(i)          annual audited consolidated financial statements which shall contain the consolidated profit-and-loss statement, balance sheet, cash flow statement and other operational data within ninety (90) days after the end of each fiscal year, audited in accordance with U.S. GAAP or any internationally recognized accounting standards by an accounting firm accepted by Tencent;

 

(ii)          quarterly unaudited consolidated financial statements which shall contain the consolidated profit-and-loss statement, balance sheet, cash flow statement within forty- five (45) days after the end of each quarter;

 

(iii)          monthly unaudited consolidated financial statements which shall contain the consolidated profit-and-loss statement, balance sheet, cash flow statement and main operational data within thirty (30) days after the end of each month;

 

(iv)          a business plan and an annual budget for the following fiscal year at least thirty (30) days prior to the end of each fiscal year;

 

(v)          written notices concerning the following matters: (x) any material litigation or arbitration and their respective judgments or awards and other matters that may lead to Material Adverse Effect; (y) any investigation or face-to-face meeting, warning, penalties or any order of suspension of operations for rectification, each from any Governmental Authority with respect to any Group Company’s failure to comply with the applicable laws; and (z) any material adjustments to the nature of business, the business model or business scope of the Group Companies (taken as a whole);

 

(vi)          the actual amount of the Spin-off Consideration to be paid by Group Companies to 58 Group and the relevant materials or documents related to the calculation of the foregoing Spin-off Consideration in writing at least fifteen (15) days prior to the actual payment of any Spin-off Consideration in any form by the Group Companies to 58 Group pursuant to the Spin-Off Transaction Documents;

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(vii)          in case that the 58 Group intends to engage or carry out any Competitive Business which are out of the intentions of the Group Companies’ business plan at that time and/or cannot be engaged or carried out by the Group Companies due to lack of competent operational conditions at that time (collectively, the “Competitive Business Engagement Obstacles”), the reasons to such Competitive Business Engagement Obstacles shall be delivered to Tencent before the Group Companies agree the 58 Group to engage or carry out the foregoing Competitive Business;

 

(viii)          in the event that the Group Companies may be imposed to tax recovery or tax penalties by any tax authorities, the Company shall inform Tencent of the foregoing in writing, and promptly negotiate with Tencent for solutions (including but not limited to submitting the amount of tax recovery and relevant penalties to tax authorities for the purpose of settlement or compromise), so as to minimize the tax liability and risk of the Group Companies.

 

(ix)          upon the reasonable request by Tencent, such other information relating to the operational and financial condition of the Group Companies.

 

(c)        Inspection Rights. The Company covenants and agrees that, commencing on the date of this Agreement,

 

(i)          Each Investor shall be entitled to inspect the financial books of the Group Companies for the purpose of supervision in good fifth upon reasonable prior notice to the Group Companies;

 

(ii)          Each of Tencent and the Series A Investor who bears the highest shareholding percentage among all the Series A Investors shall have the right to inspect and copy facilities, operational and financial records and books (including the original accounting documents) of the Group Companies at any time during regular working hours upon reasonable prior notice to the Group Companies, and the right to discuss the business, operations and conditions of the Group Companies with their respective directors, officers, employees, accountants, legal counsel and investment bankers upon reasonable prior notice to the Group Companies.

 

(iii)          for so long as Tencent and its Affiliates collectively hold no less than three percent (3%) of the Shares of the Company (on a fully-diluted and as-converted basis), Tencent shall have the right to appoint an independent and qualified auditor to examine the accounts of the Group Companies (the Group Companies shall bear the reasonable cost of such auditing) at most once a year and the Warrantors shall give necessary cooperation and spare reasonable efforts to provided necessary assistance and materials for the foregoing auditing.

 

3.         REGISTRATION RIGHTS.

 

3.1       Applicability of Rights. The holders of the Registrable Securities shall be entitled to the following rights with respect to any potential public offering of Ordinary Shares of the Company (or securities representing such Ordinary Shares) in the United States, and to any analogous or equivalent rights with respect to any other offering of shares in any other jurisdiction pursuant to which the Company undertakes to publicly offer or list such securities for trading on a recognized securities exchange.

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3.2       Definitions. For purposes of this Section 3:

 

(a)        Registration. The terms “register”, “registered”, and “registration” refer to a registration effected by preparing and filing a registration statement under the Securities Act, and the declaration of effectiveness of such registration statement.

 

(b)        Registrable Securities. The term “Registrable Securities” means: (1) Ordinary Shares of the Company issued or to be issued upon conversion of the Series Pre-A Preferred Shares and the Series A Preferred Shares issued (A) under the Series Pre-A Share Purchase Agreements and/or Series A Share Purchase Agreements (as applicable) and (B) pursuant to the issuance of New Securities by the Company to the Series Pre-A Investor and the Series A Investors pursuant to Section 4.1 hereof; (2) Ordinary Shares of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, any of the foregoing. Notwithstanding the foregoing, “Registrable Securities” shall not include any Registrable Securities sold by a Person in a transaction in which rights under this Section 3 are not assigned in accordance with this Agreement or any Registrable Securities sold in a public offering, whether sold pursuant to Rule 144 promulgated under the Securities Act, or in a registered offering, or otherwise.

 

(c)        Registrable Securities Then Outstanding. The number of shares of “Registrable Securities then outstanding” shall mean the number of Ordinary Shares of the Company that are Registrable Securities and are then issued and outstanding or would be outstanding assuming full conversion of all Registrable Securities which are convertible into Ordinary Shares.

 

(d)        Holder. For purposes of this Section 3, the term “Holder” means any Person who holds Registrable Securities of record, whether such Registrable Securities were acquired directly from the Company or from another Holder in a permitted transfer, to whom the rights under this Section 3 have been duly assigned in accordance with this Agreement; provided, however, that for purposes of this Agreement, a record holder of the Preferred Shares convertible into such Registrable Securities shall be deemed to be the Holder of such Registrable Securities; and provided,  further, that (i) the Company shall in no event be obligated to register the Preferred Shares and that (ii) Holders of Registrable Securities will not be required to convert their Preferred Shares into Ordinary Share in order to exercise the registration rights granted hereunder, until immediately prior to the declaration of effectiveness of the registration statement for the offering to which the registration relates.

 

(e)        Form S-3 and Form F-3. The terms “Form S-3” and “Form F-3” means such respective form under the Securities Act as is in effect on the date hereof or any successor or comparable registration form under the Securities Act subsequently adopted by the SEC, which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

 

3.3       Demand Registration.

 

(a)        Request by Holders. If the Company shall receive, at any time after the earlier of:

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(i)          (x) the fifth (5th) anniversary of the closing date under the Onshore A-2 Capital Increase Agreement with respect to Tencent, and (y) the sixth (6th) anniversary of the closing date under the Onshore A-2 Capital Increase Agreement with respect to other Holders (provided that if Tencent exercises the right of demand registration in accordance with the foregoing (x), other Holders shall also be entitled to exercises the right of demand registration in accordance with the mechanism hereof); or

 

(ii)          a Qualified IPO,

 

a written request from the Holders (for the avoidance of doubt, in case Tencent exercises the right of demand registration in accordance with Section 3.3(a)(i)(x), such Holders shall include Tencent and other Holders thereafter entitled and elect to exercise the right of demand registration) of at least thirty percent (30%) of the Registrable Securities then outstanding that the Company files a registration statement under the Securities Act covering the registration of Registrable Securities pursuant to this Section 3.3, then the Company shall, within ten (10) Business Days after the receipt of such written request, give a written notice of such request (the “Request Notice”) to all Holders. The Holders shall send a written notice stating the number of Registrable Securities requested to be registered and included in such registration (the “Request Securities”) to the Company within ten (10) Business Days after receipt of the Request Notice. The Company shall thereafter use its best efforts to effect, as soon as practicable, the registration of the Request Securities, subject only to the limitations of this Section 3.3.

 

(b)        Underwriting. If the Holders initiating the registration request under this Section 3.3 (the “Initiating Holders”) intend to distribute the Registrable Securities covered by their request by means of an underwriting, then they shall so advise the Company as a part of their request made pursuant to this Section 3.3 and the Company shall include such information in the Request Notice referred to in Section 3.3(a). In the event of an underwritten offering, 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 managing underwriter or underwriters selected for such underwriting by the Holders of a majority of the Registrable Securities being registered and reasonably acceptable to the Company. Notwithstanding any other provision of this Section 3.3, if the underwriter(s) advise(s) the Company in writing that marketing factors require a limitation of the number of securities to be underwritten, then the Company shall so advise all Holders of Registrable Securities which would otherwise be registered and underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be reduced as required by the underwriter(s) and allocated among the Holders of Registrable Securities on a pro-rata basis according to the number of Registrable Securities then outstanding held by each Holder requesting registration (including the Initiating Holders); provided,  however, that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced (x) by more than seventy-five percent (75%) and (y) unless all other securities are first entirely excluded from the underwriting and registration including all shares that are not Registrable Securities and are held by any other Person, including any Person who is an employee, officer or director of the Company or any Subsidiary of the Company. Further, if, as a result of such underwriter cutback, the Holders cannot include in the IPO all of the Registrable Securities that

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they have requested to be included therein, then such Registration shall not be deemed to constitute one of the three (3) demand Registrations to which the Holders are entitled pursuant to this Section 3. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by delivering a written notice to the Company and the underwriter(s), delivered at least ten (10) Business Days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder that is a partnership, the Holder and the partners and retired partners of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing Persons, and for any Holder that is a corporation, the Holder and all corporations that are affiliates of such Holder, shall be deemed to be a single “Holder”, and any pro-rata reduction with respect to such “Holder” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “Holder”, as defined herein.

 

(c)        Maximum Number of Demand Registrations. The Company shall have no obligation to effect more than three (3) registrations pursuant to this Section 3.3.

 

(d)        Deferral. Notwithstanding the foregoing, if the Company shall furnish to the Holders requesting the filing of a registration statement pursuant to this Section 3.3, a certificate signed by the president or chief executive officer of the Company stating that in the good faith judgment of the Board, it would be materially detrimental to the Company and its shareholders for such registration statement to be filed, then the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided,  however, that the Company may not utilize this right more than once in any twelve (12) month period; provided further that during such ninety (90) day period, the Company shall not file any registration statement pertaining to the public offering of any securities of the Company.

 

(e)        Expenses. The Company shall pay all expenses (excluding only underwriting discounts and commissions relating to the Registrable Securities sold by the Holders) incurred in connection with any registration pursuant to this Section 3.3, including all U.S. federal, “blue sky” and all foreign registration, filing and qualification fees, printer’s and accounting fees, the fees and expenses (including disbursements) of outside counsels for the Holders and any fee charged by any depositary bank, transfer agent or share registrar. Each Holder participating in a registration pursuant to this Section 3.3 shall bear such Holder’s proportionate share (based on the total number of shares of Registrable Securities sold in such registration other than for the account of the Company) of all discounts and commissions relating to the Registrable Securities sold by the Holders. Notwithstanding the foregoing, the Company shall not be required to pay any expense of any registration proceeding begun pursuant to this Section 3.3 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered, unless the Holders of a majority of the Registrable Securities then outstanding agree that such registration constitutes the use by the Holders of one (1) demand registration pursuant to this Section 3.3 (in which case such registration shall also constitute the use by all Holders of Registrable Securities of one (l) such demand registration); provided further,  however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company not known to the Holders at the time of their request for such registration and have withdrawn their request for registration with reasonable promptness after learning of such material adverse change, or if the registration proceeding is terminated for

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any reason not specifically covered by this Section 3.3(e), then the Company shall be required to pay all of such expenses and such registration shall not constitute the use of a demand registration pursuant to this Section 3.3.

 

3.4       Piggyback Registrations. The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to filing of any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (including registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any registration under Section 3.3 or Section 3.5 of this Agreement or to any employee benefit plan or a corporate reorganization) and will afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by such Holder shall within ten (10) Business Days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed 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 with respect to offerings of its securities, all upon the terms and conditions set forth herein.

 

(a)        Underwriting. If a registration statement under which the Company gives notice under this Section 3.4 is for an underwritten offering, then the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder’s Registrable Securities to be included in a registration pursuant to this Section 3.4 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected by the Company for such underwriting. Notwithstanding any other provision of this Agreement, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting shall be allocated, first to the Company, and second, to each of the Holders requesting inclusion of their Registrable Securities in such registration statement on a pro-rata basis based on the total number of Registrable Securities then held by each such Holder; provided, however, that the right of the underwriter(s) to exclude shares (including Registrable Securities) from the registration and underwriting as described above shall be restricted so that (i) the number of Registrable Securities included in any such registration is not reduced below twenty-five percent (25%) of the aggregate number of Registrable Securities for which inclusion has been requested, even if this will cause the Company to reduce the number of shares it wishes to offer; and (ii) all shares that are not Registrable Securities and are held by any other Person, including any Person who is an employee, officer or director of the Company or any Subsidiary of the Company shall first be excluded from such registration and underwriting before any Registrable Securities are so excluded. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by delivering a written notice to the Company and the underwriter(s) at least ten (10) Business Days prior to the effective date of the registration statement. Any

9

Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder that is a partnership, the Holder and the partners and retired partners of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing Persons, and for any Holder that is a corporation, the Holder and all corporations that are affiliates of such Holder, shall be deemed to be a single “Holder,” and any pro-rata reduction with respect to such “Holder” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “Holder,” as defined in this sentence.

 

(b)        Expenses. The Company shall pay all expenses (excluding only underwriting and brokers’ discounts and commissions relating to shares sold by the Holders) incurred in connection with a registration pursuant to this Section 3.4, including all U.S. federal, “blue sky” and all foreign registration, filing and qualification fees, printers’ and accounting fees, the fees and expenses (including disbursements) of outside counsels for the Holders and any fee charged by any depositary bank, transfer agent or share registrar. For the avoidance of doubt, the Company shall pay all expenses incurred in connection with a registration pursuant to this Section 3.4 notwithstanding the cancellation or delay of the registration proceeding for any reason.

 

(c)        Not Demand Registration.   Registration pursuant  to this Section 3.4 shall not be deemed to be a demand registration as described in Section 3.3 above. Except as otherwise provided herein, there shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 3.4.

 

3.5       Form S-3 or Form F-3 Registration. After its initial public offering, the Company shall use its best efforts to qualify for registration on Form S-3 or Form F-3 or any comparable or successor form promptly and to maintain such qualification thereafter. If the Company is qualified to use Form S-3 or Form F-3, any Holder or Holders shall have a right to request in writing that the Company effect a registration on either Form S-3 or Form F-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, and upon receipt of each such request, the Company shall perform the tasks set out in paragraphs (a) and (b) below:

 

(a)        Notice. Promptly give written notice of the proposed registration and the Holder’s or Holders’ request therefor, and any related qualification or compliance, to all other Holders of Registrable Securities; and

 

(b)        Registration. As soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders or Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after the date on which the Company provides the notice contemplated by Section 3.5(a); provided,  however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 3.5:

 

(i)          if Form S-3 or Form F-3 becomes unavailable for such offering by the Holders;

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(ii)          if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price of less than US$1,000,000 to the public; or

 

(iii)          if the Company has, within the six (6) month period preceding the date of such request, already effected a registration under the Securities Act other than a registration from which the Registrable Securities of Holders have been excluded (with respect to all or any portion of the Registrable Securities the Holders requested to be included in such registration) pursuant to the provisions of Section 3.4(a).

 

(c)        Expenses. The Company shall pay all expenses (excluding only underwriting or brokers’ discounts and commissions relating to shares sold by the Holders) incurred in connection with each registration requested pursuant to this Section 3.5, including all U.S. federal, “blue sky” and all foreign registration, filing and qualification fees, printers’ and accounting fees, the fees and expenses (including disbursements) of outside counsels for the Holders and any fee charged by any depositary bank, transfer agent or share registrar. For the avoidance of doubt, the Company shall pay all expenses incurred in connection with a registration pursuant to this Section 3.5 notwithstanding the cancellation or delay of the registration proceeding for any reason.

 

(d)        Maximum Frequency. Except as otherwise provided herein, there shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 3.5.

 

(e)        Deferral. Notwithstanding the foregoing, if the Company shall furnish to Holders requesting the filing of a registration statement pursuant to this Section 3.5, a certificate signed by the president or chief executive officer of the Company stating that in the good faith judgment of the Board, it would be materially detrimental to the Company and its shareholders for such Form S-3 or Form F-3 registration statement to be filed, then the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the initiating Holders; provided,  however, that the Company may not utilize this right more than once in any twelve (12) month period; provided further that during such ninety (90) day period, the Company shall not file any registration statement pertaining to the public offering of any securities of the Company.

 

(f)        Not Demand Registration. Form S-3 or Form F-3 registrations shall not be deemed to be demand registrations as described in Section 3.3 above.

 

(g)        Underwriting. If the requested registration under this Section 3 is for an underwritten offering, the provisions of Section 3.3(b) shall apply.

 

If the Company fails to perform any of the Company’s obligations set forth above in this Section 3.5 relating to a demand registration made pursuant to Section 3.3, such registration shall not constitute the use of a demand registration under Section 3.3.

 

3.6       Obligations of the Company. Whenever required to effect the registration of any Registrable Securities under this Agreement, the Company shall, as soon as practicable:

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(a)        Registration Statement. Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and keep any such registration statement effective for a period of one (1) year or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever is earlier;

 

(b)        Amendments and Supplements. Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement;

 

(c)        Prospectuses. Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration;

 

(d)        Blue Sky. Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;

 

(e)        Deposit Agreement. If the registration relates to an offering of depositary shares or other securities representing Ordinary Shares deposited pursuant to a deposit agreement or similar facility, cause the depositary under such agreement or facility to accept for deposit under such agreement or facility all Registrable Securities requested by each Holder to be included in such registration in accordance with this Section 3;

 

(f)        Underwriting. In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement;

 

(g)        Notification. Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such 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;

 

(h)        Opinions and Comfort Letter. Furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriter(s) for sale, if such Registrable Securities are being sold through underwriters, or, if such Registrable Securities are not being sold through underwriters, on the date that the registration statement with respect to such Registrable Securities becomes effective, (i) opinions, each dated as of such date, of the counsels representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an

 

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underwritten public offering and reasonably satisfactory to Holders representing a majority of the Registrable Securities requested to be registered, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a “comfort letter” dated as of such date, 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 and reasonably satisfactory to Holders representing a majority of the Registrable Securities requested to be registered, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities.

 

3.7       Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to Sections 3.3, 3.4 or 3.5 that the Holders shall furnish to the Company information regarding such Holders, the Registrable Securities held by them and the intended method of disposition of such Registrable Securities as shall reasonably be required to timely effect the Registration of their Registrable Securities.

 

3.8       Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 3.3, 3.4 or 3.5:

 

(a)        By the Company. To the extent permitted by law, the Company shall indemnify and hold harmless each Holder and its Affiliates, partners, officers, directors, employee, legal counsel, agent, any underwriter (as determined in the Securities Act) for such Holder and each Person, if any, who Controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other applicable law, 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 (collectively a “Violation”):

 

(i)          any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto;

 

(ii)          the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or

 

(iii)          any violation or alleged violation of the Securities Act, the Exchange Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or other applicable law in connection with the offering covered by such registration statement;

 

and the Company shall reimburse each such Holder and its Affiliates, partners, officers, directors, employees, legal counsel, agents, underwriters 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; provided,  however, that the indemnity contained in this Section 3.8(a) 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, conditioned 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 out of or is based

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upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter or controlling Person of such Holder.

 

(b)        By Selling Shareholders. To the extent permitted by law, each selling Holder, on a several and not joint basis, will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each Person, if any, who Controls the Company, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder’s partners, directors, officers, legal counsel or any Person who Controls such Holder within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, legal counsel, controlling Person, underwriter or other such Holder, partner or director, officer or controlling Person of such other Holder may become subject under the Securities Act, the Exchange Act or other applicable law, 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 the Company’s reasonable reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling Person, underwriter or other Holder, partner, officer, director or controlling Person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action: provided,  however, that the indemnity contained in this Section 3.8(b) 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; and provided further that the total amounts payable in indemnity by a Holder under this Section 3.8(b) plus any amount under Section 3.8(e) in respect of any Violation shall not exceed the net proceeds received by such Holder in the registered offering out of which such Violation arises.

 

(c)        Notice. Promptly after receipt by an indemnified party under this Section 3.8 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 this Section 3.8, deliver to the indemnifying party a written notice of the commencement thereof (a “Claim Notice”) 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 parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, (i) during the period from the delivery of a Claim Notice until retention of counsel by the indemnifying party; and (ii) if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver a written notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of liability to the indemnified party under this Section 3.8 to the extent the indemnifying party is prejudiced as a result thereof, but the omission to deliver a 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 3.8.

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(d)        Defect Eliminated in Final Prospectus. The foregoing indemnity of the Company and Holders are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the “Final Prospectus”), such indemnity shall not inure to the benefit of any Person if a copy of the Final Prospectus was timely furnished to the indemnified party and was not furnished to the Person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act.

 

(e)        Contribution. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any Holder exercising rights under this Agreement, or any controlling Person of any such Holder, makes a claim for indemnification pursuant to this Section 3.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 3.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling Holder or any such controlling Person in circumstances for which indemnification is provided under this Section 3.8; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) 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; provided,  however, that, in any such case: (A) no such Holder will be required to contribute any amount in excess of the net proceeds received by such Holder pursuant to such registration statement absent guilty of such fraudulent misrepresentation; and (B) no Person or entity guilty of fraudulent misrepresentation as defined in Section 11(f) of the Securities Act will be entitled to contribution from any Person or entity who was not guilty of such fraudulent misrepresentation.

 

(f)        Survival. The obligations of the Company and Holders under this Section 3.8 shall survive for six (6) years after the completion of any offering of Registrable Securities in a registration statement, regardless of the expiration of any statutes of limitation or extensions of such statutes.

 

3.9       Rule 144 Reporting. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to:

 

(a)        Make and keep public information available, as those terms are understood and defined in Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public;

 

(b)        File with the SEC, in a timely manner, all reports and other documents required of the Company under the Securities Act or the Exchange Act, at all times after the effective date of the first registration under the Securities Act filed by the Company;

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(c)        So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request, (i) a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements, (ii) a copy of the most recent annual, interim, quarterly or other report of the Company and, (iii) such other reports and documents as a Holder may reasonably request availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration.

 

3.10     Termination of the Company’s Obligations. Notwithstanding the foregoing, the Company shall have no obligations pursuant to Sections 3.3, 3.4 or 3.5 with respect to any Registrable Securities proposed to be sold by a Holder in a registered public offering (i) five (5) years after the consummation of a Qualified IPO, or (ii), if, in the opinion of counsel to the Company, all such Registrable Securities proposed to be sold by a Holder may then be sold under Rule 144 in one transaction without exceeding the volume limitations thereunder.

 

3.11     No Registration Rights to Third Parties. Without the prior written consent of the Holders of more than fifty percent (50%) of the Registrable Securities then outstanding, the Company covenants and agrees that it shall not grant, or cause or permit to be created, for the benefit of any Person or entity any registration rights of any kind, whether similar to the demand, “piggyback” or Form S-3 or Form F-3 registration rights described in this Section 3, or otherwise, relating to any shares or other securities of the Company, other than rights that are subordinate to the rights of the Holders hereunder.

 

3.12     “Market Stand-Off” Agreement. Each Holder hereby agrees that, if and to the extent requested by the lead underwriter of securities of the Company in connection with a registration relating to a specific proposed public offering (other than a registration on Form S-8 or a related or successor form relating solely to an employee benefit plan or a registration on Form S-4 or a related or successor form relating solely to a transaction under SEC Rule 145), such Holder will, subject to the following conditions, enter into a lock-up or standoff agreement in customary form (subject to the following conditions) under which such Holder agrees not to sell or otherwise transfer or dispose of any Registrable Securities or other shares of the Company owned by such Holder as of the date of such registration for up to one hundred eighty (180) days following the effective date of the related registration statement. The obligations of each Holder under this Section 3.12 are subject to the following conditions: (i) the lockup or standoff agreement applies only to the first registration statement of the Company which covers securities to be sold on its behalf to the public in an underwritten offering, but not to Registrable Securities actually sold pursuant to such registration statement; (ii) such Holder is satisfied that all directors, officers, and holders of 1% or more of any class of securities of the Company are bound by substantially identical restrictions; (iii) the lockup or standoff agreement provides that if any securities of the Company are to be excluded or released in whole or part from such restrictions, the underwriter shall so notify each Holder within three (3) days and each Holder shall be excluded or released, in proportionate amounts to the extent of the exclusion or release with respect to any other holder of Company’s securities, including any director, officer, or holder of 1% or more of any class of securities of the Company subject to such restrictions; and (iv) the lockup or standoff agreement by its terms permits transfers of Registrable Securities by any Holder to any Affiliate of such Holder during the restricted period, provided that such Affiliate executes a lock-up or standoff agreement substantively identical to that signed by the transferring Holder. The lock-up or standoff agreement shall expire no later than ninety (90) days after execution by the Holder if no

16

underwritten public offering has occurred by the date of such execution. The Company may impose a stop-transfer restriction with respect to Registrable Securities that are subject to any such lockup or standoff agreement but shall remove such restriction immediately upon the expiration or termination of such lockup or standoff agreement.

 

3.13     Public Offering Rights (Non-U.S. Offerings). If shares of the Company are offered in an underwritten public offering (whether or not a Qualified IPO) outside of the United States for the account of any Ordinary Shareholder or other shareholders, each Holder shall have the right to include a pro-rata number of shares (based on the number of shares (on an as - converted basis) then held by such Holder and all other shareholders of the Company selling in such offering) in such offering on terms and conditions no less favorable to the Holders than to any other selling shareholder.

 

4.         RIGHT OF PARTICIPATION.

 

4.1       With Respect to Issuance of New Securities:

 

(a)        General. Each of the Preferred Shareholders, the Key Parties and the Non- Executive Holder (collectively, the “Participation Rights Holders”, and each a “Participation Rights Holder) shall have a right of first refusal to purchase such a Pro Rata Share of the New Securities that the Company may from time to time issue after the date of this Agreement (the “Right of Participation”).

 

(b)        Pro Rata Share. A Participation Rights Holder’s “Pro Rata Share” is the ratio of (a) the number of Ordinary Shares then held by such Participation Rights Holder (calculated on a fully-diluted and as-converted basis), to (b) the total number of Ordinary Shares then outstanding of the Company (calculated on a fully-diluted and as-converted basis) immediately prior to the giving rise to the Right of Participation. For the avoidance of doubt, when calculating the Pro Rata Share of the Key Parties, the Ordinary Shares held by the Key Parties through the Non-Executive Holder shall be excluded.

 

(c)        New Securities. “New Securities” shall mean any Preferred Shares, Ordinary Shares or other voting shares of the Company, whether now authorized or not, and rights, options or warrants to purchase such Preferred Shares, Ordinary Shares and securities of any type whatsoever that are, or may become, convertible or exchangeable into such Preferred Shares, Ordinary Shares or other voting shares, provided,  however, that the term “New Securities” shall not include:

 

(i)          any Preferred Shares issued under the Share Purchase Agreements and any Warrant, any outstanding securities convertible into Preferred Shares or Ordinary Shares as of the date hereof, or Ordinary Shares issued upon conversion of the Preferred Shares authorized;

 

(ii)          in the aggregate up to 250,013,276 Ordinary Shares issued or issuable under the ESOP as approved by the Board (including the affirmative votes of the Majority Directors (including the Series Pre-A Director (for so long as Tencent holds no less than four point eight percent (4.8%) of all Shares of the Company (on a fully-diluted and as-converted basis)));

 

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(iii)          any securities issued in connection with any share split, share dividend or other similar capital restructuring event as approved by Tencent and the Series A Preferred Majority;

 

(iv)          any securities issued or issuable as a dividend or distribution ratably allocated on the holders of all outstanding Shares; and

 

(v)          any securities offered in a Qualified IPO by the Company.

 

(d)       Procedures.

 

(i)          First Participation Notice. In the event that the Company proposes to undertake an issuance of New Securities in a single transaction or a series of related transactions, it shall give to each Participation Rights Holder a written notice of its intention to issue New Securities (the “First Participation Notice”), describing the amount, the type and the price of New Securities and the general terms upon which the Company proposes to issue such New Securities. Each Participation Rights Holder shall be entitled to purchase such Participation Rights Holder’s Pro Rata Share of such New Securities at the price and upon the terms and conditions specified in the First Participation Notice by giving a written notice to the Company and stating therein the number of New Securities to be purchased (such number shall not exceed such Participation Rights Holder’s Pro Rata Share) within fifteen (15) Business Days after the receipt of such First Participation Notice. If any Participation Rights Holder fails to send such written notice within the prescribed time period or declines to exercise fully its Right of Participation, then the right of such Participation Rights Holder to purchase its Pro Rata Share hereunder shall be forfeited.

 

(ii)          Second Participation Notice; Oversubscription. If any Participation Rights Holder fails or declines to fully exercise its Right of Participation in accordance with subsection (d)(i) above, the Company shall promptly give a written notice (the “Second Participation Notice”) to the Participation Rights Holders who agreed to fully exercise their Right of Participation (the “Rights Participants”) in accordance with subsection (d)(i) above. Each Rights Participant shall have fifteen (15) Business Days after the receipt of the Second Participation Notice (the “Second Participation Period”) to notify the Company of its desire to purchase more than its Pro Rata Share of the New Securities, stating the number of the additional New Securities it proposes to purchase. Such notice may be made by telephone if followed by a written confirmation within two (2) Business Days from the date of verbal notice. If as a result thereof, such oversubscription exceeds the total number of the remaining New Securities available for purchase, the oversubscribing Rights Participants will be cut back by the Company with respect to their oversubscriptions to that number of remaining New Securities equal to the product obtained by multiplying (i) the number of the remaining New Securities available for subscription by (ii) a fraction the numerator of which is the number of the Ordinary Shares held by such oversubscribing Rights Participant (calculated on a fully-diluted and as-converted basis) and the denominator of which is the total number of Ordinary Shares held by all oversubscribing Rights Participant (calculated on a fully-diluted and as-converted basis).

 

(e)        Failure to Exercise. Upon the expiration of the Second Participation Period or upon the expiration of the First Participation Period in the event no Participation Rights Holder exercises the Right of Participation during the First Participation Period, the Company shall

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thereafter be entitled to sell the New Securities described in the First Participation Notice (with respect to which the Right of Participation was not fully exercised) at the same price and upon the same non-price terms specified in the First Participation Notice.

 

4.2       With Respect to Shares Owned by Shareholders:

 

(a)        Restriction on Transfers by Original Shareholders. Subject to Section 9.1, each Original Shareholder may not sell, transfer, pledge, hypothecate, encumber or otherwise dispose of its Shares to any Person, whether directly or indirectly, except in compliance with this Section 4.2 and Section 5.

 

(b)        Notice of Sale. If any Shareholder (in any case excluding Tencent) (the “Selling Shareholder”; for the avoidance of doubt, in any case the Selling Shareholder shall exclude Tencent) proposes to sell or transfer, directly or indirectly, any of its Shares (the “Transfer Shares”), then the Selling Shareholder shall promptly give a written notice (the “Transfer Notice”) to the Company and to each holder of the Preferred Shares, the Key Parties and the Non-Executive Holder (collectively the “Non-Selling Shareholders”, and each a “Non-Selling Shareholder”), which Transfer Notice shall include (i) the number of Transfer Shares to be sold or transferred and the nature of such sale or transfer, (ii) the identity (identities) (including name(s) and address(es)) of the prospective transferee(s), and (iii) the consideration and the material terms and conditions upon which the proposed sale or transfer is to be made.

 

(c)        Notice of Purchase. Each Non-Selling Shareholder shall be entitled to purchase all or any part of the Transfer Shares at the price and upon the terms and conditions specified in the Transfer Notice by giving a written notice (“Respond Notice”) to the Selling Shareholder within fifteen (15) Business Days after the receipt of the Transfer Notice (the “Refusal Period”) stating therein the number of Transfer Shares to be purchased.

 

If a Non-Selling Shareholder exercises such right and notifies the Selling Shareholder of the number of Transfer Shares to be purchased, then such Non-Selling Shareholder shall complete the purchase of the Transfer Shares on the same terms and conditions as those set out in the Transfer Notice. A failure by a Non-Selling Shareholder to respond within such prescribed period shall constitute a decision by such Non-Selling Shareholder not to exercise its right to purchase such Transfer Shares.

 

The Selling Shareholder shall promptly give a written notice (“Exercising Notice”) to each Preferred Shareholders upon receipt of notice from any Key Party and/or the Non- Executive Holder, which shall include whether such Key Party and/or Non-Executive Holder elects to purchase Transfer Shares and the number of Transfer Shares such Non-Selling Shareholder intends to purchase. Furthermore, each Preferred Shareholder shall be entitled to withdraw the Respond Notice or adjust the Respond Notice accordingly within the Refusal Period.

 

(d)        With respect to the subsequence of the Non-Selling Shareholders to exercise their respective right of first refusal, each of the Preferred Shareholders shall have the right to purchase such Preferred Shareholder’s pro rata share of the Transfer Shares in preference to other Non-Selling Shareholders. For the avoidance of doubt, each Preferred Shareholder’s foregoing pro rata share of the Transfer Shares shall be equal to the number of Transfer Shares, multiplied by a fraction, the numerator of which shall be the number of Ordinary Shares (on a fully-diluted and

19

as-converted basis) held by such Preferred Shareholder on the date of the Transfer Notice and the denominator of which shall be the total number of Ordinary Shares (on a fully-diluted and as- converted basis) held on the date of the Transfer Notice by all Preferred Shareholders which exercise their right of first refusal under this Section 4.2 on the date of the Transfer Notice.

 

To the extent that any Preferred Shareholder does not exercise its right of first refusal to the full extent to purchase such Preferred Shareholder’s pro rata share of the Transfer Shares, the Key Parties shall have the right to purchase such remaining Transfer Shares in preference to the Non-Executive Holder. To the extent that any Key Party does not exercise its right of first refusal to the full extent to purchase the remaining Transfer Shares, the Non-Executive Holder shall have the right to purchase the remaining Transfer Shares.

 

(e)        Closing. If any Non-Selling Shareholder elects to purchase the Transfer Shares pursuant to this Section 4.2, then the payment for the Transfer Shares to be purchased shall be made by wire transfer in immediately available funds of the appropriate currency, against delivery of such Transfer Shares to be purchased, at a place and time agreed by the Selling Shareholder and each Non-Selling Shareholder that has elected to purchase all or part of the Transfer Shares.

 

(f)        For the avoidance of doubt, if any Preferred Shareholder proposes to sell or transfer, directly or indirectly, any of its Shares to its Affiliates which is not a direct competitor of any Group Company, such transfer shall not be subject to the right of refusal of the Non-Selling Shareholders under this Section 4.2.

 

5.         INVESTORS’ CO-SALE RIGHT.

 

5.1       Co-Sale Right. If any Original Shareholder (the “Selling Original Shareholder”) proposes to sell or transfer, directly or indirectly, any of its Shares to any third party other than such Affiliates agreed by Tencent and the Series A Preferred Majority, to the extent any holder of Series Pre-A Preferred Shares and any holder of Series A Preferred Shares (the “Co-Sale Right Holder”) does not exercise its respective rights of first refusal as to all of the Transfer Shares of the Selling Original Shareholder pursuant to Section 4.2, such Co-Sale Right Holder shall have the right (but not the obligations), exercisable upon delivery of a written notice to the Selling Original Shareholders, with a copy to the Company, within fifteen (15) Business Days after the expiration of the Refusal Period, to participate in the sale of any Transfer Shares to the extent of such Co- Sale Right Holder’s Pro Rata Co-Sale Share at the same price and upon the same terms and conditions indicated in the Transfer Notice. A failure by any Co-Sale Right Holder to respond within such prescribed period shall constitute a decision by such Co-Sale Right Holder not to exercise its right of co-sale as provided herein. The foregoing co-sale right of each Co-Sale Right Holder shall be subject to the following terms and conditions:

 

(a)        each Co-Sale Right Holder may sell all or any part of its Pro Rata Share of the Transfer Shares. A Co-Sale Right Holder’s “Pro Rata Co-Sale Share” of a specified quantity of Transfer Shares of any Selling Original Shareholder shall mean that number of Ordinary Shares (or that number of Preferred Shares which, if converted at the current conversion ratio, would equal that number of Ordinary Shares) which equals the specified quantity of the remaining Transfer Shares which are among the Transfer Shares that the Original Shareholders propose to sell or transfer after the full exercise of the right of first of refusal of the Non-Selling Shareholders

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in accordance with Section 4.2, multiplied by a fraction equal to (i) the total number of Ordinary Shares (on an a fully -diluted and as-converted basis) then held by such Co-Sale Right Holder exercising co-sale rights pursuant to this Section 5, divided by (ii) the total number of Ordinary Shares held by the Selling Original Shareholder plus the total number of Ordinary Shares then held by all Co-Sale Right Holders exercising co-sale rights pursuant to this Section 5, on a fully-diluted and as-converted basis.

 

(b)        each Co-Sale Right Holder shall effect its participation in the sale by promptly delivering to the applicable Selling Original Shareholder, with a copy to the Company, for transfer to the prospective purchaser share certificates in respect of all Shares to be sold by such Preferred Shareholder and a transfer form signed by such Co-Sale Right Holder, which indicates:

 

(i)          the number of Ordinary Shares which such Co-Sale Right Holder elects to sell (on a fully diluted and as-converted basis);

 

(ii)          that number of Preferred Shares which is at such time convertible into the number of Ordinary Shares that such Co-Sale Right Holder elects to sell; or

 

(iii)          any combination of the foregoing;

 

provided, however, that if the prospective purchaser objects to the delivery of Preferred Shares in lieu of Ordinary Shares, such Co-Sale Right Holder shall convert such Preferred Shares into Ordinary Shares and deliver Ordinary Shares. The Company agrees to make any such conversion concurrent with the actual transfer of such shares to the purchaser.

 

5.2       Procedure at Closing. The share certificate or certificates that such Co-Sale Right Holder delivers to the Selling Original Shareholder pursuant to Section 5.1(b) shall be transferred to the prospective purchaser in consummation of the sale of the Transfer Shares pursuant to the terms and conditions specified in the Transfer Notice, and the Selling Original Shareholder shall concurrently therewith remit to such Co-Sale Right Holder that portion of the sale proceeds to which such Co-Sale Right Holder is entitled by reason of its participation in such sale. To the extent that any prospective purchaser or purchasers prohibit such assignment or otherwise refuse to purchase shares or other securities from a Co-Sale Right Holder exercising its rights of co-sale hereunder, the Selling Original Shareholder shall not sell any Transfer Shares to such prospective purchaser or purchasers unless and until, simultaneously with such sales, the Selling Original Shareholder shall purchase such shares or other securities from such Co-Sale Right Holder with terms and conditions no less favorable than those specified in the Transfer Notice.

 

6.         ASSIGNMENT AND AMENDMENT.

 

6.1       Assignment. Notwithstanding anything herein to the contrary, for any transfer of Shares to be deemed effective, the transferee shall assume the obligations of the transferor under this Agreement by executing and delivering to the Company an adherence agreement (“Adherence Agreement”). Upon the execution and delivery of an Adherence Agreement by any transferee and subject to the restrictions of transfer as set forth under the Transaction Documents (including but not limited to Section 9.1, 9.2 and 9.3 hereof), such transferee shall be deemed to be an Original Shareholder, Investor, or Holder hereunder, as appropriate. By their execution hereof, each of the

21

parties hereto appoints the Company as its attorney-in-fact for the limited purpose of executing any Adherence Agreement which may be required to be delivered pursuant to this Section 6.1. For the avoidance of doubt, the Original Shareholders shall ensure that, unless otherwise set forth under the Transaction Documents, the transfer of the Shares of the Original Shareholders in accordance with this Agreement shall not lead to Material Adverse Effect on the Group Companies and the implementation of the Transaction Documents.

 

6.2       Amendment. This Agreement may only be amended with the written consent of all Parties. Any amendment effected in accordance with this Section 6.2 shall be binding upon each Party hereto and their respective successors; provided that the Company shall promptly give written notice thereof to any Party hereto that has not consented to such amendment.

 

6.3       Waiver of Rights. To the extent that any party seeks a waiver of rights from any other party, (i) any holder of Preferred Shares may waive any of its rights hereunder without obtaining the consent of any other holders of Preferred Shares; (ii) any holder of Ordinary Shares may waive any of its rights hereunder without obtaining the consent of any other holders of Ordinary Shares; and any Group Company may waive any of its rights hereunder without obtaining the consent of any other Group Company. Any party may waive compliance by any other party with any term or provision of this Agreement that such other party was or is obligated to comply with or perform for the benefit of such waiving party.

 

7.         PROTECTIVE PROVISIONS.

 

Each Group Company shall not take any of the actions (i) listed in Part I of Exhibit A without the prior written consent of Tencent and the Series A Preferred Majority and (ii) listed in Part II of Exhibit A without the prior written consents of a majority of the directors of the Company (including the affirmative vote of the Series Pre-A Director (solely with respect to (ii), for so long as Tencent holds no less than four point eight percent (4.8%) of all Shares of the Company (on a fully-diluted and as-converted basis)). For the avoidance of doubt, for purposes of this Section 7 (including Exhibit A), all references to the “Company” shall refer to each Group Company.

 

For the avoidance of doubt, notwithstanding any other provision of this Agreement and other Transaction Documents, each Party hereto hereby acknowledges and agrees that no approval or consent shall be obtained for any action by any Group Company for the purpose of the performance of the Spin-Off Transaction Documents (including but not limited to the change of shareholding structure of any Group Company and any amendment to the articles and association of any Group Company), and all Preferred Shareholders shall provide necessary cooperation and assistance for the foregoing actions. Notwithstanding the foregoing, any foregoing action by any Group Company or 58 Group or any other relevant parties and/or any situation arising from the foregoing actions shall not violate any provision of any Transaction Documents. Furthermore, except those set forth under the Spin-Off Transaction Documents, without the prior written consent of Tencent and Series A Preferred Majority, the performance and implement of the Spin-Off Transaction Documents shall not derogate any rights and interests owned or anticipated by any Preferred Shareholders in the Group Companies under the applicable Transaction Documents.

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8.         BOARD REPRESENTATION.

 

8.1       Designation Right. The Company’s Restated M&A shall provide that the Company’s Board shall consist of up to eight (8) members, which number of members shall not be changed except pursuant to an amendment to the Restated M&A.

 

(i)          The Founder shall be entitled to designate four (4) Directors;

 

(ii)          Tencent shall be entitled to designate one (1) Director (the “Series Pre-A Director”);

 

(iii)           Zhongwei shall be entitled to designate one (1) Director (the “Series A Director”, together with the Series Pre-A Director, the 58 Directors, collectively the “Investor Directors”, and each an “Investor Director”), provided however, upon the closing of next-round financing of the Company, (x) if the then shareholding percentage of Zhongwei and its Affiliates in the Company is the highest among all the Series A Investors, Zhongwei shall be still be entitled to appoint the foregoing Series A Director, and (y) if the then shareholding percentage of Zhongwei and its Affiliates in the Company cannot meet with the foregoing standard (x) (“Zhongwei Director Deprivation Event”), Zhongwei shall not be entitled to appoint the foregoing Series A Director concurrently with the occurrence of the Zhongwei Director Deprivation Event. Zhongwei shall procure the then Series A Director appointed by Zhongwei to resign from the board of directors of the Company concurrently with the occurrence of the foregoing event. The vacancy of the foregoing Series A Director shall be filled solely determined by the Company (either filled by the then investor who bears the highest shareholding percentage among all the Series A Investors or cancelled by the Company in which case the total number of the board of directors of the Company shall be decreased accordingly);

 

(iv)          58 shall be entitled to designate two (2) Directors (collectively the “58 Directors”, and each a “58 Director”).

 

Any vacancy on the Board 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.

 

The chairman of the Board shall be such Director appointed by the Founder.

 

Each of AMTD and Huaxin shall be entitled to respectively appoint an observer to the Board of the Company in a non-voting observer capacity.

 

8.2       Board Quorum; Meetings, etc. The quorum (which shall exist at the time of the voting as well as the attendance of the Board meeting) of the meetings of the Board shall be five (5) directors, including the presence, in Person or by telephone, electronic or other means of communication, of Series Pre-A Director (for so long as Tencent holds no less than four point eight percent (4.8%) of all Shares of the Company (on a fully-diluted and as-converted basis)). Minutes of Board meetings shall be sent to all directors as soon as possible after the relevant meeting. The Company shall hold Board meetings at least once a quarter.

 

8.3       Director Expenses. The Company shall reimburse each Investor Directors for all reasonable out-of-pocket expenses incurred in connection with Board duties and meetings.

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9.         COVENANTS.

 

9.1       Restrictions on Transfers with Respect to the Original Shareholders. Subject to Sections 4 and 5, each Original Shareholder agrees that, prior to the Qualified IPO, without the prior written consent of Tencent and Series A Preferred Majority, each of the Key Parties and the Non-Executive Holder shall not, directly or indirectly, sell, transfer, pledge, encumber, hypothecate or otherwise dispose of any of its Shares in the Company or any of other Group Companies. The Key Parties shall ensure CHANG Ligang  (常利刚) not to, without the prior written consent of Tencent and Series A Preferred Majority, directly or indirectly, sell, transfer, pledge, encumber, hypothecate or otherwise dispose of any of its shares or equity securities in the Non-Executive Holder.

 

Notwithstanding anything to the contrary contained herein, the transfer restriction regarding the Original Shareholders under this Section 9.1, Section 4, Section 5 and other provisions under the Transaction Documents shall not apply to (a) transfer of the Shares now or hereafter directly or indirectly held by each Original Shareholder, to the children or spouse of such Original Shareholder, or to trusts for the benefit of such Person or such Original Shareholder, for bona fide estate planning purposes; and (b) any sale or transfer of any Shares of the Company held by the Non-Executive Holder to any Key Party or any Person designated by the Founder who works for any Group Companies (such Person shall be approved by Tencent and the Series A Preferred Majority) (each transferee pursuant to the foregoing subsections (a) and (b), a “Permitted Transferee”).

 

9.2       Restrictions on Transfers with Respect to Investors. Unless otherwise prohibited by the applicable laws or regulations and/or as set forth under the applicable Transaction Documents, each of the Investors shall be entitled to sell, transfer, pledge, encumber, hypothecate or otherwise dispose of any of its Shares in the Company or any of other Group Companies to any third party.

 

Notwithstanding the foregoing, none of the Series A Investors and the Series Angel Investor shall sell, transfer, pledge, encumber, hypothecate or otherwise dispose of any of its Shares to any entity (in each following case shall also include the Affiliates of such entity):

 

(i)          which engages or carries out any Competitive Business, provided however that the foregoing entities shall be limited to the entities as listed by the Board and approved by Tencent and Series A Preferred Majority (“Company Competitor List”); for the avoidance of doubt, the Company Competitor List may be updated as approved by the Series A Preferred Majority at most once every eight (8) months and shall be delivered to the Investors within three (3) Business Days from (but excluding) the date when such Company Competitor List is approved in accordance with the foregoing mechanism; and/or

 

(ii)          which involves negative events and the shares holding of such entity may cause material negative effects on the reputation of Group Companies (taken as a whole) or the interests of Group Companies and, the Shareholders of the Company, unless otherwise agreed by the Majority Directors.

 

9.3       Tencent Restrictive Transactions. For so long as Tencent holds any Preferred Share of the Company, without the prior written consent of Tencent, each of the Original Shareholders,

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the Series A Investors and the Series Angel Investor shall not, and the Original Shareholders shall cause the future shareholders (including the future investor shareholders, if any) not to,

 

(i)          approve, agree or carry out any share transfer or Trade Sale Event (as defined in the Restated M&A) involving Tencent Restricted Person directly or indirectly (including but without limitation to the transfer or issuance of shares in the level of each shareholder of the Company); and

 

(ii)          approve or agree to issue any Shares or other security convertible into or exercisable for any Shares by any of the Group Companies to any Tencent Restricted Persons.

 

9.4       Non-Competition Obligations.

 

The Founder undertakes that for so long as he holds any equity interest directly or indirectly in, or is employed by (whether by employment relationship or service relationship), or serves as a director of, any of the Group Companies (the “Affiliation Relationship”), whichever period is longer, and within two (2) years after the termination of such Affiliation Relationship (together with the period during the Affiliation Relationship, the “Restriction Period”):

 

(a)        The non-competition obligations of 58 Group which is Controlled by the Founder shall be limited to the obligations of non-competition as set forth under Section 2.6 of the Spin-off Framework Agreement. The Founder hereby acknowledges and agrees to cause 58 Group to comply with the covenants under the Acknowledgement Letter.

 

(b)        With respect to the Founder and the other entities Controlled by the Founder (other than the 58 Group), the Founder shall not, and the Company shall cause the Founder not to:

 

(i)          Carry out any Competitive Business directly or indirectly;

 

(ii)          directly or indirectly hold a controlling or minority stake in any entity that engage any Competitive Business; provided that nothing herein shall prohibit (x) the Founder from acquiring or holding certain shares of any entity whose equity securities are traded on a national or regional stock exchange so long as the Founder’s ownership represents less than one percent (1%) of such entity’s equity securities on a fully diluted basis; and/or (y) the Founder from investing any entity as a financial investor or holding less than ten percent (10%) of any entity’s equity securities on a fully diluted basis in a non-controlling method, without providing any substantial commercial support in any method other than the role of the financial investor itself, provided,  further, that each foregoing scenario of (x) and/or (y) shall be disclosed to the Investors in writing;

 

(iii)          conduct any action that could harm the lawful rights and interests of any of the Group Companies (including soliciting or enticing away in any manner any Person who is a customer or client or employee of any Group Company, unless otherwise for the benefits of the Group Companies and approved by the Majority Directors);

 

For the avoidance of doubt, the scope of the Competitive Business under this Agreement shall be subject to further adjustments in accordance with the change of the Business

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of the Group Companies (the “Adjusted Business of Group Companies” and such change of the Business of the Group Companies, referred to as “Adjustments”).

 

In case that such Adjusted Business of Group Companies is in competition with (x) the business the Key Parties have engaged or carried out before such Adjustments (“Adjusted Competitive Business”) and/or (y) the business of any entity in which the Key Parties hold a controlling or minority stake (“Adjusted Competitive Entities”), unless otherwise approved by the Majority Directors in writing, the Key Parties shall transfer their interests in such Adjusted Competitive Business and such Adjusted Competitive Entities (collectively, the “Adjusted Competitive Interests”) to the Group Companies with a fair market value accepted by Tencent and the Series A Preferred Majority. In the event that the Founder and Tencent and the Series A Preferred Majority cannot reach consensus regarding the transfer price of such Adjusted Competitive Interests, after the consent of the Majority Directors, a reputable appraisal institution jointly selected by the Key Parties and the Majority Directors shall appraise such Adjusted Competitive Interests and the appraisal results shall be the basis for calculating the transfer price of Adjusted Competitive Interests. If the foregoing appraisal results cannot be accepted by the Majority Directors, the Key Parties shall not be obligated to transfer the Adjusted Competitive Interests to the Group Companies, provided that the holding of such Adjusted Competitive Interests shall not cause any adverse effects to the IPO of the Group Companies (including but not limited the Key Parties shall not control such Adjusted Competitive Interests). In case any violation of the foregoing, the Key Parties shall spare reasonable efforts to eliminate such adverse effects (including but not limited to the transfer of such Adjusted Competitive Interests to any non-related third parties if requested by the Company (as determined by the Majority Directors) in writing).

 

If Tencent and/or its Affiliates have invested or intend to invest in any entity which engage or carry out any Competitive Business (“Tencent Investment Entities”) and Tencent agrees the investment by the Key Parties and/or the Controlled entities by the Key Parties (other than 58 Group) in such Tencent Investment Entities (for the avoidance of doubt, the signing of relevant resolutions of such Tencent Investment Entities by Tencent and/or its Affiliates and/or the director(s) appointed by Tencent and/or its Affiliates in such Tencent Investment Entities shall not be deemed as the consent under this paragraph), then Tencent acknowledges and agrees the waiver of non-competition obligations of the Key Parties and/or the Controlled entities by the Key Parties (other than 58 Group) solely with respect to the foregoing approved investment by the Key Parties and/or the Controlled entities by the Key Parties (other than 58 Group) in such Tencent Investment Entities.

 

In case that the Group Companies have officially initiated the preparations for an IPO, the Key Parties hereby agree that, in accordance with the applicable laws, regulations and other requirements of the competent Governmental Authorities and without the substantial violation of the applicable regulating rules and statutory or contractual obligations, in order to eliminate any legal impediments for the IPO of the Group Company, they shall spare all reasonable efforts to cause the Controlled entities by the Key Parties to settle or dispose the Competitive Business (if any and if applicable) in such reasonable manners.

 

9.5       ESOP.

 

(a)        As soon as practicable after the date hereof, the Board shall establish and adopt an employee share option plan (the “ESOP”) and formulate the relevant agreements

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(including the share option award agreement) and up to a total of 250,013,276 Ordinary Shares (proportionally adjusted to reflect any share dividends, share splits, or similar transactions), representing approximately 10.9495% of the Company’s issued share capital immediately after the date hereof (on a fully diluted and as-converted basis) shall be reserved for issuance of share options pursuant to the terms and conditions under the ESOP.

 

(b)        The power and authority to administer the ESOP and grant any option thereunder shall be vested to the Board and any decision of the Board with respect to the administration of the ESOP or grant of any option (including but not limited to the list of ESOP grantees, vesting schedule, grant amount and exercise price) thereunder shall be approved by the Majority Directors (including the Series Pre-A Director (for so long as Tencent holds no less than four point eight percent (4.8%) of all Shares of the Company (on a fully-diluted and as-converted basis)).

 

(c)        Each of the Preferred Shareholders agreed that he will cooperate with the Key Parties and the Board on the reasonable change of the ESOP.

 

(d)        The Company undertakes that without the prior written consent of Preferred Majority (including Tencent), the shareholding percentage of any Preferred Shareholder shall not be diluted as a result of the establishment and administration of the ESOP.

 

9.6       Each Party hereby acknowledges and covenants on a several but not joint basis that:

 

(i)          (solely with respect to the non-natural Person) it is duly formed, validly existing and in good standing in the jurisdiction of its organization and has all requisite power and authority to carry on its business as it is currently being conducted;

 

(ii)          such Party has full power and authority to enter into, execute and deliver this Agreement, each other Transaction Document to which it is or shall be made a party and to perform its obligations hereunder and thereunder; this Agreement has been, and each Transaction Document to which such Party is a party has been or will be, duly executed and delivered by such Party and constitutes (or, when executed and delivered in accordance herewith will constitute), the legal, valid and binding obligations of such Party, enforceable against it in accordance with their respective terms, except (x) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally and (y) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies;

 

(iii)          the execution and delivery by such Party of this Agreement and each other Transaction Document to which it is or shall be a party and the performance by such Party of its obligations hereunder and thereunder have been duly authorized by all requisite actions on its part;

 

(iv)           none of the execution and the delivery of this Agreement and the other Transaction Documents to which such Party is a party or shall be made a party, nor the consummation of the relevant transaction under any Transaction Documents, will (x) violate any provision of the organizational documents of such Party or violate any law or order of any Governmental Authority to which such Party is subject, or (y) conflict with, result in a breach of,

27

constitute a default under, result in the acceleration of or creation of an encumbrance under, or create in any party the right to accelerate, terminate, modify, or cancel, any agreement, contract, lease, license, instrument, or other arrangement to which such Party is a party or by which such Preferred Shareholder is bound or to which any of such Party’s assets are subject;

 

(v)          (solely with respect to such Party or its applicable Affiliate) the restructuring mechanism to give the effect that such Party (or its applicable Affiliate) hold the applicable Shares in the Company shall not lead to, and the Warrantors shall spare all commercially reasonable efforts to cause the restructuring mechanism to give the effect that any Party hold the applicable Shares in the Company will not lead to, any material adverse effect on the IPO of the Group Companies.

 

9.7       Notwithstanding any other provisions of this Agreement and other Transaction Documents, the Parties hereto recognize and accept (i) all the Spin-off Transaction Documents;

(ii) any action by any Group Company (whether existed or to be made after the date hereof) for the performance and execution of the Spin-off Transaction Documents; (iii) any documents signed or to be signed by any Group Company for the performance and execution of the Spin-off Transaction Documents.

 

Each Party hereby acknowledges, agrees and ratifies that no approval or consent shall be obtained for any action or signing any documents by any Group Company for the purpose of the performance and execution of the Spin-Off Transaction Documents, and the exercise of relevant rights and preferences by the Group Companies, the 58 Group and other relevant parties shall not be subject to any restrictions under the Transaction Documents and each Preferred Shareholder shall not enjoy any rights other than necessary information rights of Tencent under Section 2.1(b) with respect to the foregoing unless such action or inaction with respect to the foregoing adversely affect the rights of the Preferred Shareholders under this Agreement. Notwithstanding the foregoing, any foregoing action by any Group Company or 58 Group or any other relevant parties and/or any situation arising from the foregoing actions shall not violate any provision of any Transaction Documents. Furthermore, except those set forth under the Spin-Off Transaction Documents, without the prior written consent of Tencent and Series A Preferred Majority, the performance and implement of the Spin-Off Transaction Documents shall not derogate any rights and interests owned or reasonably anticipated to be owned by any Preferred Shareholders in the Group Companies under the applicable Transaction Documents.

 

9.8       Notwithstanding anything contrary under this Agreement and any other Transaction Documents, in case at any time after the date hereof, Tencent holds less than one third (1/3) of all Series Pre-A Preferred Shares of the Company (on a fully-diluted and as-converted basis) as of the date hereof ( “Tencent Veto Rights Deprivation Event”), the veto rights and any rights of consent of Tencent and 林芝腾讯科技有限公司and their respective Affiliates under any Transaction Document shall be void and cancelled automatically concurrently with the occurrence of such Tencent Veto Rights Deprivation Event.

 

9.9       The Key Parties and the Group Companies hereby acknowledge and covenant that, unless otherwise set forth under this Agreement and other Transaction Documents (including but not limited to such obligations, representations, warranties, covenants and undertakings solely for and/or applied to the Group Companies), the obligations, representations, warranties, covenants

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and undertakings of the Key Parties and the Group Companies under this Agreement are on a joint and several basis.

 

10.       CONFIDENTIALITY AND NON-DISCLOSURE.

 

10.1     Disclosure of Terms.

 

(a)        Each party hereto acknowledges that the terms and conditions (collectively, the “Terms”) of this Agreement, the other Transaction Documents, and all exhibits, restatements and amendments hereto and thereto, including their existence, shall be considered confidential information and shall not be disclosed by it to any third party except in accordance with the provisions set forth below. Each of the Preferred Shareholders agrees with the Company that such Preferred Shareholder will keep confidential and will not disclose or divulge, any information which such Preferred Shareholder obtains from the Company, pursuant to financial statements, reports, presentations, correspondence, and any other materials provided by the Company to, or communications between the Company and such Preferred Shareholder, or pursuant to information rights granted under this Agreement or any other related documents, unless the information is known, or until the information becomes known, to the public through no fault of such Preferred Shareholder, or unless the Company gives its written consent to the such Preferred Shareholder’s release of the information.

 

(b)        The confidentiality obligations set out in this Section 10 do not apply to:

 

(i)          information which was in the public domain or otherwise known to the relevant party before it was furnished to it by another party hereto or, after it was furnished to that party, entered the public domain otherwise than as a result of (i) a breach by that party of this Section 10 or (ii) a breach of a confidentiality obligation by the discloser, where the breach was known to that party;

 

(ii)          information the disclosure of which is necessary in order to comply with any applicable law, the order of any court, the requirements of a stock exchange or to obtain tax or other clearances or consents from any relevant authority;

 

(iii)          the disclosure of information by any director of the Company to its appointer or any of its affiliate or otherwise in accordance with the foregoing provisions of this Section 10; or

 

(iv)          (for the purpose of the performance of this Agreement) the disclosure of information to each Party’s Affiliates and the senior management personnel, directors, employees, partners, members, shareholders, agents, representatives, auditors and legal counsels of such Party or its Affiliates, provided that the foregoing Person shall also bear the confidentiality obligations hereof, and the disclosing party shall be liable for any breach of the confidentiality obligations by such foregoing Person.

 

10.2     Legally Compelled Disclosure. In the event that any party is requested or becomes legally compelled (including without limitation pursuant to securities laws and regulations) to disclose the existence of this Agreement or any Terms in contravention of the provisions of this Section 10, such party (the “Disclosing Party”) shall if and to the extent that it can lawfully do so provide the other parties (the “Non-Disclosing Parties”) with prompt written notice of that fact so

29

that the appropriate party may seek (with the cooperation and reasonable efforts of the other parties) 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 accorded such information to the extent reasonably requested by any Non-Disclosing Party.

 

11.       MISCELLANEOUS.

 

11.1     Governing Law. This Agreement shall be governed in all respects by the laws of the Hong Kong Special Administrative Region without regard to conflicts of law principles.

 

11.2     Successors and Assigns. Unless otherwise set forth under this Agreement, none of the Parties may assign its rights or delegate or transfer its obligations under this Agreement without the written consent of the other Parties, provided,  however, that subject to Section 9.2 hereof, (i) this Agreement and the rights and obligations herein may be assigned or transferred by any Investor to any Affiliate of such Investor without the consent of the other Parties, (ii) this Agreement and the rights and obligations herein may be assigned or transferred by any Investor to any Person that is the transferee of the applicable Preferred Shares and/or Warrant of such Investor without the consent of the other Parties. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the parties hereto whose rights or obligations hereunder are affected by such provisions. Each transferee, successors, or assignee of any Investor shall become a party of this Agreement by executing and delivering to the Company an Adherence Agreement.

 

11.3     Third Parties. Nothing in this Agreement, express or implied, is intended to confer upon any Person, other than the parties hereto and their permitted successors and assigns, any rights or remedies under or by reason of this Agreement.

 

11.4     Entire Agreement. This Agreement and any other Transaction Documents, together with all the schedules and exhibits hereto and thereto, which are hereby expressly incorporated herein by this reference, constitute the entire understanding and agreement between the parties with regard to the subjects hereof and thereof and supersede all prior agreements and undertakings, both written and oral, among the Parties with respect to the subject matter hereof and thereof; provided,  however, that nothing in this Agreement or related agreements shall be deemed to terminate or supersede the provisions of any confidentiality and nondisclosure agreements executed by the parties hereto prior to the date of this Agreement, all of which agreements shall continue in full force and effect until terminated in accordance with their respective terms. The Prior SHA, is hereby terminated, effective upon the execution of this Agreement by all the Parties hereto. Parties under the Prior SHA further acknowledge that all provisions of, rights granted and covenants made in the Prior SHA are hereby replaced and superseded in their entirety and shall have no further force and effect.

 

11.5     Notices. Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Agreement shall be in writing and shall be conclusively deemed to have been duly given (a) when hand delivered to the other party; (b) when sent by facsimile at the number set forth below, upon a successful transmission report being generated by the sender’s machine; (c) when sent by electronic mail at the address set forth in

30

Exhibit B, on the same day that it was sent if such day is a Business Day and if it was sent during normal business hours of the recipient, otherwise on the next business day, and it shall not be necessary for the receipt of the electronic mail to be acknowledged by the recipient; or (d) three

(3) Business Days after deposit with an internationally-recognized overnight delivery service, postage prepaid, addressed to the parties as set forth below with next-business-day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider.

 

Each Person making a communication hereunder by facsimile shall promptly confirm by telephone to the Person to whom such communication was addressed each communication made by it by facsimile pursuant hereto but the absence of such confirmation shall not affect the validity of any such communication. A Party may change or supplement the addresses given in Exhibit B, or designate additional addresses, for purposes of this Section 11.5, by giving the other party written notice of the new address in the manner set forth above.

 

11.6     Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party upon any breach or default of any other party hereto under this Agreement, shall impair any such right, power or remedy of the aggrieved party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any 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 the parties shall be cumulative and not alternative.

 

11.7     Interpretation; Titles and Subtitles. This Agreement shall be construed according to its fair language. The rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in interpreting this Agreement. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

 

11.8     Counterparts. This Agreement may be executed in one or more counterparts and may be delivered by electronic PDF or facsimile transmission, all of which shall be considered one and the same agreement and each of which shall be deemed an original.

 

11.9     Severability. Should any provision of this Agreement be determined to be illegal or unenforceable, such determination shall not affect the remaining provisions of this Agreement.

 

11.10   Adjustment for Share Splits, etc. Whenever in this Agreement there is a reference to a specific number or percentage of the Preferred Shares, then, upon the occurrence of any subdivision, combination or share dividend of the Preferred Shares, the specific number of shares so referenced in this Agreement shall automatically be proportionally adjusted to reflect the effect on the outstanding shares of such class or series of shares by such subdivision, combination or share dividend.

 

11.11   Pronouns and etc. For all purposes of this Agreement, except as otherwise expressly provided, (a) the defined terms shall have the meanings assigned to them in its definition

31

and include the plural as well as the singular, and pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; (b) 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 unless explicitly stated otherwise, and all references in this Agreement to designated exhibits are to the exhibits attached to this Agreement unless explicitly stated otherwise,

(c) 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, (d) any reference in this Agreement to any “Party” or any other Person shall be construed so as to include its successors in title, permitted assigns and permitted transferees, and (e) any reference in this Agreement to any agreement or instrument is a reference to that agreement or instrument as amended or novated.

 

11.12   Indemnity and Dispute Resolution.

 

(a)        Without limiting the provision under Section 9.9, if any Party fails to perform any of its obligations (including its covenants) under this Agreement and/or breaches any agreement or covenant under this Agreement, it shall indemnify and hold harmless of any other Parties for and against any and all damages (including without limitation any consequential, incidental and/or punitive damages) caused thereby. This Section 11.12 shall not be deemed to preclude or otherwise limit in any way the exercise of any other rights in according with this Agreement or seek other legal remedies according to applicable law for monetary compensation by any non-defaulting Party.

 

(b)        Negotiation Between Parties; Mediations. The parties agree to negotiate in good faith to resolve any dispute between them regarding this Agreement.

 

(c)        Arbitration. In the event the parties are unable to settle a dispute between them regarding this Agreement in accordance with subsection (a) above and within thirty (30) days after the commencing of the negotiation as set forth in subsection (a) above, such dispute shall be referred to and finally settled by arbitration at the Hong Kong International Arbitration Centre in accordance with the Rules of Arbitration of the International Chamber of Commerce (“ICC Rules”) in effect, which rules are deemed to be incorporated by reference into this subsection (b), subject to the following: (i) the arbitration tribunal shall consist of three (3) arbitrators to be appointed according to the ICC Rules; and (ii) the language of the arbitration shall be English. Notwithstanding anything in this Agreement or in the ICC Rules or otherwise, the arbitration tribunal shall not have the power to award injunctive relief or any other equitable remedy of any kind against the Investor unless such award both (x) is expressly appealable to and subject to de novo review by the courts of Hong Kong, and (y) would not, if upheld, have the effect of impairing, restricting, or imposing any conditions on the right or ability of the Investor or any of its Affiliates to conduct its respective business operations or to make or dispose of any other investments. 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.

 

11.13   Shareholders Agreement to Prevail. The Restated M&A shall be incorporated by reference into this Agreement and shall be enforceable as if such provisions were part of this Agreement, including without limitation, each section under the Schedule A as attached to the Restated M&A. If and to the extent that there are inconsistencies between the provisions of this Agreement and those of the Restated M&A, the terms of this Agreement shall prevail. The parties

32

agree to take all actions necessary or advisable, as promptly as practicable after the discovery of such inconsistency, to amend the Restated M&A so as to eliminate such inconsistency.

 

11.14   Series A Warrant Shares. Notwithstanding any provision contained in this Agreement to the contrary, with respect to any holder of Series A Warrant Shares, who exercises its respective rights and privileges, including without limitation, the rights and privileges under Section 4.1, Section 4.2, Section 5, Section 7 and each section under the Schedule A as attached to the Restated M&A, in accordance with the Transaction Documents before the exercise of the applicable Warrant and issuance of the respective Series A Warrant Shares, all the Warrantors agree to use its reasonably best endeavours to take or cause to be taken, to do or cause to be done, all necessary actions and to execute or cause to be executed such further instruments, and to assist and cooperate with such holder of Series A Warrant Shares, such that such rights and privileges so exercised by such holder of Series A Warrant Shares are fulfilled in such manner the effect of which is substantially the same with the fulfillment of the same kind rights and privileges of any other Preferred Shareholders.

 

11.15   Termination of Rights. The preferred rights of the Preferred Shareholders under this Agreement, Schedule A of the Restated M&A and other Transaction Documents, except for obligations set forth in Sections 1, 3, 6, 10, 11, shall terminate on the closing of a Qualified IPO, provided that if such rights of the Preferred Shareholders are required to be terminated by the competent Governmental Authority before the closing of a Qualified IPO, such rights and privileges of the Preferred Shareholders shall be terminated in accordance with such timeframe as required or demanded by the competent Governmental Authority. If for the purpose of a Qualified IPO and as approved by Preferred Majority, the Group Companies are required or advised by their counsel to conduct a reorganization, the Preferred Shareholders may elect to waive any or all of its preferred or special rights hereunder, effective as of the completion of such reorganization; provided that, in the event that the Qualified IPO does not occur within twelve (12) months after the completion of such reorganization or the filing for the Qualified IPO was rejected by the competent Governmental Authority or withdrawn by the Company at any time following such filing, all the rights and privileges of the Preferred Shareholders contained herein shall be reinstated automatically as if they had never been terminated and each of the Group Companies and the Key Parties shall take all such actions as necessary or desirable to reflect and facilitate such reinstatement, including without limitation (i) causing the Company to amend the Restated M&A, and (ii) entering into agreements containing substantially the same terms and conditions hereof. Notwithstanding the foregoing, the preferred rights of the Series Pre-A Investor under any Transaction Document shall be terminated in such manner agreed by the Company and the Series Pre-A Investor.

 

11.16   Further AssurancesUpon the terms and subject to the conditions herein, each of the Parties agrees to use its 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.

 

[Signature Pages Follow]

 

 

33

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

 

THE COMPANY:

 

 

 

Golden Pacer

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ YAO Jinbo

 

 

Name:

YAO Jinbo  (姚劲波)

 

Title:

Director

 

 

THE HK COMPANY:

 

 

 

Golden Hawk Limited

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ YAO Jinbo

 

 

Name:

YAO Jinbo  (姚劲波)

 

Title:

Director

 

 

 

 

 

 

WFOE:

 

 

 

Tianjin Wuba Shuke Information Technology Co., Ltd. (天津五八数科信息技术有限公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ CHANG Ligang

 

 

Name:

CHANG Ligang  (常利刚)

 

Title:

Legal Representative

 

 

 

 

 

 

DOMESTIC COMPANIES:

 

 

 

Tianjin Wuba Rongxin Information Technology Co., Ltd. (天津五八融鑫信息技术有限公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ CHANG Ligang

 

 

Name:

CHANG Ligang  (常利刚)

 

Title:

Legal Representative

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

 

DOMESTIC COMPANIES:

 

 

 

Tianjin Wuba Jinfu Co., Ltd. (天津五八金服有限公司)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ YAO Jinbo

 

 

Name:

YAO Jinbo  (姚劲波)

 

Title:

Legal Representative

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

 

THE FOUNDER HOLDCO:

 

 

 

Golden Rhapsody Limited

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ YAO Jinbo

 

 

Name:

YAO Jinbo  (姚劲波)

 

Title:

Director

 

 

THE FOUNDER:

 

 

 

/s/ YAO Jinbo

 

 

Name:

YAO Jinbo  (姚劲波)

 

 

THE Non-Executive Holder:

 

 

 

Golden Rockets L.P.

 

 

 

/s/ YAO Jinbo

 

 

Name:

YAO Jinbo  (姚劲波)

 

Authorised Signatory

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

 

THE SERIES ANGEL INVESTOR:

 

 

 

58.com Inc.

 

 

 

By:

/s/ YAO Jinbo

 

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

THE SERIES PRE-A INVESTOR:

 

 

 

 

 

Tencent Mobility Limited

 

 

 

By:

/s/ Ma Huateng

 

Name:

Ma Huateng

 

Title:

Director

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

THE SERIES A-1 INVESTORS:

 

 

 

宁波梅山保税港区众兴卓悦股权投资

 

合伙企业(有限合伙)(seal)

 

 

 

/s/ [company seal is affixed]

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

THE SERIES A-1 INVESTORS:

 

 

 

 

 

宁波梅山保税港区启源红树投资合伙企业(有限合

 

伙)(seal)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Guo Kai

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

THE SERIES A-1 INVESTORS:

 

 

 

 

 

宁波梅山保税港区沣源弘瑞投资管理合伙企业

 

(有限合伙)(seal)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Wang Lan

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

THE SERIES A-1 INVESTORS:

 

 

 

 

 

宁波软银稳定成长投资合伙企业(有限合伙)(seal)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Chauncey Shey

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

THE SERIES A-1 INVESTORS:

 

 

 

 

 

珠海横琴嘉睿华新投资合伙企业(有限合伙)(seal)

 

 

 

/s/ [company seal is affixed]

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

THE SERIES A-1 INVESTORS:

 

 

 

 

 

珠海横琴旭睿华新投资合伙企业(有限合伙)(seal)

 

 

 

/s/ [company seal is affixed]

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

THE SERIES A-1 INVESTORS:

 

 

 

 

 

珠海横琴健坤华新股权投资基金(有限合伙)(seal)

 

 

 

/s/ [company seal is affixed]

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

THE SERIES A-1 INVESTORS:

 

 

 

 

 

China TH Capital Limited

 

 

 

By:

/s/ Song Liangjing

 

Authorized Signatory

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

THE SERIES A-1 INVESTORS:

 

 

 

 

 

共青城凯昌投资管理合伙企业(有限合伙)(seal)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Liao Weifang

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

THE SERIES A-2 INVESTORS:

 

 

 

 

 

Z FINTECH INVESTMENT LIMITED

 

 

 

By:

/s/ Cheung Wing Hon

 

Title:

Authorized Signatory

 

Name:

Cheung Wing Hon

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

THE SERIES A-2 INVESTORS:

 

 

 

 

 

嘉兴宜朗坤瑞投资管理合伙企业(有限合伙)(seal)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Feng Yuning

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

THE SERIES A-2 INVESTORS:

 

 

 

 

 

苏州极创金源创业投资合伙企业(有限合伙)(seal)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Feng Deng

 

Name:

Feng Deng

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

THE SERIES A-2 INVESTORS:

 

 

 

 

 

宿迁千山益阳投资管理合伙企业(有限合伙)(seal)

 

 

 

[company seal is affixed]

 

 

 

By:

/s/ Wang Chao

 

[Signature Page to the Amended and Restated Shareholders Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

 

 

 

THE SERIES A-2 INVESTORS:

 

 

 

 

 

AMTD Fintech Investment Limited

 

 

 

By:

/s/ Wong Yui Keung Marcellus

 

Title:

Director

 

Name:

Wong Yui Keung Marcellus

 

 

 

[Signature Page to the Amended and Restated Shareholders Agreement]

Schedule A-1

 

Series Angel Investor

 

1.

58.com Inc., a company established under the laws of Cayman Island, whose registered address is at Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman KY1-1111, Cayman Islands (“58”).

 

Schedule A-2

 

Series Pre-A Investor

 

1.

Tencent Mobility Limited, a company established under the laws of Hong Kong, whose registered address is at 29/F., Three Pacific Place, No.1 Queen’s Road East, Wanchai, Hong Kong (“Tencent”).

 

Schedule A-3

 

Series A-1 Investors

 

1.   宁波梅山保税港区众兴卓悦股权投资合伙企业(有限合伙)

2.   宁波梅山保税港区启源红树投资合伙企业(有限合伙)

3.   宁波梅山保税港区沣源弘瑞投资管理合伙企业(有限合伙)

4.   宁波软银稳定成长投资合伙企业(有限合伙)

5.   珠海横琴嘉睿华新投资合伙企业(有限合伙)

6.   珠海横琴旭睿华新投资合伙企业(有限合伙)

7.   珠海横琴健坤华新股权投资基金(有限合伙)(together with 珠海横琴嘉睿华新投资合伙企业(有限合伙)and 珠海横琴旭睿华新投资合伙企业(有限合伙), the “Huaxin

8.   共青城凯昌投资管理合伙企业(有限合伙)

9.   China TH Capital Limited, a company established under the laws of British Virgin Islands, whose registered address is at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands (“TH Capital”).

 

Schedule A-4

 

Series A-2 Investors

 

1.   Z FINTECH INVESTMENT LIMITED, a company established under the laws of British Virgin Islands, whose registered address is at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands (“Z INVESTMENT” or “Zhongwei”).

2.   AMTD Fintech Investment Limiteda company established under the laws of Hong Kong, whose registered address is at 23/F-25/F, Nexxus Building, 41 Connaught Road Central, Hong Kong (“AMTD”).

3.   嘉兴宜朗坤瑞投资管理合伙企业(有限合伙)

4.   苏州极创金源创业投资合伙企业(有限合伙) 宿迁千山益阳投资管理合伙企业(有限合伙

 

Annex A

 

Definitions

 

58 Group” shall mean 58. com Inc. and its Subsidiaries and other entities Controlled by 58. com Inc.

 

Acknowledgement Letter” shall mean the acknowledgement letter issued by 58.com Inc. to Wuba Jinfu and 林芝腾讯科技有限公司 as of May 23, 2018.

Adherence Agreement” has the meaning ascribed to it in Section 6.1 of this Agreement.

 

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 without limiting the generality of the foregoing, in the case of a natural Person, shall include such Person’s spouse, parents, adult children and their respective spouse, siblings and their respective spouse.

 

Agreement” has the meaning ascribed to it in the introductory paragraph of this Agreement.

 

Board” shall mean the board of directors of the Company.

 

Business” shall mean the business of financing lease (融资租赁), micro-credit and mirco- lending (小额信贷), internet lending information intermediary (网络借贷信息中介), insurance (including but not limited to insurance agency, insurance sales and insurance assessment) ( 保 险业务(包括但不限于保险代理销售业务和保险公估业务)) and information diversion platform

(信息导流平台).

 

Business Day” or “business day” shall mean any day that is not a Saturday, Sunday, legal holiday or a day on which banks are required to be closed in the United States, the Hong Kong Special Administrative Region or the PRC.

 

Charter Documents” shall mean, with respect to a particular legal entity, the articles of incorporation, certificate of incorporation, formation or registration (including, if applicable, certificates of change of name), memorandum of association, articles of association, bylaws, articles of organization, limited liability company agreement, trust deed, trust instrument, operating agreement, joint venture agreement, business license, or similar or other constitutive, governing, or charter documents, or equivalent documents, of such entity.

 

Claim Notice” has the meaning ascribed to it in Section 3.8(c) of this Agreement.

 

Company” has the meaning ascribed to it in introductory paragraph A. of this Agreement.

 

Competitive Business” shall mean any business which is the same with or is similar with or is in competition with the Business of the Group Companies, subject to any adjustments in

 

accordance with this Agreement (including but not limited to Section 9.4 hereof and the Adjusted Competitive Business).

 

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 shares, voting securities, by contract or trust 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 directors holding a majority of the votes of the board of directors of such Person; the terms “Controlling” and “Controlled” (and their lower-case counterparts) have meanings correlative to the foregoing.

 

Conversion Shares” shall mean Ordinary Shares issuable or issued upon conversion of the Preferred Shares.

 

Director” shall mean a member of the board of directors of the Company. “Disclosing Party” has the meaning ascribed to it in Section 10.2 of this Agreement.

 

Domestic Company” or “Domestic Companies” is defined in the introductory paragraph

E. of this Agreement.

 

ESOP” has the meaning ascribed to it in Section 9.5 of this Agreement.

 

Exchange Act” shall mean the U.S. Securities and Exchange Act of 1934, as amended.

 

Final Prospectus” has the meaning ascribed to it in Section 3.8(d) of this Agreement.

 

First Participation Notice” has the meaning ascribed to it in Section 4.1(d)(i) of this

Agreement.

 

Form F-3” has the meaning ascribed to it in Section 3.2(e) of this Agreement.

 

Form S-3” has the meaning ascribed to it in Section 3.2(e) of this Agreement.

 

Founder Holdco” is defined in the introductory paragraph G. of this Agreement.

 

Governmental Authority” shall mean 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, Hong Kong or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.

 

Group Companies” shall mean Company, the HK Company, the WFOE, the PRC Companies and each Person (except individuals) Controlled by the Company and their respective Subsidiaries from time to time (each a “Group Company”), unless the text specifically indicates otherwise. For the avoidance of doubt, the Group Companies shall include but not limited to 天津

 

五八金服有限公司、成都银信宝信息技术有限公司、长沙五八同城信息技术有限公司、北京五八钱柜信息技术有限公司、成都银宝信诚信息技术有限公司、北京五八满鑫信息技术有限公司、天津五八融鑫信息技术有限公司、湖南五八金融服务有限公司、长沙五八小额贷款有限责任公司、伍捌(深圳)融资租赁有限公司、五八置业(成都)有限公司、成都华诚银宝保险公估有限公司、成都优快保网络科技有限公司、保得利(北京)科技有限公司、帮帮保险销售有限公司和攸县五八微服务鑫互联网金融信息有限公司.

 

Holder” has the meaning ascribed to it in Section 3.2(d) of this Agreement. “HK Company” is defined in the introductory paragraph B. of this Agreement.

 

ICC Rules” has the meaning ascribed to it in Section 11.12 (b) of this Agreement.

 

Initiating Holders” has the meaning ascribed to it in Section 3.3(b) of this Agreement.

 

Key Party” or “Key Parties” have the meaning ascribed to it in introductory paragraph G. of this Agreement.

 

Material Adverse Effect” means (i) a material adverse effect on the business, validly existing, properties, assets, employees, operations, results of operations, condition, liabilities, financial condition, prospects, property or results of operations of the Company or any other Group Company, which has or has sufficient evidence to suggest that will result the total loss of Group Companies exceed thirty percent (30%) of its consolidated net assets, or result in a decrease of total operating income of the Group Companies exceeded thirty percent (30%) of the total operating income of the current year predicted by the Founder; (ii) a material adverse effect on the licenses or the methods of the operation of the Business of Group Companies, which has or has sufficient evidence to suggest that will result in a reduction of the total operating income of Group Companies exceed thirty percent (30%) of the total operating income of Group Companies in the previous year, or the operation of a single or multiple main business categories may be terminated more than three (3) consecutive months or cannot sustain for more than three (3) consecutive months, the revenue of such single or multiple main business categories exceeds thirty percent (30%) of total operating income of all Group Companies in the previous year or the revenue of which predicted by the Founder may exceed thirty percent (30%) of total operating income of all Group Companies in current year; or (iii) a material impairment of the ability of the Company, any other Group Company to perform the material obligations of such Person hereunder or under any other Transaction Documents.

 

Majority Directors” shall mean more than two-thirds (2/3) of all Directors of the Company.

 

New Securities” has the meaning ascribed to it in Section 4.1(c) of this Agreement.

 

Non-Disclosing Parties” has the meaning ascribed to it in Section 11.2 of this Agreement.

 

Non-Executive Holder” is defined in introductory paragraph H. of this Agreement.

 

Non-Selling Shareholder” has the meaning ascribed to it in Section 4.2(b) of this Agreement.

 

on a fully-diluted and as-converted basis” shall mean assuming the conversion, exercise and exchange of all securities (including without limitation the Preferred Shares, Warrants, options under the ESOP), directly or indirectly, convertible, exercisable or exchangeable into or for Ordinary Shares.

 

Onshore Capital Increase Agreements” shall mean (i) the capital increase agreement by and among 林芝腾讯科技有限公司, the Founder, Wuba Jinfu and certain other parties dated as of May 23, 2018 (the “Onshore Pre-A Capital Increase Agreement”); (ii) the capital increase agreement by and among the Series A-1 Investors, the Founder, Wuba Jinfu and certain other parties dated as of September 10, 2018 (the “Onshore A-1 Capital Increase Agreement”); and (iii) the capital increase agreement by and among the Founder, Wuba Jinfu, certain Series A-2 Investors and certain other parties dated as of April 16, 2019 (the “Onshore A-2 Capital Increase Agreement”).

 

Ordinary Shareholders” shall mean the holders of the Ordinary Shares (excluding the Ordinary Shares converted from the Preferred Shares) of the Company.

 

Ordinary Shares” shall mean the ordinary shares of the Company, par value US$0.00001 per share.

 

Original Shareholder(s)” is defined in introductory paragraph H. of this Agreement.

 

Participation Rights Holder” has the meaning ascribed to it in Section 4.1(a) of this Agreement.

 

Party” or “Parties” is defined in the introductory paragraph of this Agreement.

 

PDF” shall mean Portable Document Format.

 

Permitted Transferee” has the meaning ascribed to it in Section 9.1 of this Agreement.

 

Person” means any individual, sole proprietorship, partnership, limited partnership, limited liability company, firm, joint venture, estate, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or governmental or regulatory authority or other enterprise or entity of any kind or nature.

 

PRC” shall mean the People’s Republic of China, excluding the Hong Kong Special Administrative Region, the Macau Special Administrative Region and the Islands of Taiwan.

 

PRC Companies” and “PRC Company” are defined in introductory paragraph D. of this Agreement.

 

PRC GAAP” shall mean the generally accepted accounting principles in the PRC.

 

Preferred Majority” shall mean holders representing more than fifty percent (50%) of the Series Pre-A Preferred Shares, the Series A Preferred Shares and the Series A Warrant Shares (on a fully-diluted and as-exercised basis) then outstanding, voting as a single class on an as converted basis.

 

Preferred Shares” shall mean the Company’s Series Angel Preferred Shares, Series Pre- A Preferred Shares, Series A Preferred Shares and/or other preferred shares of the company that may be issued from time to time. For the avoidance of doubt and only for the purpose of this Agreement, the Preferred Shares shall include the Series A Warrant Shares.

 

Preferred Shareholders” shall mean the holders of the Preferred Shares of the Company.

 

Pro Rata Co-Sale Share” has the meaning ascribed to it in Section 5.1(a) of this Agreement.

 

Pro Rata Share” has the meaning ascribed to it in Section 4.1(b) of this Agreement.

 

Qualified IPO” shall mean a public offering of Ordinary Shares of the Company (or securities representing such Ordinary Shares) registered under the Securities Act and with net proceeds (excluding underwriting discounts, commissions and stock transfer taxes applicable to a sale of securities) to the Company of at least RMB 1,000,000,000 and an implied, pre-money valuation of RMB 15,000,000,000 or more, or in a similar public offering of Ordinary Shares in a jurisdiction and on an internationally recognized securities exchange approved by Tencent and the Series A Preferred Majority.

 

Registrable Securities” has the meaning ascribed to it in Section 3.2(b) of this Agreement.

 

Registrable Securities then outstanding” has the meaning ascribed to it in Section 3.2(c) of this Agreement.

 

Restated M&A” shall mean the Second Amended and Restated Memorandum and Articles of Association of the Company in the form attached as Exhibit A to the Share Purchase Agreement, as amended from time to time.

 

Request Notice” has the meaning ascribed to it in Section 3.3(a) of this Agreement.

 

Request Securities” has the meaning ascribed to it in Section 3.3(a) of this Agreement.

 

Restructuring Agreements” shall mean all of the agreements and documents signed or to be signed by the WFOE, each Domestic Company and/or its respective shareholders on or prior to the date hereof, whereby substantially all of the Domestic Companies’ business operations shall be controlled by the WFOE and substantially all of the income generated by the Domestic Companies shall be transferred to the WFOE to the extent permitted by the applicable laws.

 

Right of Participation” has the meaning ascribed to it in Section 4.1(a) of this Agreement.

 

Rights Participants” has the meaning ascribed to it in Section 4.1(d)(ii) of this Agreement.

 

SEC” shall mean the U.S. Securities and Exchange Commission.

 

Second Participation Notice” has the meaning ascribed to it in Section 4.1(d)(ii) of this Agreement.

 

Second Participation Period” has the meaning ascribed to it in Section 4.1(d)(ii) of this Agreement.

 

Securities Act” shall mean the U.S. Securities Act of 1933, as amended.

 

Selling Shareholder” has the meaning ascribed to it in Section 4.2(b) of this Agreement.

 

Series A Director” has the meaning ascribed to it in Section 8.1 of this Agreement.

 

Series A Financing” shall mean any series A financing of the Group Companies (taken as a whole),  with a pre-money valuation of no more than RMB10,000,000,000 (or its US$ equivalents).

 

Series A Preferred Majority” shall mean the holders representing more than fifty percent (50%) of the Series A Preferred Shares (on a fully-diluted and as-exercised basis) then outstanding, voting as a single class on an as converted basis.

 

Series A Preferred Shares” shall mean the Series A-1 Preferred Shares, Series A-2 Preferred Shares and any Preferred Shares issued by the Company in Series A Financing of the Company, par value US$0.00001 per share. For the avoidance of doubt and only for the purpose of this Agreement, the Series A Preferred Shares shall include the Series A Warrant Shares.

 

Series A Warrant Shares” shall mean the Series A-1 Warrant Shares and the Series A- 2 Warrant Shares.

 

Series A-1 Preferred Shares” shall mean the series A-1 preferred shares of US$0.00001 par value per share in the capital of the Company. For the avoidance of doubt and only for the purpose of this Agreement, the Series A-1 Preferred Shares shall include the Series A-1 Warrant Shares.

 

Series A-1 Warrant Shares” shall mean the Series A-1 Preferred Shares issued upon the exercise of the applicable Series A-1 Warrant.

 

Series A-2 Preferred Shares” shall mean the series A-2 preferred shares of US$0.00001 par value per share in the capital of the Company. For the avoidance of doubt and only for the purpose of this Agreement, the Series A-2 Preferred Shares shall include the Series A-2 Warrant Shares.

 

Series A-2 Warrant Shares” shall mean the Series A-2 Preferred Shares issued upon the exercise of the applicable Series A-2 Warrant.

 

Series Angel Preferred Majority” shall mean the holders representing more than fifty percent (50%) of the Series Angel Preferred Shares (on an as-exercised basis) then outstanding, voting as a single class on an as converted basis.

 

Series Angel Preferred Shares” shall mean the Series Angel Preferred Shares, par value US$0.00001 per share.

 

Shareholders” shall mean the Ordinary Shareholders and the Preferred Shareholders (each a “Shareholder”), unless the text specifically indicate otherwise.

 

Share Purchase Agreement(s)” has the meaning ascribed to it in the recitals of this Agreement.

 

Shares” shall mean all Preferred Shares and all Ordinary Shares now owned or subsequently acquired by any shareholder. For the avoidance of doubt and only for the purpose of this Agreement, the Shares shall include the Series A Warrant Shares.

 

Spin-off Consideration” shall mean any considerations paid by any Group Company to 58 Group pursuant to the Spin-off Transaction Documents.

 

Spin-off Framework Agreement” shall mean (i) the “业务合作和权益安排之框架协议” dated as of September 2017 by and among Wuba Jinfu, the Founder, YANG Ning (杨宁) and 58.com Inc.; (ii) the supplemental agreement to the foregoing 业务合作和权益安排之框架协议” dated as of December 2017; and (iii) the supplemental agreement to the foregoing 业务合作和权益安排之框架协议” dated as of September 12, 2019.

 

Spin-off Transaction Documents” shall mean Spin-off Framework Agreement, the exhibits attached to the Spin-off Framework Agreement and any other documents and agreements entered into for the purpose of the transactions contemplated under the Framework Agreement before the date hereof and disclosed to the Investors.

 

Subsidiary” or “subsidiary” shall mean, with respect to any subject entity (the “subject entity”), (i) any company, partnership or other entity (x) more than 50% of whose shares or other interests entitled to vote in the election of directors or (y) more than a 50% interest in the profits or capital of such entity are owned or controlled directly or indirectly by the subject entity or through one (1) or more Subsidiaries of the subject entity, (ii) any entity whose assets, or portions thereof, are consolidated with the net earnings of the subject entity and are recorded on the books of the subject entity for financial reporting purposes in accordance with applicable accounting standards, or (iii) any entity with respect to which the subject entity has the power to otherwise direct the business and policies of that entity directly or indirectly through another subsidiary.

 

Tencent Restricted Person” shall mean such entity as listed in Exhibit C hereof and such list cannot be changed without the prior written consent of Tencent and the Board.

 

Terms” has the meaning ascribed to it in Section 10.1 of this Agreement.

 

Transaction Documents” shall mean this Agreement, the Share Purchase Agreements, the Warrants, the Restated M&A, the Onshore Capital Increase Agreements, the Restructuring Agreements, the exhibits attached to any of the foregoing and any other document, certificate, and agreement delivered in connection with the transactions contemplated hereby and thereby.

 

Transfer Notice” has the meaning ascribed to it in Section 4.2(b) of this Agreement.

 

Transfer Shares” has the meaning ascribed to it in Section 4.2(b) of this Agreement.

 

U.S. GAAP” shall mean the generally accepted accounting principles in the United States.

 

Violation” has the meaning ascribed to it in Section 3.8(a) of this Agreement.

 

Warrant(s)” has the meaning ascribed to it in Recitals.

 

Warrantors” the Key Parties and the Group Companies.

 

WFOE” is defined in introductory paragraph C. of this Agreement.

 

 

Exhibit 8.1

 

List of Principal Subsidiaries and Consolidated Variable Interest Entities of 58.com Inc.*

 

Name

    

Jurisdiction of Incorporation

 

 

 

Subsidiaries:

 

 

China Classified Network Corporation

 

British Virgin Islands

China Classified Information Corporation Limited

 

Hong Kong

Beijing Chengshi Wanglin Information Technology Co., Ltd.

 

PRC

58 Tongcheng Information Technology Co., Ltd.

 

PRC

Ruiting Network Technology (Shanghai) Co., Ltd.

 

PRC

Anjuke Inc.

 

Cayman Islands

Anjuke Hong Kong Limited

 

Hong Kong

58.com Holdings Inc.

 

British Virgin Islands

Falcon View Technology

 

Cayman Islands

fVision Technology Limited

 

Hong Kong

Beijing Yangguang Gudi Science Development Co., Ltd.

 

PRC

Magic Heart Inc.

 

British Virgin Islands

Zhuan Spirit Holdings Limited

 

Cayman Islands

Zhuan Vision Holdings Limited

 

Hong Kong

Tianjin Zhuanzhuan World Technology Co., Ltd.

 

PRC

 

 

 

Consolidated Variable Interest Entities and Their Subsidiaries:

 

 

Beijing 58 Information Technology Co., Ltd.

 

PRC

Shanghai Ruijia Information Technology Co., Ltd.

 

PRC

58 Co., Ltd.

 

PRC

Beijing 58 Auto Technology Co., Ltd.

 

PRC

Beijing Shanjing Kechuang Network Technology Co., Ltd.

 

PRC

Beijing Zhuanzhuan Spirit Technology Co., Ltd.

 

PRC

 

 

 

Unconsolidated Subsidiaries**:

 

 

58 Daojia Inc.

 

British Virgin Islands

58 Daojia Limited

 

Cayman Islands

58 Freight Inc.

 

Cayman Islands

 

Notes:

 

 

*             The registrant has omitted from this list its other consolidated entities of the registrant that, in the aggregate, would not constitute a significant subsidiary as defined in Rule 1-02(w) of Regulation S-X as of December 31, 2019.

 

 

**           58 Daojia Inc., or 58 Home, is the holding company of the PRC entities that operate 58 Home business. On November 27, 2015, 58 Home completed a Series A equity funding round, with participation from third-party investors. As of December 31, 2019, 58.com Inc. held 87.9% of the total outstanding ordinary shares of 58 Home and 68.8% of the total outstanding shares of 58 Home on an as-converted basis. As certain rights provided to the noncontrolling Series A preferred shareholders of 58 Home would be viewed as substantive participating rights under U.S. GAAP, we have ceased consolidating the financial results of 58 Home in our consolidated financial statements in accordance with U.S. GAAP since November 27, 2015.

 

Exhibit 12.1

 

Certification by the Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Jinbo Yao, certify that:

 

1.            I have reviewed this Annual Report on Form 20-F of 58.com Inc. (the “Company”);

 

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the period presented in this report;

 

4.            The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)          Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)          Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

 

5.            The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

Date: April 29, 2020

 

 

 

 

By:

/s/ Jinbo Yao

 

Name:

Jinbo Yao

 

Title:

Chief Executive Officer

 

 

Exhibit 12.2

 

Certification by the Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Wei Ye, certify that:

 

1.            I have reviewed this Annual Report on Form 20-F of 58.com Inc. (the “Company”);

 

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the period presented in this report;

 

4.            The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)          Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)          Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

 

5.            The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

Date: April 29, 2020

 

 

 

By:

/s/ Wei Ye

 

Name:

Wei Ye

 

Title:

Chief Financial Officer

 

 

Exhibit 13.1

 

Certification by the Principal Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Annual Report of 58.com Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jinbo Yao, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: April 29, 2020

 

 

 

 

By:

/s/ Jinbo Yao

 

Name:

Jinbo Yao

 

Title:

Chief Executive Officer

 

 

Exhibit 13.2

 

Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Annual Report of 58.com Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wei Ye, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)       The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: April 29, 2020

 

 

 

 

By:

/s/ Wei Ye

 

Name:

Wei Ye

 

Title:

Chief Financial Officer

 

 

Exhibit 15.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 333-194873, File No. 333-205011 and File No. 333-229098) of 58.com Inc. of our report dated April 29, 2020, relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 20-F.

 

 

 

/s/ PricewaterhouseCoopers Zhong Tian LLP

 

Beijing, the People’s Republic of China

 

April 29, 2020

 

 

Exhibit 15.2

 

PICTURE 1

 

9/F, Office Tower C1, Oriental Plaza, 1 East Chang An Avenue
Beijing 100738, P. R. China
Tel: +86 10 8525 5500  Fax: +86 10 8525 5511 / 8525 5522
Beijing · Shanghai · Shenzhen
· Hong Kong
www.hankunlaw.com

 

Date: April 29, 2020

 

58.com Inc.

 

Building 105, 10 Jiuxianqiao North Road Jia|
Chaoyang District
Beijing 100015
People’s Republic of China

 

Dear Sir/Madam:

 

We hereby consent to the use of our name and the summary of our opinion under the captions, “Risk Factors” in Item 3 and “Organizational Structure” in Item 4, included in the annual report of 58.com Inc. on Form 20-F for the fiscal year ended December 31, 2019 (the “Annual Report”), which will be filed with the Securities and Exchange Commission in the month of April 2020, and further consent to the incorporation by reference of the summaries of our opinions under these captions into Registration Statements on Form S-8 (File No. 333-194873, File No. 333-205011 and File No. 333-229098) of 58.com Inc. We also consent to the filing with the SEC of this consent letter as an exhibit to the Annual Report.

 

Yours Sincerely,

 

 

 

 

/s/ Han Kun Law Offices

 

Han Kun Law Offices